08 November 2012

Letter from Michel Barnier to EIOPA/Bernardino re Solvency II

Barnier responded to Bernardino's letter of 4 October 2012, in which he outlined concerns on the current status of the trilogue negotiations on Omnibus II and the Solvency II project more generally.

"I fully share your views about the shortcomings of the current system, Solvency I, and that Solvency II is urgently needed by insurers, supervisors, policyholders and financial markets.

Notwithstanding this, regulators have a responsibility to ensure that the effects of new legislation have been rigorously tested. Unprecedented market conditions and continuing market instability mean that the European institutions must carefully evaluate the measures proposed for insurance products with long-term guarantees to ensure that possible negative consequences for the real economy are avoided. This is all the more important given that Solvency II will radically overhaul prudential regulation in the insurance sector.

The trilogue parties are continuing to discuss the date of application for Solvency II. Once a decision has been made, I will be suggesting to the co-legislators that the trilogue parties publish a joint statement outlining a clear, realistic timetable for the implementation of the new regime.

Both the insurance industry and supervisory authorities have invested significant resources preparing for the start of Solvency II. We must ensure that momentum is not lost and that good preparedness is rewarded. In this regard, I believe that EIOPA should continue to play an active role in ensuring the preparedness of supervisory authorities, who should in turn ensure the preparedness of insurance undertakings. In particular, I would encourage EIOPA to come forward with a list of best practices, in the form of an opinion, to ensure a common level of preparedness amongst supervisors, which could also include what national supervisory authorities should expect of their undertakings. This is of particular relevance in the area of internal models where EIOPA should aim to ensure a consistent approach of supervisory authorities to the approvals (and pre-approvals) of internal models.

Your letter proposes the early application of some aspects of the Solvency II framework. While I welcome the initiative EIOPA has shown in proposing this, the possibility of making some parts of Solvency II legally enforceable before others is likely to necessitate further legislative proposals. Those proposals would take time to negotiate and are unlikely to be agreed swiftly. Therefore, I would propose instead that EIOPA acts to ensure that there is convergence towards a Solvency II appropach, within the limits of what is possible under the existing framework. In doing this, I would ask that EIOPA specifically focuses on a speedy implementation of some of the qualitative (Pillar II) aspects of the Solvency II framwork, such as effective system of governance and risk-management system. Similarly, EIOPA should continue in its work of developing common reporting formats and templates."

Full letter

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