01 November 2012

Risk.net: Impact study on long-term guarantees package is crucial for devising new Solvency II timetable

Now with the European Parliament’s plenary vote on Omnibus II pushed back to March 2013, the idea of the new regime coming into effect in 2014 is a fanciful one.

Everyone knows that. What is significant is that top policy-makers and national regulators are beginning to say so in public. Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA), has now publicly stated that the “best scenario” is implementation in 2015 or 2016, with the latter being the most likely, depending on the legal and legislative process. And the UK Financial Services Authority (FSA) has for the first time acknowledged that a 2014 implementation date is unrealistic and has relaxed its timetable for insurers to submit their internal models for approval.

It is helpful that the FSA is no longer slavishly following the official timetable when no one believes it will remain. But pre-empting an official change does present potential problems, not least that insurers might end up working to an unofficial timetable that ends up being different to a revised official one. Additionally, if some national regulators begin adjusting their timetables and others do not, then insurance groups may find themselves working to different timetables. For this reason it is crucial that a revised and, more importantly, realistic timetable is drawn up by the European Commission as soon as possible.

The stumbling block to drawing up a workable timetable continues to be how Solvency II will apply to insurance products with long-term guarantees. The European Parliament and the Council of the European Union are still working on the specifications for the impact study, with the specification of the matching adjustment that will be tested being an area of much debate. It has also yet to be agreed when the study will commence.

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