14 November 2013

Risk.net: Omnibus II agreement puts Solvency II back on track

European policy-makers have closed a critical and long-awaited agreement on the Directive to amend Solvency II, clearing the way for a 2016 implementation of the risk-based capital regime.

It took trilogue parties eight hours to hammer out the details of the measures for long-term guarantee (LTG) business and the equivalence of third countries, which have been holding agreement on the Omnibus II directive back for months.

The calibrations are more generous than what was recommended by the European Insurance and Occupational Pensions Authority (EIOPA) in June, but qualitative measures to increase their control and transparency were added to the package.

The application ratio of the volatility adjuster was fixed at 65 per cent. The floor of the fundamental spread for the matching adjustment was set at 35 per cent of the long-term average spread for corporate bonds and 30 per cent for government bonds. The transition period for existing life insurance contracts was set at 16 years. The deal also offers a solution for granting equivalence to third-party countries, such as the US and Canada, which refuse to engage in a formal equivalence process.

The text includes a set of criteria against which the commission will be able to assess unilaterally whether the solvency regime of a third country is broadly equivalent to Solvency II. If so, the jurisdiction will be granted provisional equivalence to Solvency II, exempting European companies having to operate in accordance with both local and European rules.

The agreed text confirms the implementation date for Solvency II as January 2016, but moves back the transposition date to March 2015. These dates are expected to be confirmed at a plenary session of the European Parliament in Strasbourg later this month.

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