"Dear Deidre" - Cross border insurance flogging under General Good provisions

One for giggles more than anything else. The other day I spotted a response from Lord Hill, the esteemed EC Commissioner for Financial Stability, to a question arising from Deidre Clune, a relatively new Irish member of the European Parliament.

Good question, wrong Deidre...

Specifically, the question related to a Maltese-licenced insurer which hit the skids back in 2014, with the CBoI's summary information here. It seemingly only wrote business in Ireland (hence I suspect it was cheekily named after Ireland's TV sports channel to aid sales!), and therefore left every White Van Man/Woman without cover, until Ireland's Insurance Compensation Fund stepped in.

A few things stood out about this exchange;

• The then prospective MEP used the incident as political currency in the election campaign - "Vote me in, and I'll personally fix the EU insurance industry...", she almost said!
• That Ireland, the log-term epicentre of EU cross-border distribution and birthplace of Quinn (which almost turned over the UK White-Vanners back in 2010), would have the brass to nibble at the hand that feeds it! Only 3 months ago, the CBoI's Sylvia Cronin was warning of a likely "...increase in cross-border activity", and at the same time EIOPA's Sr. Bernadino left a not-too-subtle hint that "In the specific case of the Irish insurance market, special attention needs to be devoted to the fulfilment of the general good provisions of host countries by the companies selling cross-border."
• That it took 6 months to get an answer to Deidre's very basic question (at least according to her first public mention of a response in this media article). It took an extra two months for that answer to be published formally.
• That in that article she was reported to believe that the measures spelled out by Lord Hill were to "...prevent this from happening again" (as opposed to enhance policyholder protection while facilitating orderly failures when they occur, etc etc). To be clear though, that is quoting the article, not the member!

Does anyone think that now, even after EIOPA's efforts to-date, that supervisory colleges will be effective enough to prevent these kind of events, or do we just buy local and hope for the best?

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..."

Governance Matters correspondence with the European Commission - Klaus but no cigar?

I mentioned that back in June that, as part of the EU-wide informal Solvency II shutdown, that I had fired off a couple of notes to various EU bodies to see whether or not a second "Quick Fix Directive" would be needed, or if the Commission were going to start proceedings against anyone who hadn't transposed Solvency II into national law (given that, after the 30th June, this was, on paper at least, a possibility).

We of course have had all of the information required on the matter since last week, and can now safely plan programme activity for 2014 and 2015, knowing that any forks in the road come Feb-March time may add another year to kick-off, but won't substantially change what supervisory authorities will expect from the industry.

That said, I was surprised and delighted to receive a reply from Dr. Wiedner on the matter today (below), albeit with an "after the Lord Mayor's Show" feel about it! In it he acknowledges that the threat of proceedings is indeed a viable one, but one which of course wouldn't be pursued in light of Quick Fix 2 (we'll work on the premise that it will sail through co-decision!).

 

So if you want your bureaucratic doors opened gently and without haste, you know where to come!

Insurance Europe on EIOPA's place in the European System of Financial Supervision

As a response to the European Commission's consultation on the new European System of Financial Supervision (ESFS) - you know, the one that gave birth to EIOPA and the other two ESAs - Insurance Europe have laid some home truths down in this questionnaire document regarding the performance of EIOPA to date, as well as problems they see on the horizon once Omnibus II gets through.

Due to the lack of transparency in much of the work performed by EIOPA to date (a by-product of their remit being squirrelled away in the Omnibus II dossier?), I found some of this comment very revealing from a body which I expected would be relatively pally with them. Specifically, I noted the following opinions;

• That ESAs should not issue Guidelines that circumvent legislative powers - these generate blurred lines between technical matters (where their input is welcome) and strategic/political matters (where it is not). Precisely here that would leave EIOPA's Solvency II Interim Guidelines in their ideal world is another thing I guess, though they go on to say that the "...level of detail on the Solvency II implementing measures is alarming", and indeed were pretty vocal in their public response to them.

  

  EIOPA Guidelines - back door regulation?

