DUBLIN—Insurance buyers may see Solvency II spur their insurers to offer products that would not have made it to market but for the risk-based capital framework scheduled to go into effect in 2012, a regulator suggests.

“Solvency II allows a lot more freedom in products,” said Tony Jeffrey, deputy head of insurance supervision at the Central Bank & Financial Services Authority of Ireland in Dublin. “Essentially, you can take what risks you like, provided you are adequately controlling them and you've got adequate capital.”

Speaking at the European Insurance Forum 2010 in Dublin sponsored by the Dublin International Insurance & Management Assn., Mr. Jeffrey said “it is to be expected that more companies will at least consider taking risks” not previously taken. “The market will change.”

Solvency II, scheduled for implementation in October 2012, also will change the prices buyers pay for coverage, Mr. Jeffrey told attendees.

“For some products, capital requirements will go up; for some products, capital requirements will go down,” Mr. Jeffrey said. “It is expected that pricing criteria will follow accordingly.”

Insurers already should be considering how Solvency II requirements will affect their pricing. “Otherwise, you could be caught offside when other companies innovate before you do,” he warned insurers.

“There are an awful lot of strategic issues that need to be considered by companies” as the compliance deadline approaches, he said. “Solvency II affects every aspect of an insurance company. It's going to change all the rules. It's going to change how you do business.”

Mr. Jeffrey and other speakers at last week's forum noted that insurers are beginning to feel the pressure of complying with Solvency II.

“To some extent, even though Solvency II has been going on for the past couple of years, the work is now only really beginning,” said Brian Morrissey, head of the insurance and actuarial practice at KPMG in Dublin.

Insurers are deciding whether to use an internal model to calculate their capital requirements and, if so, how that model should function, Mr. Morrissey said. They also are assessing the proper governance, risk and internal controls that need formal adoption to comply with Solvency II, he said.

Mr. Jeffrey said insurers that haven't done so need to prepare an own-risk-and-solvency assessment as called for under the proposed framework. Completing the ORSA establishes an insurer's solvency needs, risk tolerance and compliance with solvency and technical provisions of Solvency II.

At another session during the forum, Matthew Elderfield, head of financial regulation at the Central Bank & Financial Services Authority in Dublin, said captives may be particularly concerned about ORSA obligations and his office is prepared to provide some guidance.

“We're prepared to work with DIMA to assess a handful of captives' ORSAs on a pilot basis and use this for broader industry feedback,” Mr. Elderfield said. “This way DIMA's members will have a clearer picture of what we view as good practice and where we think more work is needed.”

Captives “will receive a fair hearing from my staff” if they take the time to put together a “sensible assessment,” said Mr. Elderfield. “Frankly, if the first effort isn't great, we're prepared to be pragmatic and work with firms in an iterative process to see that the ORSA is improved over time.”

Lloyd's of London already is in good shape to meet Solvency II's compliance deadline, said Sean McGovern, director, general counsel at Lloyd's. “One of the difficulties, of course, is at the moment we are trying to implement something when the details are far from clear.”

Mr. McGovern criticized the Committee of European Insurance and Occupational Supervisors' advice to the European Commission regarding Solvency II as heavy-handed.

“I think it is unfortunate that the CEIOPS approach has been so penal” and distracting from more significant implementation issues, Mr. McGovern said.

Mr. Jeffrey took issue with that characterization.

“Whether or not the CEIOPS-suggested requirements were conservative, too conservative or not conservative enough is to be debated,” he said. “But I never see it as penal to be asked to hold lots of capital. That's not penal.”

“Well, in Lloyd's case it would be over double our existing capital requirement,” said Mr. McGovern. “I think what I'm comforted by is if you talk to policymakers in Europe, what they are saying is that they believe the industry in Europe is adequately capitalized. I don't think they are anticipating that Solvency II is going to see a massive increase in capital whether you describe it as penal or otherwise.”