Trade body Insurance Europe has welcomed the launch by the European Insurance and Occupational Pensions Authority of an assessment to find the most appropriate treatment of long-term guarantees under Solvency II.
"The decision to carry out the assessment shows that legislators recognise that changes are needed to ensure that Solvency II measures the real risks in insurers' long-term business," said Olav Jones, deputy director general of Insurance Europe.
"If these seemingly technical details of the new regime are not correct, the impact on the European insurance industry, its clients and the economy would be severe."
"Solvency II must not create unnecessary barriers to insurers providing guarantees for customers and investing long-term, not least because the insurance industry is by far the largest institutional investor in Europe, with over €7.7trn in assets."
However KPMG warned that the launch of the study could herald further delays to the Solvency II timeline.
"Nine weeks to complete such a critical study is not long, especially when that period coincides with the key financial reporting period. This will put a lot of pressure on resources for those insurers that are participating. Given the delays in issuing the full specifications, significant time will be spent in the first few weeks assessing the detail required before the numerical assessment can even commence," said Peter Ott, European head of solvency II at KPMG.
Janine Hawes, insurance director at KPMG, added: "The late release of the full requirements has limited the amount of preparation that firms have been able to do in advance of today's launch, so detailed planning now is likely to be the key to successfully completing both the study and the year-end accounts.
"Completing all scenarios to the level required will require significant dedicated resources. Where firms have only limited resources available to support the work, they will need to determine how best to meet the requirements of the study. In some instances, they may decide to employ external resources to assist them, either directly in the study or to backfill other roles. Others may decide to adopt simplifications or perhaps not to cover every scenario required.
"Simplifications or reduced participation levels will impact on the final results. If Solvency II is to end up in a position that is viable for the [UK] insurance market, then results need to be representative of the market. It is not clear that this will be the case if a range of potentially inconsistent approaches is adopted within a market. Firms will need to clearly articulate the approach taken and explain in the narrative responses the practical issues they encountered during the exercise as well as the solvency impacts of these. EIOPA will need as much information as possible to enable it to suggest a way forward."
Janine Hawes, insurance director at KPMG, concluded: "The European Parliament plenary vote on Omnibus 2 was pushed back to accommodate this study and is currently scheduled for 10 June. However, it seems unrealistic to assume that a mutually acceptable solution to the long-term guarantees issues, as well as all remaining outstanding differences on Omnibus 2, will be fully resolved in the trilogue process before that date. We are expecting that this vote will be further delayed until after the summer recess, with a second ‘quick fix' directive required to amend the implementation date."
Updating your subscription status
Insurance companies have high digital ambitions but have failed to take action and embrace the digital world.
Insurers and reinsurers will benefit from the next, and much more transformative, USD100 billion of alternative capital that will enter the reinsurance business over the next five years. Aon Benfield's report examines the trends seen in the global reinsurance industry during the first half of 2013.
The insurance claims process in the London market has seen relatively little change since the 17th century. However, innovative insurers are driving change as they aim to gain a competitive advantage. This paper studies how technology will revolutionise claims management practices by 2020.
As online fraudsters have become more sophisticated in their activity, the threat of cyber crime has grown exponentially. Despite several high-profile cyber attacks on major corporations, the insurance industry is still behind the times when it comes to cyber liability. How can it catch up?