European policy-makers closed on Wednesday evening 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 parliament has successfully put controls and monitoring around the LTG package, which I think makes it more sound and takes certain prudential concerns into account," said Sharon Bowles MEP, head of the European Parliament's Econ Committee at a press conference on Thursday morning.
The application ratio of the volatility adjuster was fixed at 65%. The floor of the fundamental spread for the matching adjustment was set at 35% of the long-term average spread for corporate bonds and 30% for government bonds. The transition period for existing life insurance contracts was set at 16 years.
The final text has not yet been made public.
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.
Provisional equivalence status will last 10 years and can be extended for an equal period an unlimited number of times. "This gives a long period within which there is this effective equivalence, which means the insurance companies from Europe are able to operate under the local regime," said Bowles.
"We haven't drafted this specifically for the US. It was drafted so that if we face a similar set of circumstances, where you can't get equivalence on those exact terms, it provides flexibility for us to deal with that problem and get a satisfactory solution," she added.
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.
Bowles also highlighted the significance of Solvency II implementation for Eiopa. "This marks the point at which Eiopa becomes fully fledged. Many had not realised that it had got left behind a little bit with the other two [European] agencies, having directives that they were already doing these things for. For Eiopa, this is a very big day and I think it should be very happy," she said.
Gabriel Bernadino, Eiopa chairman, said in a written statement: "This agreement is of extreme importance for Eiopa as a European institution, because it allows the authority to fully perform its tasks related to the promotion of supervisory convergence and consistent supervisory practices."
Trade body Insurance Europe welcomed the agreement on Omnibus II, but noted that level II and level III texts, which will fix most of the technical details of the Solvency II framework, must be agreed before the new directive can come into force.
"It was important for Omnibus II – which updates the Solvency II directive of 2009 – to be finalised now, as a great deal of work remains to be done on the technical details of the new regime before insurers and supervisors can be ready to apply it from the start of 2016," said Insurance Europe's president Sergio Balbinot.
The week in Risk.net, February 10-16 2017Receive this by email