14 November 2013
European politicians have struck a provisional deal that could introduce new rules to the Solvency II framework.
Last night’s agreement on the Omnibus II directive, the legislation underpinning Solvency II, will introduce ‘long-term guarantees’ (LTG), which will adjust the current Solvency II framework to cope with ‘artificial’ volatility and low-interest rate environment. This will also smooth the transition from the current Solvency I regime.
The directive also contains enhanced requirements for risk management, supervisory review process, public disclosure and possibility to review LTG in order to ensure prudence and transparency.
Raimundus Karoblish, chair of the European Union’s Permanent Representatives Committee devising the regulations, said: ‘This is a very important legislative dossier aiming at financial stability in the insurance sector and beyond. The agreement comes in time for the revised director to enter into force.
‘The agreement should create a momentum for the final adoption by the EU Council and the European Parliament.’
Commenting on the agreement, Charles Garnsworthy, partner at PricewaterhouseCoopers, said: ‘Agreement yesterday between the European Council, European Parliament and Commission will give the market a degree of rule certainty, but will also allow European Insurance and Occupational Pensions Authority to finalise its own drafting on delegated acts and regulatory technical standards.
‘The compromise reached will not satisfy all parties entirely, however it will represent relief for many, especially now that the way forward has become clearer.
‘The timetable is now clear. EIOPA’s guidelines become effective from January 2014 and there is a very real short term need to be prepared to deliver in 2014 and 2015. Firms should now take stock of whether their programmes are going to meet the requirements and prioritise those areas needing attention.’
The provisional agreement reached with the European Parliament will have to be endorsed by EU member states before being finalised. Solvency II will become operational from January 1 2016.