Although the proposals for Level 2 implementing measures have not yet been adopted by the European Commission and further questions remain open, EIOPA took the decision to start discussions on potential Level 3 guidelines at an early stage.
2011 will see a good deal of Solvency II finalised, hopefully with Level 2 rules settled in the early autumn and Level 3 guidance agreed by the end of the year. It is interesting to note, however, that even at this late stage a number of key issues still require further work; and that the Omnibus 2 proposals appear, on first sight to allow the possibility of wide and deep transitionals. We still need recognition of the Expected Profits Included in Future Premiums (EPIFP) – the value of the book of business in Tier 1 capital where, on an economic basis, it belongs. The recognition of illiquidity in a market framework, especially as it affects the production of products such as annuities is key – both for existing and new business. Equivalence has become something of a vexed subject, but will require significant transitional proposals. Hopefully, regulators can make good speed in getting a deal agreed at the international level. The work of the International Association of Insurance Supervisors (IAIS), and in particular the Comframe programme might offer some help here as a flanking initiative. Finally in the standard formula there is a case for revisiting the Catastrophe Risk module; and for simplifying more generally.
Indeed as policy debates do get resolved an industry concern remains the considerable and unnecessary complexity of the standard approach; and the unrealistic hurdles established for the approval of an internal model. As Solvency II moves toward completion these issues of implementation and proportionality, for large and small firms, are coming ever more to the fore.
Fresh into office, EIOPA will also coordinate the further release of pre-consultation papers on Solvency II Level 3 guidance. The ABI expects the final guidelines to be published within the last quarter of this year. With the arrival of spring, the results of the fifth quantitative impact study (QIS5) are also expected to come out. Almost 70% of all European insurers and reinsurers submitted their results by the end of last November, which corresponds to an increase of more than 100% - in the UK, more than 265 solo undertakings and around 35 groups submitted their results to the FSA.
The ABI is continuing its liaison work with its members regarding the internal model application process – further communication, workshops etc, is expected on this and will liaise accordingly to ensure all stakeholders remain informed.
© ABI
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