EIOPA paves way for Solvency II with transition rules from 2014

Aimed at ensuring a smooth transition towards the eventual implementation of the full risk-based capital adequacy regime, EIOPA said national regulators will be asked to comply with the final guidelines due this autumn or explain why they are not doing so. The public consultation ends on 19 June. The guidelines met with a mixed response from commentators. Some claim that the proposed interim measures that will see key aspects of Solvency II phased in are an important step towards final implementation of the directive. Others were quick to warn that the reporting proposals in the guidelines, which focus on the risk management and governance aspects of Solvency II rather than capital requirements, are more onerous than expected.hideSolvency II was due for implementation next year but due to political wrangling over certain measures, including long-term guarantee assessments for life insurers, is now not expected to come into force until January 2016 at the earliest. Despite these delays and some fears over whether the directive will ever get off the ground Gabriel Bernardino, Chairman of EIOPA, said he was confident the guidelines would not become a 'de facto' Solvency II regime. EIOPA said the proposed guidelines are rather an attempt to support both National Competent Authorities (NCAs) and risk transfer companies under their supervision in their preparation for Solvency II. The proposed rules focus on systems of governance-Solvency II's Pillar II and III requirements-including risk management, forward looking assessment of regulated companies' own risk and submission of information to regulators. EIOPA said that although the guidelines will apply from 1 January, 2014, they allow for some flexibility and expect a 'phasing in' period. They are a first step to ensuring a consistency of implementation for Solvency II, said EIOPA. NCAs are expected to ensure that insurance companies and groups take active steps towards implementing measures addressed in the guidelines so they are ready to fully comply with Solvency II. "We want an evolution so that when Solvency II comes in neither insurers nor companies can say they were not prepared. This is preparation for both sides-not only the industry but also the supervising authorities. NCAs must use this time before implementation of Solvency II to be better acquainted with supervising in a risk-based system," said Mr Bernardino in a press call yesterday. "The guidelines will be issued directly to the national supervisors and it is up to them to comply or explain why they cannot. So it is not just an expectation it is more than that," he added. EIOPA said it will be up to NCAs to determine how they comply with the guidelines and incorporate them into their regulatory or supervisory framework in an appropriate manner. However, EIOPA made clear that the guidelines should be applied in a proportionate manner and in particular with regard to the burden on small and medium-sized undertakings. Mr Bernardino said: "These guidelines are an important step towards consistent and effective supervisory practices in the preparation for the Solvency II implementation. They will play an important role in supporting the good function of the internal market in the insurance sector and will ensure a higher quality of information. I welcome all contributions from the different stakeholders." The consultation and move towards a transitional implementation phase for Solvency II was welcomed by Paul Clarke, Partner and Global Insurance Regulatory Leader at PwC. "The release of this consultation represents a very positive step in the move towards Solvency II implementation. It is important that despite a potential delay to the start date momentum is not lost," he said. "The guidelines will help bring consistency to the way supervisors will act during the interim period before a formal Solvency II start. EIOPA has set out thresholds within the guidelines in terms of market application, however the consultation will be interesting to the wider market as it will represent how Solvency II may look in the long run," he added. However he noted that aspects of the guidelines, particularly its quarterly reporting requirement, could be a challenge for some companies. KPMG's Insurance Director, Janine Hawes, said that the proposed level of reporting is more extensive than had been expected. "It is not restricted solely to narrative information, but includes a significant proportion of the quantitative reporting templates (QRT) that would apply once Solvency II comes into force. Most of the insurance industry will be affected, with EIOPA proposing that the annual templates are provided to local regulators by 80% of the local insurance market and the quarterly templates by 50%," she explained. This will place a 'significant' administration burden on insurance firms and groups, she added.

EIOPA paves way for Solvency II with transition rules from 2014

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