Solvency II Wire Regular Meeting Group report, April 2014


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Sponsored by
Societe General Corporate & Investment Banking

7 April 2014, 16:00 – 18:00

Paris, offices of Societe Generale Corporate & Investment Banking

The meeting was attended by members of the following organisations: AXA IM, Directorate-General of the French Treasury, Fédération nationale de Mutualité Française (FNMF), La Mutuelle Générale, Rivages Investments, Standard & Poor’s and Societe Generale Corporate & Investment Banking.

Chair: Gideon Benari, Editor, Solvency II Wire

The Solvency II Wire Regular Meeting Group brings together a wide range of practitioners to discuss Solvency II and related matters. The following is a summary of the key discussion topics addressed at the meeting.


A number of recurring global themes with some specific national issues emerged in the discussion. Key concerns included capital requirements, proportionality and reporting.

Interim measures in France

Overall participants said they were experiencing increased activity of Solvency II related work, but levels varied, with some reporting little notable impact at this stage. It was noted that after a long delay firms and associations were “back to work” on Solvency II with a number of working groups designing collective solutions in the mutual sector.

There was consensus that the short implementation timeline and work on Pillars II and III posed the greatest challenges. One participant believed a clear picture of the state of preparation in France and across Europe would only emerge at the end of the second or third quarter of 2014.

Another suggested that until now firms engaged with individual aspects of Solvency II and they must now consider the impact of the entire framework. However, they noted it would take time for the overall implications of the rules to be fully understood.

Capital requirements

While some participants believed that most of the Pillar I work was in advanced stages, questions were raised about how the regulator will interpret the Long-Term Guarantees (LTG) rules that were agreed in Omnibus II. Participants noted that clarity was still lacking on some aspects, notably the makeup of the reference portfolio for the Volatility Adjustment.

It was unclear how firms would manage their capital in the interim period and whether this would be based on Solvency I or Solvency II. But it was felt that overall the measures will have a positive impact on the French market given the long transitionals and grandfathering incorporated into the Directive.

One participant expressed frustration at the lack of comparability of Internal Models across countries, noting inconsistencies in how national supervisors interpreted the Internal Model rules.

Proportionality

Given the diversity of the French insurance market, participants also discussed aspects of proportionality. It was noted that a number of issues relating to transposition of the governance rules were still unresolved and being worked on extensively. Adjustments were still being made to address incompatibilities between Solvency II and the governance rules for mutuals (Code de la mutualité).

Mutuals are developing a number of shared solutions for reporting and ORSA, which members could opt into using. However some of the service providers noted that insurers were still not articulating their requirements very clearly.

The relationship between insurers and asset managers was also addressed. One asset manager noted that insurers were likely to require different levels of information and services from their asset managers, ranging from raw data provision for look-through and capital calculation through to full SCR calculation.

There was general agreement that costs will increase as a result of Solvency II and that these will be distributed across the entire value chain, not just to consumers. One way of alleviating the cost burden would be through standardisation of work and practices. Participants noted there were a number of working groups engaged in initiatives around Pillar III reporting.

Reporting

Part of the discussion was dedicated to the specific challenges of the Pillar III reporting. There was a clear consensus that both the tight timelines and lack of clarity around some of the rules were the key concerns. In addition to the volume of work and amount data involved, concerns were also raised about the impact of extensive public reporting.

In the discussion that followed it was noted that Solvency II will introduce substantial new reporting requirements in France (both private and public) and that the impact of the reporting was untested.

One participant expressed surprise at the level of public disclosure that will be required of firms. Another noted that French insurers were not accustomed to disclose a lot of information. It was also noted that most existing reports and data provided by the regulator were aggregated without enough company specific information.

Overall it was evident from the discussion that there was still uncertainty on the exact look-through requirements and what thresholds could be used for reporting and SCR calculation. Some firms were trying to establish whether the regulator would allow the use of mandates for SCR calculation.

The impact of Solvency II reporting was already being felt. One insurer had reduced their portfolio management delegation to a handful of asset managers and a single custodian, and this appears to be part of an emerging trend.

One participant said they were waiting to get a clearer idea of what the regulator means by “best effort” look-through reporting in the interim period.

Further uncertainty remained around how the Solvency II requirements will interact with other requirements such as the ECB reporting.

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