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Frustration over the delayed implementation of Solvency II is at an all-time high among European insurers. Companies have spent countless amounts of time and money getting ready for the European Union’s (EU) much-touted capital adequacy regime, only to find that what they thought they were preparing for has turned into something altogether different. Not only that, but continued disagreement between Member States over how solvency capital should be calculated means the introduction of a truly European-wide risk-based framework could still be many years away. It is no wonder that so many feel Solvency II has lost momentum.
It is this widely-felt frustration with the Solvency II process that prompted the European Insurance and Occupational Pensions Authority (EIOPA) to announce, before Christmas, that a series of interim measures to bring in elements of the regime would be introduced at the start of 2014. These measures will take the form of guidelines, with countries able to opt out of them if they wish to.
EIOPA is concerned that, without such guidelines, national regulators might come up with their own capital adequacy framework independent of Solvency II. “Instead of reaching consistent and convergent supervision in the EU, different national solutions may emerge to the detriment of a good, functioning internal market”, EIOPA noted in an opinion.
The insurance industry has given a qualified nod of approval to this latest initiative, welcoming the clarity that EIOPA is trying to bring to the flagging Solvency II process, while at the same time warning that this interim step should not take things too far.
“In principle, these interim measures are a positive step forward”, says Frank Eijsink, global programme director of Solvency II at the insurance arm of Amsterdam-based ING, which has €1.2 trillion (£1 trillion) of assets-under-management. “They help align the views of Europe’s different regulators and give us a reference point for our meetings with supervisors.”
But he warns that careful consideration must be given as to what goes into the interim measures: “It is not a good idea to introduce certain elements of Solvency II ahead of their time".
The details of what might constitute the interim measures are still sketchy – EIOPA plans to give more detail over the next few months – but in its initial opinion EIOPA talks about pre-application of internal models, good governance practices and reporting Own Risk and Solvency Assessment (ORSA) figures. These are all elements where there is a considerable degree of consensus across Europe.
What EIOPA has not been talking about is any adjustment of capital calculations, largely because this is where many of the divisions remain across Europe. Dealing with the softer areas of Solvency II may mean national supervisors are more likely to embrace the new interim measures, but this also raises the question about the extent to which they will contribute to the end-goal of a level playing field.
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