PRA, BaFin and Disclosure - Grüne with envy...

Without being hypercritical, it occured to me that the PRA appear to be keeping materials and opinions "on the downsie" at a time where perhaps the industry would benefit from their overexposure, and I can't work out why.

A few things triggered that thought over the last week;

• The Internal Model Validation presentation delivered by a PRA representative to the Institute of Risk Management's Solvency II group, which publicly elaborates on the topic more than anything I have seen on the PRA site.
• The apparent failure of the PRA to follow their own Terms of Reference for their recently convened Regulatory Reporting Industry Working Group by not publishing the minutes of the December meeting yet. The TORs say 10+2 working days, and I can't find them anywhere!
• The recent overwrite of the PRA's initial response document to EIOPA regarding "comply or explain" for EIOPA's Preparatory Guidance, which has not yet been "explained" to the industry they oversee! (Well spotted John Walton)
• The almost diametrically opposed position which BaFin have taken over in Germany, where they unequivocally lay out their intentions regarding "comply or explain".

It is worth expanding on the last point, bearing in mind what a useful piece of text it is for anyone looking to confirm within their own Programme how best to interpret EIOPA's guidelines. BaFin explicitly state;

• Insurers should "immediately take the necessary steps" to implement the Preparatory Guidelines.
• That "undertakings are effectively the target audience" for the Preparatory Guidance, which I am delighted to see acknowledged publicly by such a significant participant.
• It is up to each insurer to determine the order of their implementation activity prior to 2016.
• That, for the benefit of the industry, BaFin have carved up the Guidance into 15 blocks, and will provide "additional information and tips" periodically over the next two years.
• That a special activity for Life Insurers will take place, one suspects in order to help identify the capital shortfalls hinted at at the back end of last year for those with high cost of guarantees.
• That everyone is expected to participate in the QRT exercise, ignoring the thresholds offered by EIOPA to the NCAs.
• That they will be translating any EIOPA texts released prior to 2016 in English-only into German.

Whilst it may be a case of thinking das gras ist grüner, it would be easy to envy the German contingent when offered this level of disclosure and certainty in dealing with the preparatory phase. What say you, Moorgate?

Omnibus II text released - first casualties emerging?

It was left to COREPER to announce that the Council and Parliament have agreed on the compromise text for Omnibus II, leaving the formality (!) of the Plenary vote on February 25th as the final hurdle before, well, the next set of hurdles. But here she is - 156 pages of over-masticated Eurobelch that has held the authors hostage for years like a slaphead in Rapunzel's spare room...

Omnibus II draftsmen - you're free to go

Chris Finney has already picked a couple of bones out of it, which look good for any EU multinationals with non-equivalent subs on the face of it. I'm not inclined to peel it apart on screen (I'm sure someone will do that for us in the next couple of days), but since the Commission's original proposal we do get;

• An enormous amount of preamble to factor in EIOPA's new role, which gets more elaborate with every paragraph,
• References to IAIS developments for future considerations on the equivalence front (will that be enough to cover the States and Canada long-term?)
• Some hard coding of references to "20% of market" for exemptions from reporting requirements,
• Visibility of the drop dates being proposed for EIOPA to deliver implementing and regulatory technical standards to the Commission - a reasonable amount are due in less than a year, including on model approval and "major" model changes.

As EIOPA will be penning all technical standards for the Commission, and relations between the two seemingly cordial, we might assume that EIOPA's views (which were almost immovable during the consultation on their preparatory guidance) will inevitably come to the fore in the final set of implementing measures.

Whatever comes of it, it would appear that the trilogue negotiations haven't quite done the job for the German contingent, with Hr. Hufeld from BaFin suggesting there are "5 to 10" insurers under his watch in danger of failure, a week after the German Government referred to a "balanced package" of help for their (seemingly) beleaguered industry which will be introduced in early 2014.

"Das Gleichgewicht wird zum Verlust..."

Germany, BaFin and Solvency II - Tchüss wisely...

