LONDON—Lloyd's of London syndicates face a busy year preparing to meet Lloyd's deadline of being ready to implement Solvency II, experts say.

Lloyd's published its latest “dry run” timetable last month for participants to prepare for implementation of Europe's risk-based capital rules for insurers and reinsurers.

Despite the draft European Union Omnibus Directive that could extend the time beyond the end of 2012 to fully adopt the Solvency II rules, Lloyd's decided—after consulting with Lloyd's Market Assn., which represents managing agencies—that it “should continue to press forward under the current timetable, in the absence of further information on transitional arrangements” (BI, Feb. 14).

Lloyd's said it intends to submit an application to use a marketwide internal capital model to regulators by Jan. 31, 2012, and is requiring the roughly 80 syndicates in the market to provide details of their capital requirements under Solvency II by Oct. 31, 2011, among other deadlines.

While Solvency II will provide a formula for a standard capital model, it likely will not reflect the characteristics of certain business insurance lines or reinsurance programs, so many complex insurance companies are seeking approval of their own capital models to meet the Solvency II requirements.

As part of the dry-run process, Lloyd's has planned a series of workshops to offer guidance to syndicates preparing for Solvency II, but experts say Lloyd's timetable will prove to be a challenge for the syndicates.

“Even those syndicates who are best prepared are likely to be anxious about the volume of work required in the coming months,” said Charl Cronje, a partner at London-based actuarial firm Lane, Clark & Peacock L.L.P.

Syndicates must submit preliminary information on technical provisions under Solvency II to Lloyd's by May and preliminary information on the solvency capital requirement by July.

“In only eight months time, each syndicate will need to submit a full and robust solvency capital requirement,” said Mike Wilkinson, a management consultant at Towers Watson & Co. in London.

But he warned managing agents not to shift their focus away from the governance aspects of Solvency II. He said regulatory approval of an internal model will depend on the processes and the validation methods used as well as integrating the model into the day-to-day functioning of the business.

While the dry-run process will be a challenge for businesses, Lloyd's has been preparing the market for Solvency II, said David Wong, an insurance partner at PricewaterhouseCoopers L.L.P. in London.

“This is something the market has been expecting,” he said.

The dry-run process is a sensible one, Mr. Wong said, as Lloyd's will have to show regulators that every syndicate in the market is “ready to play their part.”

He said Lloyd's is taking into account the “principle of proportionality” enshrined in Solvency II, which also will apply to captive insurance companies among others, and smaller syndicates will not need to use capital calculations that are as complex and robust as their larger counterparts.

While the Omnibus Directive may delay implementation of certain aspects of Solvency II, Lloyd's has been wise to keep its timetable, he said.

Implementing Solvency II is expected to take substantial time and resources.

In January, Lloyd's chairman, Lord Peter Levene, said the market likely would spend £300 million ($483.5 million) to implement Solvency II.

Just for Beazley P.L.C., which operates a syndicate that is among the 10 largest at Lloyd's, Group Finance Director Martin Bride said the company would spend £4.6 million ($7.4 million) and devote 4,000 hours of technical and management time to prepare for Solvency II during the next three years.

In an LMA survey last year, the 50 managing agencies that responded said their actuarial resources had increased 49% during the past three years, due primarily to Solvency II.

Last week, Robert Hiscox, chairman of Bermuda-based Hiscox Ltd., said the challenges of Solvency II for all involved “can be summed up by the fact that our application for approval under Solvency II is expected to reach 5,000 pages, and it is thought that the Financial Services Authority will receive over 100 similar applications.”

Hiscox, which also operates one of the 10 largest syndicates at Lloyd's, said it expects to implement a Solvency II approach across the whole company.

In addition, Bermuda is seeking regulatory equivalence with Solvency II.