Solvency II implementation to come in January 2016

The main obstacle delaying the implementation of Solvency II has been removed. A package of measures on how to value long-term insurance products within the Solvency II framework has been agreed upon, preparing the way for its formal approval by the European Parliament in February 2014. The EU member states can now prepare for the implementation of Solvency II on 1 January 2016.

The EU regulatory project Solvency II aims at harmonising insurance supervision and capital adequacy regulations across EU member states. It sets out a regulatory framework for a market consistent, risk-based and economic approach to establish the capital needs of insurers.

Its implementation has been delayed due to prolonged negotiations on the Omnibus II Directive. The Omnibus II Directive aligns Solvency II with the new European supervisory structure and addresses issues identified during the financial crisis, particularly on the treatment of how to value Long-Term Guarantees (LTG). The valuation approach for these products, with a life span of 20 or 30 years and more, under the Solvency II framework has been the focus of negotiations over the last three years. A compromise was reached based on proposals made by EIOPA (European Insurance and Occupational Pensions Authority) in early 2013.

"We welcome this agreement as a major step forwards in the progress of Solvency II.  We fully support the objectives of Solvency II in introducing an economic-risk-based regulatory framework that incentivises risk management and harmonises supervision. The conclusion of these important discussions should now clear the way for a full start of Solvency II in January 2016," says Nick Kitching, Swiss Re Head European Regulatory Affairs.

Originally approved in 2009, the Solvency II framework is an important milestone on the way to a state-of-the-art risk-based approach to insurance regulation. In the aftermath of the financial crisis, it has become clear that economic and risk-based insurance regulations are the best way forward to enable insurers to navigate through potential market disruptions and turbulences.

Published 13 November 2013

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