SOLVENCY II
(i) EIOPA Consultation on First Set of Solvency II Implementing Technical Standards
On 1 April 2014, the European Insurance and Occupational Pensions Authority ("EIOPA") published six consultation papers referred to as the first set of draft implementing technical standards ("ITS") required under the Solvency II Directive as amended by the proposed Omnibus II Directive.
The consultation papers contain proposed draft ITS in respect of the following key points:
- The approval process for ancillary own funds;
- The approval process for internal models;
- The joint decision process for group internal models;
- The approval process for matching adjustments;
- Special purpose vehicles; and
- The approval process for undertaking-specific parameters.
The approval processes contain provisions that are addressed to (re)insurers and national supervisors, so as to ensure that (re)insurers present all the information that is necessary for supervisors to give a legally certain and prudentially sound approval of the above-mentioned Solvency II elements. As of 1 April 2015 (re)insurers can start submitting their applications for approval to their respective national supervisor.
EIOPA will send the ITS to the European Commission by 31 October 2014 for final endorsement, after which the ITS will be translated into all the EU official languages and will become legally binding. The consultation ended on 30 June 2014.
The consultation papers and the templates for comments can be viewed via the following link:
https://eiopa.europa.eu/en/consultations/consultation-papers/index.html
(ii) EIOPA Launches EU-wide Insurance Stress Test 2014 and Publishes Solvency II Technical Specification
On 30 April 2014, EIOPA launched its 2014 Stress Test and the (re)insurers participating in this exercise will have until 11 July 2014 to submit their results. This test involves (re)insurers from both the life and non-life sectors and aims to cover at least 50% of the respective sectors.
The test consists of two modules as follows:
- The first module (the 'core' module) is scenario based and must be performed at the highest level of insurance consolidation (i.e. Group level);
- The second module (the 'low yields' module) is focused on the impact of a prolonged period of low interest rates on the insurance sector.
An overview of the Stress Test schedule as well as further details concerning same can be found via the link below:
https://eiopa.europa.eu/en/activities/financial-stability/insurance-stress-test-2014/index.html
On 30 April 2014, EIOPA also published the Solvency II Technical Specifications in relation to the preparatory phase which is designed to provide the basis for (re)insurers to value assets and liabilities as well as calculating solvency/minimum capital requirements and own funds.
EIOPA has stated that these specifications are solely intended to provide the basis for interim reporting. Nevertheless, the specifications provide an indication of the direction in which the final regulations are moving in.
More information regarding Solvency II Technical Specifications may be obtained through the following link:
https://eiopa.europa.eu/en/publications/technical-specifications/index.html
(iii) EIOPA Updates Q&A on Solvency II Guidelines
In April and May 2014, EIOPA updated its Question and Answers ("Q&A") template on the Guidelines for preparation for Solvency II. EIOPA has provided some questions in respect of the Submission of Information to the National Competent Authorities.
This Q&A tool can be used by all parties, including financial institutions, supervisors and other stakeholders, in order to submit questions on the Guidelines which have been published by EIOPA. It is anticipated that answers will normally be provided within 6 weeks, however EIOPA will contact the party concerned if a longer period is required.
In summary, the latest changes to the Q&A are as follows:
- The answer to question 44 (first published on March 2014) has been amended in April. It refers to S.02.02 relating Asset and Liabilities by Currency;
- Questions 49 to 58 have been added in April 2014 in relation to S.28.02; S.28.01; S.33.01; S.34.01; S.06.02; Appendix III; Cross Checks; S.26.01; S.08.01; S.12.01;
- Questions 59 to 73 have been added in May 2014 regarding S.12.01; S.06.02; S.02.01; S.26.05; Validations; S.23.01; S.26.03.
The full list of Q&A is available via the link below:
https://eiopa.europa.eu/publications/eiopa-guidelines/qa-on-guidelines/index.html
(iv) The Council of EU Adopts Omnibus II and Publishes Adopted Text in the Official Journal
On 22 May 2014, the Omnibus II Directive was published in the Official Journal of the European Union and it entered into force on the 23 May 2014.
This Directive substantially amends the Solvency II Directive and includes powers for the European Commission to adopt Delegated Acts and Implementing Technical Standards ("ITS"). It also amends the powers of ESMA and EIOPA and contains a package of measures to provide clarity on the treatment of insurance products with long term guarantees in order to mitigate the effects of artificial volatility.
The Solvency II regime must now be transposed into national law and regulation by 31 March 2015 and will apply from 1 January 2016.
A copy of the text of the Omnibus II Directive as published in the Official Journal is available here:
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2014:153:FULL&from=EN
(v) Central Bank Publishes Issue 13 on Solvency II Matters
The Central Bank has recently issued the May 2014 edition of Solvency II Matters which is a newsletter addressed to keep insurance and reinsurance undertakings informed and up-to-date on Solvency II policy developments, implementation activities and events. This edition provides updates in relation to a number of key Solvency II developments including:
- EU Developments;
- EIOPA's 2014 Stress Test;
- Forward Looking Assessment of Own Risks
("FLAOR") – the Central Bank Guidelines on
Preparing for Solvency II requires all (re)insurance undertakings
and groups (where the Central Bank is the Group Supervisor) to
submit a FLAOR report at least annually by 31 December 2014 and 31
December 2015 in relation to years 2014 and 2015 respectively.
These FLAOR reports must be submitted via the Central Bank Online
Reporting System ("ONR").
In early April 2014 the Central Bank's ONR was modified to include an upload facility for High and Medium-High PRISM impact (re)insurers and groups so that they can submit their Solvency II – FLAOR reports.
This completed the first stage of the adaptation on the ONR system. It is expected that the ONR will be available in early July 2014 for both Medium-Low and Low PRISM impact (re)insurers to submit their FLAOR reports.
The current User Manual will be adapted in order to encompass the upload instructions for Medium-Low and Low PRISM impact (re)insurers; - eXtensible Business Reporting Language
("XBRL") – updated information on the Data
Point Model and XBRL taxonomy design was published on 28 May and
EIOPA are requesting technical feedback from relevant market
participants.
EIOPA is also developing a tool to allow (re)insurers to deliver their quantitative reports in the XBRL format necessary for the preparatory reporting period and for Solvency II reporting. - Industry Survey Announcement – in order to supplement on-going supervisory engagement during the preparatory period, the Central Bank will conduct a survey in both 2014 and 2015. The 2014 survey will be conducted in Quarter 3, 2014 and will be issued to Medium-High, Medium-Low and Low PRISM impact (re)insurers.
- Solvency II Timeline – this sets out a list of indicative dates starting from April/June 2014 (public consultation on the ITS – 1 set) to 1 January 2016 (i.e. Solvency II implementation date).
- National Specific Templates – the Solvency II Directive provides for the submission to supervisory authorities of information necessary for the purposes of supervision. This includes the Solvency II Quantitative Reporting Templates ("QRTs") defined by EIOPA and information necessary to cover national legal requirements or local market specificities. Working to the principle that any such national-specific information is essential and cannot be gleaned from the standard QRTs the Central Bank is currently working on what, if any, additional reporting information it may require. Moreover, the type and quantity of any additional reporting will be kept to a minimum.
A copy of the Central Bank's Issue 13 on Solvency II Matters may be accessed via the following link:
To read this Update in full, please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
