22 November 2013

Risk.net: Disclosure of Solvency II's long-term measures benefit risks 'misinterpretation'

As part of the agreement on Omnibus II, insurers taking advantage of tools such as the volatility adjuster and matching adjustment will be made to produce one regulatory report that includes the capital benefit of the measures, and one that does not.

But insurers say this requirement is unnecessary and potentially detrimental. Darryl Button, chief financial officer at Aegon, speaking at an event in Paris, said it risked confusing investors and undermining the legitimacy of the LTG measures. "I worry about the lack of focus, [because] instead of focusing on implementing the measures in front of us we'll still be arguing five years later which [capital figure] is right", he said.

Insurers also have concerns about the extra compliance burden dual-reporting would necessitate. Bruce Porteous, Edinburgh-based head of Solvency II and regulatory development at Standard Life, says: "Disclosing the impact of the LTG package measures, the matching adjustment, volatility adjustment and transitional, will create extra work for firms".

But policy-makers say dual disclosure was vital to securing a deal. Klaus Wiedner, head of the insurance and pensions unit at the European Commission, said at the Paris event that dual disclosure was a red line for parliamentarians and had to be included for Omnibus II to pass.

The insurance industry does not share the view that LTG measures are artificial or "privileges". Olav Jones, deputy director-general of Insurance Europe in Brussels, says the measures have been carefully calibrated to reflect economic reality.

Insurers invest in assets for the long term in order to match their liabilities and are therefore able to ride out short-term market volatility. As such, this volatility does not need to be reported in public filings, he adds.

Some insurers take the view that dual disclosure is a small price to pay in exchange for having the LTG measures included in Solvency II's level 1 text. Carl Dowthwaite, group commercial actuary at Legal and General in London, rejects arguments that dual reporting will undermine the legitimacy of the LTG measures in the eyes of the market.

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