Although there's a strong sense in the London Market that Solvency II has almost gone away, 2013 already looks as if it will generate a large amount of Solvency II implementation work:1) The Long-Term Guarantee Assessment:
in July 2012, the trilogue parties (the European Parliament, the Council of Europe, and the European Commission) asked the European Insurance and Occupational Pensions Authority (EIOPA
) to assess the potential impact of the Long-Term Guarantee Package (LTGP
) on policyholders and firms, before they decide what type of LTGP they will include in Omnibus II (if any). EIOPA's Long-Term Guarantee Assessment (LTGA) begins on 28 January 2013. Participating firms will be asked to submit their results to national supervisors before the end of March 2013; and EIOPA's Report will be available in June 2013.
EIOPA hasn't published its terms of references for the Assessment, but it's widely thought that it will include the counter-cyclical premium; the matching adjustment; the extrapolation of the risk-free rate; and transitional measures. Nor has EIOPA published the whole of the technical specifications firms will be expected to use when they prepare their Assessment Returns. (Part 1 of the technical specifications were published on 18 October; and materially revised and republished on 21 December 2012; but Part 2 - which will include the LTGP specifications - is still not available.) Further, it's not yet clear which firms will be invited - or required - to participate, and whether the invitation will be at the national regulators' discretion, or not. The biggest practical concern for most participating firms is that the LTGA coincides with the preparation of their year-end regulatory returns, making it difficult (at best) to prepare a second set of returns for EIOPA.
Part 1 of the technical specifications is available here
; and EIOPA's press statement on the LTGP Assessment is available here
.2) Finalising Omnibus II, and bringing it into force:
When EIOPA's Report has been finalised, the trilogue parties will meet to negotiate and agree the final text of Omnibus II. But Omnibus II will only be made when it's adopted by the European Parliament and Council. The European Parliament has "pencilled in
" its Omnibus II plenary vote for 10 June 2013, but it seems likely that this will slip to July or September (allowing for the summer recess). When Omnibus II's been made and finally comes into force, EIOPA will be able to release its draft Technical Standards and Guidelines for what's likely to be an abridged Consultation period. We anticipate that Consultation will begin before the end of the year. If it does, Solvency II's Pillar 1 could be in force in 2015.3) Implementing Solvency 1½:
in the meantime, EIOPA has said
that it would like to see most of Pillar 2, and some of Pillar 3 in force from 1 January 2014. To enable that to happen, it's proposing to issue "comply or explain" Guidelines for consultation in March or April 2013. These Guidelines will be addressed to the supervisory authorities of the European Member States. These authorities will be "expected to ensure that insurance and reinsurance undertakings have in place an effective system of governance which provides for sound and prudent management of the [firm] and an effective risk management system including a forward looking assessment of the [firm's] own risks (based on the ORSA principles)". National competent authorities will also be expected
to review and evaluate firms' systems, and work closely with them on their internal models - especially as the internal model framework continues to evolve.
The Commission's Guidelines Consultation will be open for 6 weeks. The European Member States will be expected to comply with them from 1 January 2014, or explain why they're not. EIOPA will publish the Member States' explanations on its website in due course.
Although this piecemeal approach will not be welcomed by everyone, it does at least allow firms that have invested heavily in Solvency II to see a return on some of their work. As one might expect, the UK's FSA already looks as if it's ahead of the game, and that will also be helpful to some especially if it means they can use (eg) their internal model to calculate their capital requirements, instead of having to double run them with the ICAS regime. Germany, France, the Netherlands, Luxembourg and Malta are likely to follow suit.
In the circumstances, and although Solvency II clearly withered on the vine last year, green shoots are already beginning to appear.
Edwards Wildman Palmer UK LLP
Direct: +44 (0) 207 556 4626