03 April 2012

Risk Net: UK insurers set to lobby for easing of constraints on matching adjustment

The UK insurance industry will continue to press for changes to the matching premium, despite it being recognised in the amended text for Omnibus II, which was approved by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) on March 21.

The inclusion of a new version of the matching premium – now called the matching adjustment – was cautiously welcomed by UK insurers, which have been arguing that it is vital to their ability to offer affordable long-term annuity products. It was feared that such a mechanism might not be included in the final version of the text, after some Member States called for it to be removed.

But there were still concerns about the strict limitations placed on the use of the matching adjustment, used to determine the discount rate insurers can use for certain long-term liabilities, and the lack of clarity over the precise mechanics of its operation. The Association of British Insurers (ABI) said it would continue to lobby for the constraints to be eased as Omnibus II entered the next phase of the legislative process. “We will be looking for a sensible solution, particularly around the restrictions on assets”, says Tristan Garnons-Williams, a policy adviser at the ABI in London.

Meanwhile, questions remain over the position of the US in terms of equivalence with Solvency II. The proposals for temporary equivalence have not been modified to include a process for establishing this for the US.

In February, the EC released a list of seven countries identified for the second wave of Solvency II equivalence assessments. While the US was absent from the list, the commission said a “different approach” for determining temporary equivalence should be sought.

There were calls for a clear timetable to be laid out for Solvency II’s implementation to provide certainty to firms. Janine Hawes, Solvency II director at KPMG in London, says: “Clarity is now desperately needed as to whether the firm compliance date of January 1, 2014 will remain, which realistically means firms will have less than a year between final requirements being known and compliance being required, or whether we can now expect to see an announcement of a year’s delay to January 1, 2015”.

A spokesman for the European Parliament insisted that the delay to the vote would not affect the January 2014 application date of Solvency II.

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