With the British Lions rugby team having had such a marvellous summer, it's nice to see that the spirit of "getting one's retaliation in first" has been brought back to Europe with them. The Executive Director of insurance at BaFin, the German regulator, came out swinging late last week (while the rest of Europe was lotioning up), and delivered his two'penneth worth on, amongst other matters, the Long Term Guarantees situation currently holding up Omnibus II.

Omnibus II trilogue - work to do

This is the same man who has recently been quoted as saying that delays are not a problem, as "Solvency II was not designed for today". Which is true - strictly speaking, it was designed for about 8 months ago!

The German contingent have been labelled in a number of articles (here, here, here and here) as a major source of legislative delay (presumably ever since they twigged that the proposed design of the extrapolation element was massively unfavourable to their industry), and the lobbying angles pursued here are not really new news, but to emphasise;

• Concerned about the increase in interest rates at Central Bank level - "should be carried out gradually", though rather disingenuously saying that they would have no influence in that - BaFin may not, but Chancellor Merkel and the overflowing pot of export surplus certainly does!
• Solvency II go-live of Jan 2016 "absolutely realistic" provided the trilogues are finished this year - I've noted in earlier posts that the official schedules of the co-legislators are looking shoddy in this respect, so I'm more inclined to side with S&P (and indeed the president of BaFin!)on 2016 being on shakier ground than a Hippo's decking..
• That transitional periods should be determined individually in accordance with a firms existing maturity profile - they want to avoid an insurer "falling over" just to meet the new regulation. Worrying that after 10 years of efforts, Solvency II compliance still carries such a credible threat of business closure! 
• As they have so many insurance contracts (90m cited), they would simply "say goodbye" in a worst-case scenario if they don't get their way on transitional periods.

So the likelihood of the German industry "taking one for the team" here is pretty small, and with Hrs Balz and Giegold having made it pretty clear that the LTGA result will not elicit a swift conclusion to trilogue negotiations, it looks like there's still plenty of talking to be done...

Solvency II compliance ahead of "Go-Live" date - over to you, regulators

Judging by the rather resigned tones around the achievability of Solvency II "go-live" by 2014 (CBoI recently joining the FSA) and 2015 (here and here), there appears to be a growing swell of support for implementing some of the less wobbly bits sooner rather than later.

While it's unlikely that there will be more spurious adoptions than a Madonna safari trip, it is interesting to see what we can point at to-date;

UK - ICA+ regime, which lends itself, subject to the quality of the ICA-to-SCR reconciliation, to implementation from as early as year-end 2013, though one suspects 2014 is a safer bet.

Germany - Cheeky bit of Pillar II, judging by Bafin's (indirectly quoted) comments on Reuters today, although what "some risk controls" actually means is another thing!

Ireland - via the sterling work on PRISM, fitness and probity and corporate governance, it's hard to argue where they are not already Pillar II Solvency II-equivalent (at least in word, if not in deed!)

France - reference to compulsory submissions to the ACP in XBRL by Q1 2014 at the bottom of this doc, apparently confirmed at a recent soiree.

So we could very well have 3 Pillar coverage by 2014, just randomly spread out over multiple countries...

Any more for any more?

Internal Models - more "Hassel" than they are worth?

Pardon the dodgy David Hasselhoff pun (product of an idle mind!), but it looks like a storm is brewing with out German pals on the internal modelling front - hot on the heels of Hannover Re's threat to abandon ship via a Societas Europaea passport to an easier ride, Gothaer, a German mutual, has now apparently decided to give up altogether.

Whilst the knowledge that people are giving up part-way through is not new (the UK managed to slim down from 100+ expected to 70-odd pre-applications between 2010-11), I was under the impression that Bafin were not dealing with a huge number to start with (this seems to suggest no more than a dozen), so to see two teetering on the brink is newsworthy I guess. 

It could be that these guys have seen something in the Commission's draft Level 2 that they don't like, or indeed the outcome of the ECON lobbying didn't quite go there way, but anything which leads to insurers not measuring their overall solvency needs using their own experience analysis and calibrations is surely unwelcome.

Some good quotes on just how onerous Bafin may be are included in this article (subscriber only I'm afraid), the most telling perhaps being "So far we see very few small insurers building an internal model [or partial model],". Very few, minus one, it would appear...