Eiopa releases first outline of ‘Solvency 1.5′
20th December 2012
The European Insurance and Occupational Pensions Authority (Eiopa) has released its first legal opinion on “Solvency 1.5″, which briefly outlines its proposal to get certain elements of Solvency II in place by 1 January 2014.
Eiopa said it will publish more detailed guidelines for national supervisors in March or April 2013 on how to proceed in the interim phase leading up to Solvency II.
The guidelines will cover the early phase-in of Pillar II – the system of governance that includes the risk management system and own-risks assessment, as well as the pre-application of internal models. It will also cover Pillar III, which includes reporting to supervisors.
The European insurance watchdog will publically consult on the guidelines from spring 2013 over a six-week period. However, an Eiopa spokesperson said the body could not commit to an exact date at this point.
The guidelines will be subject to a “comply or explain” procedure. This means that national supervisors will have two months from when the guidelines are issued to confirm that they will abide by the rules or explain to Eiopa why they will not.
Solvency II as an entirety was supposed to go live on 1 January 2014. However, when the Omnibus II talks failed on the back of the long-term guarantee package dispute, the final implementation date was thrown into uncertainty again.
Instead of waiting until 2015 or 2016 to implement the entire directive, Eiopa began to throw its weight behind a phased-in approach that has been dubbed Solvency 1.5.
Eiopa chairman Gabriel Bernardino had first aired the idea in October in a letter to the Omnibus II “trialogue” parties – the European Commission, the European Parliament and the European Council.
Eiopa had warned that without a final agreement on Solvency II, European supervisors would develop their own national solutions to the detriment of the internal market.
The legal opinion issued today (20 December) outlines the proposed actions for national regulators to complete by the start of 2014.
Insurers and reinsurers will need to have an effective governance system and risk management system in place, including a forward-looking assessment of their firm’s own risks based on the own risk and solvency assessment (ORSA) principles.
National regulators will need to be able to review and evaluate these systems.
Firms also have to have strategies, processes and reporting procedures in place to identify, measure and manage risks on an ongoing basis and to report these risks both at an individual and aggregate level.
In terms of the internal model pre-application processes, Eiopa said that local regulators should continue to work with firms to ascertain their readiness.
Bernardino said the opinion sets the grounds for a consistent and convergent approach by national supervisors in preparing for Solvency II.
He said the more detailed guidelines would ensure that “important” aspects of the new regime would be gradually implemented, taking into account due proportionality.