• That there is an absence of clear definition in EIOPA's materials around where Regulatory Technical Standards (RTS), Implementing Technical Standards (ITS) and Guidelines differ - going on to suggest that there is an element of "regulation by the back door" in the Guidelines issued to date.
• Concern regarding the level of power left in EIOPA's gift to adopt RTS, citing as an example that EIOPA have brought back (as part of L3 consulations) a proposal to make external auditors review SFCRs - this proposal having already been jettisoned by the Parliament at L1!
• Suggest that the Commission should have a vote in contentious decisions within EIOPA (the Commission attend in a non-voting capacity currently) 
• A diva-esque rant (p12) about the quality of EIOPA's processes and outputs during consultations (lack of feedback, poor quality documentation), as well as suggesting that consultation participant quantums are overweight in academics at the expense of the industry.
• That some of the membership of Insurance Europe would welcome qualified majority voting in the ESAs weighted by size (let me guess who!).

So without having been handed their full schmorgasbord of powers, EIOPA are already being lambasted for their use of them - tough break!

More from EIOPA and PRA on internal models - anything you can do...

Certainly looks like there is a bit more mileage in this back-and-forth around internal models and the assessing of their appropriateness. As I posted recently, the UK's PRA have come out fighting on the subject of 'Early Warning Indicators' (EWIs) to highlight where a company's internal model, for fair reasons or foul, may be measuring the Solvency Capital Requirement in a way which does not meet the required calibration standard of the 1-year VaR at 99.5th percentile.

Early Warnings - time well spent?

EIOPA, through the words of their Chairman, have already made a pitch for assessing internal models on behalf of our overworked national supervisors, at least at some point in the medium-term future. It would now appear they have also piggy-backed the PRA's work around developing and monitoring EWIs as well!

That article is on Risk.net, so for non-subscribers, EIOPAs work is specifically looking at (in the author's words, not EIOPA's) "...threats to a firms solvency that are not picked up by the company's internal model". These will include qualitative and quantitative measures, and are due to be discussed (by their internal models committee) in the Autumn -  you know, that relatively quiet point in the Solvency II implementation calendar...

The EWI article was published at the same time as an interview with Sr. Bernadino and Insurance Risk magazine was released, where the tone of the interview is particularly aggressive around EIOPA's inability to compel national supervisors to "comply" with their recently-issued preparatory guidance. Whilst it is hard not to admire his optimism ("we are moving closer to the date of implementation"), he is quite fixated with "some countries" who, without EIOPA's guiding hand, he feels would end up divergent from the rest of the market.

I certainly am not familiar enough with continental Europe's positions as it stands, but it certainly reads like a not-too-subtle finger point at Royaume-Uni at the very least. He also goes on to mention that, while 'full Board support' was received at EIOPA to issue the preparatory guidance, not all participants were 'completely happy'. One would certainly feel aggrieved at the smaller end of insurance supervisors to comply-or-explain on preparations for a new regime which doesn't have a kick-off date, while still having to administrate the existing one!

An interesting side-issue around potential discord amongst the states is this recent request (which I have procured through the magic of Google!) from most of the Member States for a second "quick-fix" Directive, based on the fact that some of the implementation countdown dates that feature in the first one are next month (good spot Gideon)! According to the letter, the Commission already appear to have singularly ruled out the need for another quick-fix,

Four countries didn't make it onto the list of senders (Ireland, Netherlands, Malta and Lithuania) - not concerned, or not consulted?

Also worth highlighting the recent spectacularly ill-timed London press strafing of the internal modelling world - an strange development, particularly at the same time that the UK Independence Party has been lifting up its dress for London's financial sector to have a gander underneath. With some of the UK's bigger beasts such as L&G and Pru already openly hostile to Solvency II (and Resolution being an early faller in the IMAP stakes), is there potential for the rinsed-out UK insurance sector to throw its weight behind a political force such as UKIP, who would happily make an EU Directive bonfire, using Solvency II for kindling?

EIOPA, Parliament, IRSG and LTGs - momentum sustained?

I guess I should start with a Blein Vie Noa to one and all - after a relaxing few weeks in France I am now back on the beautiful Isle of Man sizing up opportunities for 2013 and beyond.

