Insurance Liabilities Under IFRS 4 Phase II and Solvency II: Almost the Same Thing?

Francesco Nagari and Derek Haynes

A European body of comprehensive and uniform regulations on solvency capital and investors’ reporting applicable to the largest insurance market in the world: this is the historical target that the finalisation of the Solvency II reform in the European Union (EU) and the endorsement of a new International Financial Reporting Standard (IFRS) on insurance contracts (IFRS 4 Phase II) could produce within a few years. Both regulations have been through a multi-year laborious process fraught with unexpected protracted delays and changes of direction that, at some point, raised doubts about whether their ultimate objective would ever be achieved.

However, the spring of 2014 seemed to mark a positive turning point in these parallel reforms, and confidence that the standard setting and legislative processes will be completed reached its highest level thus far.

BACKGROUND, OBJECTIVES AND METHODOLOGY

The Solvency II directive has been approved by the European Parliament and Council, and the implementing measures are being produced with the aim to have all relevant provisions approved and published by 2015, in time for the Solvency II regime to be mandatorily effective on January 1, 2016