Almost 90% of European insurers would be ready for Solvency II if the implementation date was changed to 1 January 2015, but 34% of German, 17% of Italian and 13% of Spanish insurers do not think they will be ready to comply until after that date.
The current deadline is still 1 January 2014, but 43% of respondents to Ernst & Young's European Solvency II survey said they will not be ready by then.
The survey of 160 large insurers found that those in the UK and the Netherlands are the most prepared, with most British, Dutch, Polish and Spanish insurers (70-90%) saying they expect to meet the current start date. Many Belgian, French, German and Italian insurers (60-70%), on the other hand, said they won't be ready until after 1 January 2014.
Pillar 3 was named as the biggest challenge, with 80% of respondents saying they have made little progress. Insurers in Britain, France and the Netherlands are relatively well prepared in comparison to others, but even in those markets 60% to 70% of insurers said they have yet to meet most of the requirements for pillar 3.
Readiness for pillar 1 was fairly consistent across Europe, with insurers in almost all countries saying that they will meet most pillar 1 requirements. Readiness for pillar 2 is more divided - insurers in the UK, Germany and the Netherlands said they are confident that most requirements will be met but the rest of the market is only on track to partially meet the requirements, according to the survey.
"We know from those organisations that have started their pillar 3 projects, the emerging data deficiencies and significant process, control and IT challenges present an ambitious target to achieve within the current timeframes," said Martin Bradley, partner in financial services and global Solvency II lead at Ernst & Young.
Only 17% of respondents said they have assessed their risk management systems and determined their effectiveness in relation to outcomes.
"There is a risk that respondents have overestimated their readiness for pillar 2, perhaps by placing greater emphasis on the existence and nature of a component than on the effectiveness of their risk management systems," said Bradley.
Nearly 69% of insurers said they have only met some or have not yet met any of the Solvency II data management requirements. Eighty-one percent said they are struggling in particular with data integration standards and their applications across group and external partners.
Jan Leiding, partner in financial services at Ernst & Young said: "Making the data landscape work requires firms to integrate multiple complex IT systems and is a massive challenge. The survey shows that progress in implementing appropriate ownership, governance and controls is particularly slow. The shifting Eiopa [European Insurance and Occupational Pensions Authority] deadlines have offered excuses but these will be viewed as fundamental failings and now require prompt attention."
Most of the insurers surveyed (70%) said they plan to focus on a range of capital optimisation strategies during 2013 and beyond, and almost 50% said they are already working on asset matching and hedging strategies and counterparty credit risk management.
"Capital optimisation is too important for insurers to wait for either complete certainty in the rules or a full set of metrics to explore opportunities," said Bradley. "Instead they are engaging in activity where the impact is either relatively certain or where they see an opportunity to mitigate a negative impact of Solvency II."
The survey was conducted from June to September 2012 across 19 countries in Europe. Most insurers surveyed has a premium income of €100m ($130m).