Solvency II News: Solvency II draft Delegated Acts considered “stable”

A draft of the Solvency II Level 2 text (Delegated Acts) dated 14 March 2014 is now considered stable and is being prepared by the Commission for presentation to co-legislators, a Commission source told Solvency  II  Wire. “The extensive pre-consultation phase with Member States experts and representatives from the European Parliament is now over, we consider the draft Delegated Acts stable,” the source said. The Commission intends to adopt the text sometime around the summer, after it completes internal processes such as translation and legal verification. Once adopted, the text can be presented to the Council and the Parliament. It is widely anticipated that the newly formed ECON committee will be ready to receive the Delegated Acts in September.

Changes to text

Although the text is said to be stable, one source familiar with the Brussels machinery said the Commission has been keeping a tight lid on its work since releasing the draft, and it is not clear how close the March draft will be to the adopted text. An EP source said he was not aware of any further drafts circulated to the Parliament. In a video address to the Insurance Europe conference on 12 June, Commissioner Barnier said the Delegated Acts contained initiatives to foster private equity and infrastructure investment. Earlier this year Solvency II Wire reported that in the January draft of the text, property and equity were included in the composition of the reference portfolio to be used for the Volatility Adjustment. Solvency II Wire has seen a copy of the March draft containing changes and amendments to the draft circulated in January. Securitisation has now been added to the makeup of the portfolio. A notable addition to the March test is a general reference to proportionality and materiality. The text states, “In applying the requirements set out in these acts, account shall be taken to (sic) the nature, scale and complexity of the risks inherent in the business of an insurance or reinsurance undertaking. The burden and the complexity imposed on insurance undertakings should be proportionate to their risk profile … information should be considered as material if that information could influence the decision-making or judgement of the intended users of that information.”

Credit Risk Adjustment still an issue

One of the key unresolved concerns of the Omnibus II agreement was the calculation of the Credit Risk Adjustment (CRA) – the deduction made to the swap rates used to derive the basic risk-free curve. The January text introduced a floor of 10 basis points to the CRA. However, industry claimed this was flawed and would make the measure too volatile. It called for the CRA to be capped at 10 basis points. The March text appears to indicate that a compromise was reached. “The adjustment shall not be lower than 10 basis points and not be higher than 35 basis points”, effectively creating a corridor for containing the adjustment. However, the text now states that only 50% of the difference between the swap rates underlying the basic risk-free curve and overnight swap rates will be used for the CRA.

Parliament reaction

Although the new ECON committee has not been selected following the European Parliament elections in May, the EP source said he did not anticipate the file to encounter much challenge. “Given the difficult history of the file, its complexity and the fact that new MEPs were joining ECON, we do not foresee major resistance from the Parliament to the Delegated Acts.” — To subscribe to the Solvency II Wire mailing list for free click here.]]>