The implementation of Solvency II could be
delayed until 2015 – a year later than originally planned – with
such a scenario leading industry commentators to express their
disappointment and frustration at the European Union (EU).

The current application dates of the new
solvency II rules are 30 June 2013 for EU member states to
transpose the rules into national law, and 1 January 2014 for
companies to apply the new rules.

However, Life Insurance International
understands that wrangling between European co-legislators and
Michel Barnier, the EU commissioner responsible for the internal
market and services, means the issue of Solvency II’s entry into
force will need to be clarified by all parties over the coming
weeks.

One key issue raised by various parties at the
negotiations concerns long term guarantee measures.

For Solvency II, Barnier suggested to the
co-legislators that the European Insurance and Occupational
Pensions Authority (EIOPA) could carry out an impact study on long
term guarantees, before concluding the current negotiations (on
Omnibus II). That impact study could be ready in March 2013; under
this scenario negotiations in the trilogue could be wrapped up
fully at that time.

EIOPA has indicated that it stands ready to
carry out such a study by March 2013.

Barnier also stressed that the other issues
that are being negotiated should be wrapped up quickly, so that the
only remaining outstanding issue would be the calibration of risks
attached to insurance products in view of their importance for long
term investment. The co-legislators will now consider this
scenario.

 Life Insurance International understands
that it is too early to say today whether the options currently
explored in the trilogue will push back the foreseen implementation
dates of Solvency II.

A spokesman for Barnier said: “Commissioner
Barnier discussed with the European Parliament and Council the
issue of the study on the impact of solvency rules on long term
investment.  In an attempt to make progress he mentioned that
one scenario could be to wrap up the negotiations between Council
and Parliament immediately after the study becomes available early
in 2013”.

The spokesman for Barnier added: “Making sure
that EU rules favour long term investment for our economies is key
for Commissioner Barnier, as is improved risk management for the
insurance industry”.

Reaction

Reacting to the developments, a spokesperson
for insurer Zurich said ‘There are a number of important issues
which still need to be resolved before the Omnibus 2 directive – is
finalised.

According to PricewaterhouseCoopers, the
Omnibus II Directive is the directive which, once approved by the
Council of the European Union and the European Parliament will
amend the Solvency II Directive.

“Based on the current developments, and
although no firm decision has yet been made, we believe that the EU
may delay the introduction of Solvency II to 2015. In our view such
a scenario is very disappointing and we would not like to see the
adoption of Solvency II further delayed”.

Chris Finney, a partner at law firm Edwards
Wildman Palmer, said it is almost certain that Solvency II’s Pillar
1 capital rules will be delayed by a year.

However, he still expects Solvency II’s pillar
V rules on governance and reporting to be applied to firms on/from
1 January 2014, in accordance with the current
timetable.  

Finney said he did not think the delays would
be welcomed by many firms.

He said: “If the European Commission and EIOPA
had accepted that delays were inevitable six or nine months ago,
firms may have been able to reschedule their implementation work to
take advantage of possible cost savings. 

Industry impact

“But, for most firms, it’s too late for that
now. So much of the work has been done, and so much time and money
has been invested, because the Commission and EIOPA were determined
that Solvency II would apply to firms from January 2014, that few
firms will be able to achieve savings now.”

In Finney’s view, some firms will find the
delays increase their costs, rather than reduce them.

“Firms that need to keep their Solvency II
implementation project team running for an extra year will
also face higher implementation costs.”

According to Finney, the most useful thing
regulators can do now is acknowledge, quickly and formally, that a
delay is inevitable; before explaining clearly which firms
will be expected to “double run” and which will be allowed to
comply with Solvency II from when and in what circumstances.

 

Fast facts on Solvency II

  • Omnibus II will set the implementation date,
    introduce transitional measures, specify the areas and the timing
    for further Solvency II legislation, align the Solvency II
    Directive to the Lisbon Treaty, incorporate new powers given to
    EIOPA and make other technical amendments.

 

  • Pillar one of Solvency II has two elements: the first is a
    minimum capital requirement (MCR) that insurers will have to adhere
    to. The MCR is a minimum threshold below which insurers will be
    forced to cease trading.

 

  • The second element of Solvency II is the solvency capital
    requirement (SCR). This measures capital based on a one-year
    value-at-risk calculation of the market value of assets versus
    liabilities, at the 99.5% confidence level.

 

  • If an insurer’s available capital is between the SCR and MCR,
    this will trigger regulators to take action.