12 November 2013

Bloomberg: Europe seen nearing insurance rules accord after 13 years

‘Half-Implemented’

Solvency II, intended to harmonise the way firms allocate capital against risk, was scheduled to come into force last year. Its introduction was delayed several times over issues such as calculating capital needed for liabilities for products with long-term guarantees such as annuities and investments such as government bonds. Insurers and regulators now plan to implement the rules on January 1, 2016 with a transitional period, should an agreement be reached in time.

“I very much hope that a compromise can be reached now -- we can’t keep this project in a half-implemented state", Dieter Wemmer, chief financial officer at Allianz, said on a call with journalists last week. “We now either get it right or we should leave it. It has been in the works for too many years and it has cost too many billions of euros.”

Agreement Near

“We are not quite there yet but we are very close to an agreement", Chantal Hughes, spokeswoman for Michel Barnier, the EU’s financial services chief, said by telephone from Brussels. “We’ve made a lot of progress, and are urging all sides to work together in a spirit of compromise to take this over the finish line.”

The IAIS’s discussions “are probably also putting a bit more pressure now on the European institutions to come to an agreement", Aegon Chief Executive Officer Alex Wynaendts said in a call with analysts last week. That would “make the discussions in the context of a global framework easier".

“An agreement on the final shape and on the date of implementation of Solvency II is urgently needed to enhance consumer protection, increase financial stability and avoid market fragmentation", Gabriel Bernardino, EIOPA’s chairman, said. “We cannot continue with the current regulatory uncertainty.”

Regulatory Uncertainty

Last year, speculation increased that the regulations would be sidelined by some EU countries as they prepared to introduce some of the rules piecemeal. National regulators, who are developing Solvency II led by the Frankfurt-based EIOPA are urging politicians to complete the accord now.

78 per cent of German insurers expect they will need to make further “significant investments” to comply with new reporting standards including the so-called Own Risk and Solvency Assessment, which requires each insurer to calculate its own risk capital needs based on individual stress tests, according to a survey by consulting firm Steria Mummert.

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