Legislators are under pressure from international insurers to review the rules after the US and Canada said they were not minded to seek Solvency II recognition of their regulatory regimes. An overhaul of equivalence is high on the agenda of the Omnibus II trilogue discussions this week, but as negotiations go down to the wire, divergences about the constraints of the temporary regime remain unresolved.
The head of the Economic and Monetary Affairs Committee, Sharon Bowles, said the parliament is lobbying for the temporary regime to be open-ended. Setting fixed bounds to the equivalence status threatens to create too much uncertainty for firms, she argued. "We don't want to see firms with US operations worrying every two years that things might change."
But Andreas Viljoen, representative of the EC's Insurance and Pensions unit, said the solution that is found cannot treat countries that are making efforts to converge to Solvency II and others who refuse to do so in the same way.
Japan, Switzerland and Bermuda applied and have already been granted temporary equivalence. Eight other countries are entering a transitional regime, in which they receive the benefits of being deemed equivalent for a period of five years, while they align their regimes with Solvency II.
The US and Canada's refusal to engage in the process made a change to the original transitional regime and put pressure on European legislators to alter the rules and find a third way to recognise third countries.
Failure to recognise equivalence would potentially put European insurers with operations in non-equivalent countries at a competitive disadvantage, as they would have to comply with both local and European rules.
In an interview with Insurance Risk, Klaus Wiedner, the head of the insurance and pensions unit at the EC, suggested that objective criteria to assess third-country regimes have to be defined so the commission is able to unilaterally grant them equivalence status.
But the EC seeks to retain flexibility to revoke the equivalence status, as a way to put pressure on countries to make efforts to align their systems. If the temporary regime is to be open-ended, then periodic reviews must be carried out.
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