EU may delay Solvency II insurance capital rules to 2015

by Artemis on September 20, 2012

European Commissioner Michel Barnier, who is responsible for the implementation of the Solvency II regulatory rules, has proposed to halt the talks discussing the issue until a new study can be undertaken into the impact of Solvency II on insurers and reinsurers. The talks between European member states and the European Parliament appear to have reached an impasse and the Commissioner proposed that the European Insurance and Occupational Pensions Authority studies the potential impact of the rules.

A spokesperson for Commissioner Barnier said that agreement on Solvency II should wait until the impact of the rules had been assessed and reported on by EIOPA. “Making sure that EU rules favor long-term investment for our economies is key for Commissioner Barnier, as is improved risk management for the insurance industry,” said spokesperson Stefaan De Rynck.

The risk and capital management rules that Solvency II comprises, much of which relate to capital adequacy and capital requirements so could impact risk transfer and reinsurance provisions, were slated to be fully implemented by January 2014. This latest development looks like it could possibly delay Solvency II implementation by another year, which will please re/insurers who have been calling for further diligence to be done, but will not please some companies who have spent millions preparing themselves for the new regime.

Under Solvency II insurers and reinsurers would be required to retain much greater levels of capitalisation to manage claims following major losses. This has led many to suggest that the catastrophe bond and insurance-linked securities market could benefit from Solvency II as those instruments are fully collateralized, along with capital markets backed collateralized reinsurance covers. Solvency II also promises to treat risk transfer instruments on a more level playing field for capital adequacy purposes, which again could lead to additional use of ILS, cat bonds and similar alternative risk transfer instruments.

It’s being reported in the news that Barnier has requested a one year delay to Solvency II, to allow final issues and disagreements to be overcome. If the timeline is to be changed it will require agreement from both the European council and the European Parliament.

It would be prudent to ensure that the impact of Solvency II is fully understood you would think, but in some areas of the re/insurance industry voices suggest that implementing now and making changes as we go forwards could be preferable to further delays. The road for Solvency II has not been smooth and this latest bump will likely upset certain parties even more.

Read other Artemis articles on Solvency II.

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