A group of leading academics warn that the Solvency II Long-Term Guarantees measures are too inflexible and opaque. In an article published in VoxEU.org on Monday, the academics call on rule makers to “respect” prudential principles and include full disclosure of any discounted liabilities, as well as review the measures after three years. National supervisors should also be allowed discretion to intervene if prudential concerns arise from applying the measures.The rules governing the treatment of long-term insurance contracts were elevated to the Level 1 text of the Directive last March, following intensive industry lobbying. It is now widely believed that the package of measures will be finalised in trilogue this Thursday (24/10/2013). In the article, Jon Danielsson, Ralph Koijen, Roger Laeven and Enrico Perotti, state, “We fear that important aspects of the necessary conditions for effective insurance regulations have been left out.” The academics, who have been critical of the practice of discounting liabilities in the past, call on rule makers to respect prudential principles:
- “First, since the rules will create a partially justifiable but opaque departure from fair value accounting, they must ensure disclosure of this adjustment.
- Second, the European Commission and the European Insurance and Occupational Pensions Authority should commit to a broad review within three years.
- Third, regulatory authorities should retain some discretion to intervene, if prudential concerns arise with the automatic forbearance rule.”