Brussels, 14/11/2013 (Agence Europe) - Representatives of the European Parliament and the EU Council of Ministers reached agreement in principle in the night of 13 to 14 November on the draft Omnibus II directive that complements the Solvency II directive on prudential rules for the insurance industry.
In a press release, EU Internal Market Commissioner Michel Barnier said the agreement was a very important stage for the insurance industry in Europe because a modern, prudential solvency system based on real risk assessment will be created on 1 January 2016.
The negotiations had been in deadlock over the introduction of counter-cyclical measures restricting over-volatility in the market in order for life-insurance companies to be able to continue to offer long-term investment products (see EUROPE 10868). The measures cover, for example, pension products or life-insurance that requires the insurer to pay a lump sum to a customer reaching a certain age. The measures include a “volatility adjustment” of 65%; a “matching adjustment” ratio of 35% for private bonds and 30% for sovereign bonds.
The corrective measures are wholly justified because insurers keep their products until maturity, explained Burkhard Balz (EPP, Germany), the EP's rapporteur on the matter. He fought hard to ensure there was a 16-year transition period for life-insurance products to allow existing contracts to adjust to the new rules.
“This is not prudent regulation. According to EIOPA assessments, it would appear the package provides a whopping €277 billion in capital relief and life insurers will be allowed to hold solvency capital of just 4.5% of their assets”, warned Sven Giegold (Greens/EFA, Germany) in a press release. He said he would be shedding light on the quantitative data produced by insurers using the contracyclical measures.
Equivalence. In the final inter-institutional negotiations, measures were introduced to allow the European insurance industry to continue to work in other parts of the world, particularly in the United States, by continuing to use local solvency calculation methods. Provisional recognition of equivalence has been introduced for a ten-year transition period, which can then be renewed. Sharon Bowles (ALDE, UK), chair of the EP's economic and monetary affairs committee, explained that there was considerable penetration of the US market.
Bowles said that the conclusion of the negotiations was a great day for the insurance authority, EIOPA. The domains in which the EU insurance authority will produce technical standards have been laid down. The technical standards will be used as an additional convergence tool, in connection with supervision as such. EIOPA will also have a procedure to ensure a balanced settlement of disputes among national authorities.
Next week, the EP will vote on all the Solvency II rules coming into force on 1 January for the insurance industry. Member states will then be required to transpose the agreement by 31 March 2015. The draft Omnibus II directive will be put to the vote in plenary in February 2014. (MB/transl.fl)