EC to put back Solvency II start date and adopt transitional measures

The planned extension date, which means implementation will now come into force on 31 December 2012, is to ensure better alignment with the end of the financial year for the majority of insurance undertakings. The proposals also include the provision of more specific tasks for EIOPA relating to Solvency II, such as ensuring harmonised technical approaches on the use of ratings in relation to the Solvency Capital Requirements. The news came through the publication of the European Commission’s Omnibus II - a document interwoven into the Solvency II regulation. It enables the European Commission to fast-track changes to some areas of insurance supervision and regulation without the need to go the European Parliament. PricewaterhouseCoopers, whilst welcoming the extra time given to insurers to comply with Solvency II, are concerned that it may add further complexity to their implementation plans. hide“Through Omnibus II the implementation date of Solvency II has been set as 31 December 2012, ending any speculation around a further delay. While the announcement has provided clarity around deadlines, it has inevitably added another layer of complexity to insurers' implementation plans. Companies will need to understand the full impacts of Omnibus II for their Solvency II projects and effective early analysis could bring competitive advantages,” said Charles Garnsworthy, insurance partner at PwC. PwC are fully supportive of the transitional measures that are planned to enable a smoother Solvency II implementation process for EU and non-EU insurers and regulators. “The European Commission and EIOPA have clearly recognised the need for transitional arrangements in a number of key areas such as equivalence, valuation, governance and supervisory reporting and public disclosure. It was unrealistic to expect the estimated 3,600 insurers who fall under Solvency II’s scope to be 100 percent compliant by 1 January 2013 and the introduction of these transitional measures will allow insurers and regulators time to fully comply with the directive. It will also open up the possibility of the regulatory regimes of a country such as the US, that does not fully satisfy all the requirements but yet still has a reputable regime, being recognised under the Solvency II directive," said Mr Garnsworthy. Following the launch of EIOPA, the new pan-European insurance supervisory authority, earlier this month the European Commission also proposed yesterday to make changes to insurance and securities-based legislation in order to ensure that the authorities can work effectively. In particular they set out in detail the scope for authorities to exercise power, which includes the possibility of developing draft technical standards and settling disagreements between national supervisors. "The financial crisis in Europe exposed weaknesses in the supervision of financial markets, which the new EU financial supervisory structure intends to correct. Today's proposal is an important building block to ensure that the new supervisory bodies will run smoothly. By giving the new supervisors a clearly defined mandate and bringing existing legislation in line with that mandate, the Commission further delivers on the promise of creating more solid and stable markets and mitigating future crises," said Michel Barnier, Commissioner for DG Internal Market and Services. EIOPA is one of three new pan-European Financial Supervisory Bodies (ESAs) created on Jan 1 for the banking, financial markets and insurance and pensions sectors, a few days after the creation of the European Systemic Risk Board (ESRB). The new bodies will work closely with the ESRB to prevent any future crises. They will not replace national authorities, but are responsible for coordinating, monitoring and if need be arbitration between national authorities, said the Commission. EIOPA replaces CEIOPS and in order for it and the other ESAs to work effectively changes to existing financial services directives are necessary, the EC said. The areas in which amendments are necessary fall broadly into three categories. The definition of the appropriate areas in which the authorities will be able to propose technical standards as an additional tool for supervisory convergence and with a view to developing a single rule book to ensure strengthened stability, equal treatment, lower compliance costs and to prevent regulatory arbitrage. Detailing how the authorities will settle disagreements between national supervisors in a balanced way, in those areas where common decision-making processes or cooperation between national supervisors already exist in sectoral legislation And general amendments, which are necessary for the existing directives in the financial services sector to operate in the context of new authorities, for example, renaming the level 3 committees as the new authorities and ensuring the appropriate gateways for the exchange of information are present. The trio of new ESAs have taken over all of the functions of the previous committees, and in addition have certain additional competences. They include developing proposals for technical standards to better define common standards for the application of legislative acts and resolving cases of disagreement between national supervisors, where legislation requires them to cooperate or to agree. They will also contribute to ensuring consistent application of existing and future technical EU rules through, for example, peer reviews and play a coordination role in emergency situations.

EC to put back Solvency II start date and adopt transitional measures

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