Although there is no certainty on the Solvency II implementation date, EU policymakers are continuing to finalise key aspects of the framework. Recent developments include EIOPA’s consultation on interim measures, the impact assessment of the long-term guarantee package and a debate on whether new legislation is needed formally to delay Solvency II’s application.
Solvency II implementation date
The legal position is that Member States must transpose the Solvency II Directive into national laws by 30 June 2013 and apply it to firms from 1 January 2014. It is clear, however, that this Solvency II timetable is not feasible. EU Member States cannot implement the Solvency II framework by the set dates, for the simple reason that it is not finalised.
A Member State’s failure to meet the legal implementation deadlines for Solvency II would mean that it was not complying with EU law and could have legal implications. As a result, Member States are keen to ensure that further legislation amends the Solvency II Directive to postpone deadlines for Solvency II implementation on a formal basis. This can be done by means of another “quick-fix Directive”, similar to the one adopted last summer, which established current transposition and implementation dates. Many people expect implementation to be put back to January 2016.
The European Commission, however, is resisting pressure to introduce another quick-fix, so as to encourage others in the EU’s legislative process to agree the Omnibus II Directive as a priority. Instead, the Commission proposes to produce a letter of comfort to Member States confirming that it will not commence proceedings against them for failure to implement Solvency II. The discussion is ongoing and we are monitoring it.
EIOPA’s consultation on Solvency II interim measures
Although the Solvency II legislative process is delayed, EIOPA believes that the insurance industry should build on preparatory work already undertaken. In addition the IMF’s Financial Sector Assessment Programme (FSAP) review of the EU concluded that early harmonised implementation of Solvency II would reduce risks arising from the current regime.
EIOPA has therefore published a set of consultation documents proposing to introduce some core Solvency II provisions in advance of the formal deadline (still to be confirmed). EIOPA’s guidelines are addressed to national supervisors and cover the following areas:
- System of governance
- A forward looking assessment of the undertaking’s own risks (based on the ORSA)
- Submission of information to national supervisors (reporting requirements)
- Pre-application for internal models
Lloyd’s is reviewing the guidelines and contributing to the debate at UK and EU levels. Many insurers are most concerned about EIOPA’s proposed reporting requirements, which look very onerous.
In a related development, the European Central Bank (ECB) plans to pass a Regulation enabling it to collect information from insurers for financial stability and statistical purposes. The ECB is working with EIOPA and, so far as possible, will rely on data collected through the Solvency II reporting templates. In the interim period, before Solvency II is implemented, it probably will not require insurers to report any additional data. Longer-term, however, its requirements may become more extensive. Legally, this Regulation will apply to Eurozone Member States only, although central banks in other Member States may decide to impose similar reporting requirements. It is unclear what position the Bank of England will take.
Impact assessment of the long-term guarantee package
Last year’s debates on the long-term guarantee package proved inconclusive and the Commission decided to conduct an impact assessment to inform Omnibus II’s development. EIOPA launched the assessment in January 2013: insurers had until the end of March 2013 to submit information. Lloyd’s did not participate due to the issue’s limited relevance to most of Lloyd’s business.
EIOPA is expected to publish a report with its findings in June this year, followed by a communication from the Commission. Parliament has scheduled a vote on the Omnibus II Directive for 22 October 2013. This is indicative only, but suggests the deadline by which agreement on the long-term guarantee package should be reached.
Compromises over the long-term guarantee package and subsequent adoption of the Omnibus II Directive are important to the Solvency II implementation timeline. If agreement is not reached and the Directive is not finalised in 2013, this is likely to delay Solvency II implementation beyond the expected deadline of January 2016.