Solvency II News: Omnibus II trialogue calls for impact assessment on long-term guarantee measures

[Update 13 July 2012 23.00]


Content: trialogue update, press release

Omnibus II trialogue calls for impact assessment on long-term guarantee measures

Solvency II Wire can reveal that a last minute decision at today’s trialogue (12 July 2012) has called for an impact assessment on the package of long-term guarantees. This is contingent on the negotiations continuing after the summer.

A source at the European Parliament said details still had to be agreed, but that negotiations will continue after the summer regardless of the impact assessment in an effort to get an agreement.

The idea under discussion is that some measures under Level 1 could possibly only be triggered by a Delegated Act following a positive evaluation by the impact assessment. However, details will be worked out over the coming days.

Stefaan De Rynck, Commission Spokesperson, told Solvency II Wire today (13 July 2012), “Currently there is no agreement between the co-legislators whether the impact assessment on the long-term guarantee package should take place before adoption of Omnibus II or after the adoption of Omnibus II.”

“In any case, all three institutions agree that it would be desirable to have an impact study of the long-term guarantee package prior to starting the development of the relevant implementing measures.”

Sven Giegold, MEP, said in a press release published on 12 July, “Today it was agreed at the trialogue between the European Parliament, Council and Commission to commission an impact study of the various schemes on long-term guarantee measures. This is intended to avoid distortion of competition within the internal market, financial market stability and ensure the protection of policyholders are guaranteed.”

Hugh Savill, Director of Prudential Regulation, Association of British Insurers, said, “We are disappointed that, despite best efforts from all involved, there was no agreement in the Solvency II trialogue. This delay was not caused or asked for by industry who are keen to see the outstanding issues on Solvency II resolved. This result raises questions about the timetable for Solvency II and will leave insurers in limbo until an agreement is reached.”

The implications for the Solvency II implementation date are unclear at this point.

A way forward

Solvency II Wire has learned that one possible solution that is gaining some traction, although this has not been confirmed, is to include some mechanism whereby the discount rates would only come into effect after a certain period of time through using a sunrise clause. The clause will only be activated after the successful completion of the impact assessment.

Sharon Bowles MEP, Chair of the ECON Committee confirmed that she put forward the idea to enable the impact study to take place after the adoption of Omnibus II in the final minutes of the trialogue on Thursday.

“The problem was that the original proposal on long-term guarantees that had been thrashed out was generally acceptable but further proposals were being put forward for products that were not strictly life products. The Parliament was not sure what the impact of those new proposals would be, and hence the desire to know its effect through an impact assessment,” Ms Bowles told Solvency II Wire.

According to a source in Brussels the suggestion of an impact assessment was being floated as early as Tuesday this week.

In her proposal on Thursday Ms Bowles asked if there was a legal basis whereby the Level 1 text could somehow contain an option to enable the non-life aspects to come into effect after the impact study. That is, the package of measures for long-term guarantees would be part of Level 1 text but some of it would only be ‘activated’ via a Delegated Act in Level 2. “This was just an idea while looking for ways round the problem,” she said.

An alternative proposal, believed to have originated from the Commission, suggests that instead of using a single discount rate a range for possible discount rates will be defined at Level 1. This range could be adjusted in the Level 2 text after the results of the impact study are evaluated.

Political solution

Reflecting on the entire Solvency II process to date Ms Bowles said, “We have learned a lot about kicking the can down the road, it is not a good idea because it comes back to bite you.”

“Using a Level 2 fix to get you through a trialogue is not a good solution and it is important to be careful about the pointers you set at Level 1.”

Going into the summer without clarity on the future of the process is a worrying development for the industry. What is becoming clear is that without a political solution there will not be a technical solution.

Solvency II: delayed passage of the insurance lobby – Press Release

The press release was originally published on the website of Sven Geigold MEP, on 12 July 2012. The translation has been confirmed by Mr Geigold’s office.

After long disputes in the Council, the Cypriot Presidency has now presented a common position on the issue of long-term guarantees under Solvency II. This is a prerequisite for the decision on the Omnibus II Directive, which updates the Solvency II framework directive. Germany was outvoted in the Council on this matter.

The agreement in the Council is, however, based on even more generous exceptions from the, as such reasonable, risk-based regulatory approach of Solvency II. The UK, Spanish and Italian insurance industries had already received questionable special treatment in a number of areas in the EP report. Now, the French industry did no longer want to stand back and pushed through additional exemptions in the Council. These exemptions would have the effect of reducing technical reserves by more than 100 billion euro! (literally: by a three-digit billion euro amount).

Meanwhile, both the EU insurance regulatory body EIOPA, and the European Systemic Risk Board (ESRB) have warned in writing about the negative effects of such a questionable deal.

Today it was agreed at the trialogue between the European Parliament, Council and Commission to commission an impact study of the various proposed regulations. This is intended  to avoid distortion of competition within the internal market, to guarantee financial market stability and to ensure the protection of policyholders.

Sven Giegold, fiscal and economic policy spokesman of the Greens in the European Parliament, commented, “For the moment, the European Parliament has stopped all the lobbying hustle by the industry. The delay caused by all the nationally driven requests for special rules is regrettable. But the responsibility lies solely with the Council of Member States and the lobbying activities of the insurance industry, which have finally gone too far.

All this shows that we need not only a banking union, but also an insurance union. In addition, the insured would have deserved a louder voice in Brussels and in member countries to represent their interests.”

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