Thursday, 27 June 2013

Solvency II delays - the unanswered questions...

There's a couple of unanswered questions loitering around in the Solvency II space which I'm sure a more plugged-in switched-on kind of girl could answer, but which I'm struggling to pin down. Looking forward to hearing from anyone on the following;

"Quick Fix 2" - as far as the paperwork from the first "quick fix" is concerned, the Solvency II 'clock' starts ticking on 30th June 2013, and despite the brave attempts of a cabal of Parliamentarians to obtain a second "quick fix", it seems like they failed. Is the clock really ticking for transposition into national law as of Monday?

Omnibus II - putting quick fixes to one side, the anticipation of EIOPA's LTGA report feeding into a positive EU Parliamentary Plenary vote in October 2013 was one of the anchors of what one might call a timely implementation calendar (i.e. 2016). In a typically unannounced manner, the indicative Plenary date, which had already been kicked down the road at least seven times, has this week been inauspiciously removed from the Procedure File entirely (confirmed here on the 'History' tab on 20/06/13).

With EU Parliamentary elections scheduled for May 2014, and Parliament begging for the Solvency II inertia to be broken beforehand, do we reasonably have another window to get Omnibus II through a Plenary vote before that political upheaval, or is the removal of an indicative date acceptance that the LTGA has generated more problems than it has solved?

(Level 2) Implementing measures - the European Commission had these timetabled in their 2013 "expected adoption dates" list, chalked down specifically for Q4 2013. In the last two months this has been removed from the list in its entirety (well spotted Norton Rose). Is this direct acknowledgement that, as indicated by Burkhard Balz last week, that there is no chance of Omnibus II clearing the Plenary hurdle this year?

Someone must know something - don't be shy!

Monday, 24 June 2013

EIOPA's Long Term Guarantees Assessment and the early fallout - Plenary delay pending?

EIOPA's Long Term Guarantees Assessment rocked up last week while I was enjoying my new arrival, perhaps the most eagerly anticipated document out of Frankfurt since the days of Goethe...

Wielded fiercely all year by all stakeholders in need of an excuse for the delays in Solvency II's legislative passage (and hence the need for more budget), it appears to have variously pleased everyone and no-one at the same time. The key findings/recommendations are nicely summarised here.

Major players have since piped up with the following over the last week, none of which suggests the report's conclusions will be ole'd through the trilogue and parliamentary vote. 

EU Institutions

- "We are confident that the results of the LTGA, combined with the EIOPA advice will provide the EU political institutions with a reliable basis for an informed decision on the long-term guarantee measures and a conclusion on the Omnibus II negotiations"
- "The Commission trusts that the Council and Parliament will use this very good report and its findings as a basis for an urgent agreement on Omnibus II and show pragmatism and willingness to compromise"
- "Speaking for the European Parliament, we are very confident that Eiopa's work and the subsequent analysis will provide for a successful restart of the negotiations, and as rapporteur, I am ready to start as quickly as possible, even before the summer break, to pre-launch trilogue negotiations. It is our firm intention to conclude the long-term package before the end of this year, so we can adopt Omnibus II in early spring 2014"

Industry representative and lobbying bodies 

- Insurance Europe - "Insurance Europe’s preliminary review of EIOPA’s proposed improvements to the Solvency II regulatory regime shows that adaptations are needed to avoid unnecessarily damaging insurers’ ability to provide long-term guarantees and invest long-term"
- GCAE - "With the publication of the report, the EU is one step closer in the process to finalising the Solvency II dossier"
- UK's ABI - "The EIOPA report is a small step in the right direction. But there is still a long way to go before British pensioners can be confident of a reasonable deal on their annuities"
- Institute and Faculty of Actuaries - "Today’s proposals outlined by EIPOA (sic) would seem to address many of the important issues. However, the detail needs to be worked through and the effect in a variety of scenarios assessed, before the full implications of the proposals for companies and their customers can be understood"

Ratings agencies
- Fitch - EIOPA’s proposals “offer no prospect of an end to the long-running dispute between regulators and insurers over suitable capital levels for products with long-term investment guarantees"
Print Media
- Commercial Risk Europe - "...unlikely to resolve key issues stalling the implementation of Solvency II and may lead to yet further delays to the Directive"

- PWC - "many insurers may find the proposals onerous and will not welcome the continued uncertainty over the final rules. We anticipate there may be concerns about the capital required for certain types of assets backing annuities in particular; and the effectiveness of measures designed to address short-term asset volatility"
- KPMG - " is likely that certain European countries will look very unfavourably at the EIOPA proposals."

I have emboldened the quote from Burkhard Balz above which suggests that the Omnibus II vote is going to move again. The rationale for that is two-fold; the prospective Plenary date (which was down as October 2013) appears to have suspiciously disappeared from the EU Parliament's Omnibus II procedure file altogether, while Mr. Balz clearly states early 2014 is targeted 'adoption date' while 'speaking on behalf of the Parliament'!

Monday, 10 June 2013

Institute of Risk Management's latest on ORSA - presentations and surveys

I haven't kept too much of an eye on the IRM's Solvency II Special Interest Group activity, which during 2011/12 was prolific, but with the disappearance of the finishing line, I suspected there may have been some fall off. There has certainly been a Partidge-esque rebadging of it (now called 'ERM in Insurance'), which I suspect helps most attendees justify to their bosses, in the face of interminable Solvency II delays, taking half a day off to attend these shindigs!
Rebadged - IRM's Solvency II SIG

A recent one on the incorporation of ORSA into the business planning process is worth highlighting, being focused (at least on the face of it) on the more visceral elements of the ORSA process rather than the theory. While the Kiln CRO seemingly had more to say than was put on his slides, the Allianz UK Head of Op Risk noted a few things which those working in the field would benefit from benchmarking against;

  • Risk department seemingly responsible for ORSA report production
  • 'Record of ORSA Process' documentation - shooting for around 60 pages, which feels light to me as a "record" (about par for a "report" perhaps?)
  • ORSA Board report - summarised from the 60 pages referenced above, so again light
  • Lists some 'example' ORSA triggers, which are good for peer comparison
  • Seemingly will be validating their ORSA process, despite it not being a regulatory requirement.

The IRM's related survey also produced some notable material, particularly around participation levels - only 14 participants, compared to 22 back in 2011 and 33 this time last year, showing perhaps the extent of the fatigue on the matter. With the tiny sample also heavy in GI firms, one might take any revelations with a pinch of salt, however, I spotted;

  • Frequency - A quarter are planning to run the ORSA process quarterly, most going annually
  • Preparedness - Areas such as data quality, ORSA validation, ORSA record keeping and the forward-looking assessment are all lagging
  • Projection length - 80% going for 3 years, though the GI heaviness of the sample will have skewed this for sure
  • Projection technique - around half doing future years in isolation, and half doing multi-year (dependent) projections
  • Forward looking assessment - All respondents are factoring in expected risk profile changes into their FLAs
  • Stress & Scenario Testing - All respondents using scenarios with interdependencies, while two are not using reverse stress testing at all.