I didn't expect I would be missing much over the festive period and, other than the FSA sacking-off their proposed January IMAP industry briefing in favour of a (yet to be delivered) letter, things did go quiet. Freshfields kindly filled some airtime by pulling together another of their "where are we now" summaries that remain excellent (and free) materials that I would recommend punting on to your non-executive directors.

Luckily the noisemakers got back in the game as soon as school restarted, focused largely on the content of EIOPA's Insurance and Reinsurance Stakeholder Group's minutes. This meeting was held in October, so in terms of new news, it is right up there with "Earth is not flat". That said, we don't all have access to the inside track before publication of such materials, so it was interesting to pick through the doc for steers. I noted the following;

• Continuing problems with terms of reference for the LTG assessment (indeed the LTG sub-group note on p7 that there isn't even a EU-consistent definition for LTG!) - still looking like it will impact on the designated Plenary session for Omnibus II due to a combination of last minute delivery of the technical specifications to the industry itself as well as the output report to the Parliament, who themselves were reported today as being less than impressed with the final TORs. The potential number of scenarios in the assessment also clearly remains a sore point.
• Acknowledgement that "Autumn 2013" is now "best case scenario" for Omnibus II adoption, though, according to van Hulle at the last EIOPC meeting, the Commission and Parliament remain almost diametrically opposed on what should materialise at Level 1 and Level 2 (full minutes from EIOPC here)
• Confirms the ex-ante approach is favoured by Parliament and Commission (significance covered by Gideon here), and that Parliament have no wish to commit to an implementation timescale.
• The Council members are being "heavily lobbied", fostering implementation uncertainty.
• Attending stakeholders supported a definitive 2016 date.
• The IRSG's Governance sub-group flag up consistency issues around Fit and Proper regs as well as the "AMSB" term that I'm sure we have all had practical issues with over the last 2 years!
• Proportionality remains a "main concern" for mutuals, as well as smaller insurers - despite having a designated sub-group, any substantive guidance on applying the proportionality principle looks a distant prospect at best.
• Astonishingly, minutes from May 2012 could not be approved due to EIOPA's "workload" - small instance of an institutional tardiness problem?

Whether or not the industry is losing it's appetite for the Solvency II banquet, when you check out EIOPA's workplans for the next couple of years, at least one body will be filling its face!

Another interesting piece came out in the last week, when InsuranceERM pushed out the findings of a Solvency II roundtable (no sub required), bringing in a few UK-based CROs and the like, ostensibly to chew over the loss of momentum in the project. A few noteworthy bits jumped out;

• Solvency II balance sheet appears to be off the agenda for ICA+, for both regulator and industry
• Perception that, with the transition of regulatory "ownership" to the Bank of England, there is a decreased likelihood that the industry will be able to use Solvency II as a capital release mechanism
• A suggestion that the FSA was more minded towards EIOPA's opinions than the industry's during IMAP 1.0, something which has seemingly reversed with the advent of ICA+

One certainly hopes that the UK industry and regulator can make a decent fist of this indeterminate transition period without having to break the bank...

Solvency II timeline changing - 2014 anyone?

Not sure who the moles are in either London or Brussels, but there appears to be some water-testing ongoing about a soft launch of Solvency II over the weekend, with the FT reporting that "people familiar to the process" have it chalked down for implementation in 2013, but not active until 2014.

I can't quite work out if there is some confusion over transitional measures already in Omnibus II just being regurgitated, or if they have a genuine sniff of a shift in timeline here.

They interestingly note that the French had previously asked for a 2013 launch, with a year's grace on Pillar 1, and that this had made it on to the table at the Commission.

[Apologies in advance if you cannot link through, some of these are subscription/limited access]

PRIPS - EU Insurance industry dodging a bullet?

I had lost track of this one while concentrating on Solvency II, but the draft EU legislation on Packaged Retail Investment Products (PRIPS) is reportedly due to be watered down into irrelevance.

From a governance angle, there was some leverage in this proposal as it was drafted (sharp remuneration practices on some of these product types would surely have been blunted), but the industry didn't seem to fancy it from the off, and it looks like they will get their way. Admirable ambition from the EU, but may need to wait.