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October 2012 Issue 276 www.vrl-financial-news.com

● Ripe market for life insurers in Poland● China proves fertile ground for bancassurance

● Life insurance 2020: the future is more regulation ● Mexico gets set for Solvency II

Life Insurance International

12 y October 2012 www.vrl-fi nancial-news.com

analysis: solVency ii

Life Insurance International under-stands that wrangling between Euro-pean co-legislators and Michel Barni-er, 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.

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 com-panies to apply the new rules.

One key issue raised by various parties at the negotiations concerns long term guaran-tee measures.

For Solvency II, Barnier suggested to the co-legislators that the European Insur-ance 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 negotia-tions 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 out-standing issue would be the calibration of risks attached to insurance products in view of their importance for long term invest-ment. 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: “Commis-sioner 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: “Mak-ing 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”.

Reacting to the developments, a spokes-

person for insurer Zurich said: “There are a number of important issues which still need to be resolved before the Omnibus 2 direc-tive – is finalised.

“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”.

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

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 pil-lar 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 implemen-tation work to take advantage of possible cost savings.

“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 sav-ings 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 implementa-tion costs.”

According to Finney, the most useful thing regulators can do now is acknowledge, quickly and formally, that a delay is inevi-table; 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.<

EU may delay Solvency II until 2015 The introduction of Solvency II could be delayed until 2015 – a year later than originally planned – with such a potential scenario leading industry commentators to express their disappointment at the EU.

fast facts on solvency ii • Omnibus II will set the implementation date, introduce transitional measures, spec-

ify 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 require-ment (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.