One of Europe’s leading financial services regulators has said the marketneeds to accept that the Solvency Ii system will not be fully in place by the 1 January 2013 due date.

Matthew Elderfield, Deputy Governor of the Central Bank of Ireland, told delegates at the European Insurance Forum in Dublin that the publication of Omnibus II which put some of the elements of Solvency II in a transition period of up to a decade meant that the 1/1/13 date would see the rump of the regulations imposed but not all.

When asked what he believed the regulatory market would look like in 18 months he described it would be a “strong and risk based system.”

He said the market had challenges still to face in terms of the solvency regime and that there was still a clear effort by many insurance regulators to ensure that the regulatory regime which was being imposed on the banking sector would not simply be Xeroxed onto the insurance market.

He also warned that underwriters may well need to be careful as to the amount of risk they place with a single reinsurer and debated as to whether there was a case to view some reinsurers as posing a systemic risk to the financial markets given their size and market share.

Speaking on the impact of Solvency II on the Irish insurance market, he said: “Should large reinsurers be deemed systemically important due to the fact that they are connected to cedant insurers? I would suggest that this is another area for thinking carefully about which way round to look at the problem.

There is certainly a valid question regarding the extent to which one or more large reinsurers could pose a systemic risk by, through their failure, transmitting financial problems to cedant insurers who might suddenly face the loss of reinsurance cover and have a weakened balance sheet.”

He said that ensuring all cedant insurers have prudent limits on concentration to reinsurers would, on the face of it, be a more straightforward policy response.

Mr Elderfield also said that interconnectedness could be tackled by looking at alternative policy responses such as reviewing the adequacy and international consistency of investment and reinsurance concentration standards.

The regulator said not only would the number of staff at the regulator be doubled by next year, but said that banking regulation should not be.