Ferma welcomes SII deal but remains cautious over captive treatment

Other stakeholders have also given the deal a thumbs up but warned that hurdles remain for Solvency II. Speaking to Commercial Risk Europe, Julia Graham, President of Ferma, said the agreement between the European Parliament, Council and Commission takes 'us out of uncertainty for the time being at least'. "It creates a momentum and brings some stability for all the stakeholders involved in Solvency II: insurers, policyholders and investors. The timeline is now clear: vote before the election in May 2014 and January 2016 as the 'go live' date for Solvency II," she said.hideThe EU Council said last week that the agreed changes to Solvency II laid out in Omnibus II need to be endorsed by EU member states next year and if passed would then allow Solvency II to become operational in 2016. As Ms Graham explained, the deal paves the way for the Commission to prepare Solvency II implementing measures for the summer of 2014, detailing how the regime will work in practice. But she noted this is 'quite a short period of time'. "Ferma will remain cautious about the outcomes of these Level 2 measures, especially regarding the treatment of captives," she said. Other stakeholders and experts welcomed the political deal but warned that much work lies ahead before the final shape of Solvency II is confirmed and the regime introduced. Guy Soussan, Partner with Brussels law firm Steptoe & Johnson LLP, told Commercial Risk Europe that while the deal on the Omnibus II Directive will finally make the new EU insurance regulatory framework operational, 'significant work' still needs to be completed by 1 January, 2016-the date agreed for Solvency II's application. The framework still requires numerous level 2 measures and guidelines to be sorted out by that key deadline, he said. Only once EIOPA and the Commission finalise all the technical rules will insurers be able to assess their level of compliance with the new regime, he continued. "As the Commission has indicated that they will not be adopted before Q3 next year, insurers will need to work on a rather tight schedule to be fully prepared for the application of Solvency II in 2016," said the insurance lawyer. A tight timeframe for finalising the Solvency II preparations is not the only challenge facing insurers. Solvency II must be transposed into 28 EU member states' laws-plus Iceland, Liechtenstein and Norway-so insurers may find that at the beginning of 2015 national 'tweaks' have been added in the transposition process, said Mr Soussan. These 'cast doubt on the feasibility of regulatory and supervisory convergence', he added. "Therefore, the risks of national 'gold plating' and of unilateral interpretation by solo and group supervisors are unlikely to disappear even when all the new rules become effective in 2016," he warned. AM Best said yesterday that the agreement on Omnibus II is a 'major development'. It clarifies the treatment of problem areas within the new legislation such as how much capital is needed to back long-term guarantees on life and health products, said the rating agency in a report. "AM Best believes it is imperative that the momentum continues with Solvency II, and that further delays in its implementation would be detrimental to the insurance industry," it said. The report adds insurers highly-rated by AM Best would like Solvency II to become live as soon as possible. Fitch cautioned that although the political deal is a step towards hitting the planned January 2016 Solvency II start date, it is likely to leave some major insurers dissatisfied. Therefore negotiations with the industry are likely to continue, it added. The latest amendments to Omnibus II are largely based on EIOPA's long-term guarantees assessment study that Fitch believes did not satisfy many insurers. "EIOPA's study was intended to clarify appropriate capital requirements for long-term guaranteed products under volatile and exceptional market conditions. However, we understand that several major insurers considered the study to be inconclusive because the scenarios underlying the assessment were not, in their opinion, meaningful," said the rating agency. Insurance Europe called the agreement an important milestone in the path towards Solvency II. Its president, Sergio Balbinot, said: "Insurance Europe commends the EU institutions for reaching agreement on Omnibus II. It was important for Omnibus II-which updates the Solvency II Directive of 2009-to be finalised now, as a great deal of work remains to be done on the technical details of the new regime before insurers and supervisors can be ready to apply it from the start of 2016." He pointed out that insurers will have very little time between the finalisation of the delegated acts and technical standards, which provide important details on technical matters under Solvency II, and the proposed application date. He said Europe's insurers will do their utmost to meet the ambitious timetable. "While the compromise reached between the institutions on Omnibus II is not the ideal solution the insurance industry would have wished for in terms of correctly reflecting insurers' long-term business and low exposure to market volatility, we do believe it is a workable base from which to develop the technical details of the new regulatory regime," said Mr Balbinot. According to Barnett Waddingham the agreement and expected 2016 start date for Solvency II is 'the kick in the backside' needed by the insurance industry. Kim Durniat, Partner, Barnett Waddingham said: "It is good to see that Solvency II is back on track and that comprehensive rules have been established which are projected to be manageable for even small and medium-sized insurers. Such proposals include the refinement of long-term guarantee (LTG) measures, to deal with the volatile and low interest rate environment." The timetable set out in the latest agreement is ambitious, but workable for most insurers, he added.

Ferma welcomes SII deal but remains cautious over captive treatment

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