Solvency II Delegated Acts available online (kind of...), plus EIOPA's plans for 2014/15

So let's start with something a bit unexpected - DRAFT DELEGATED ACTS! ONLINE!

I'm not sure who the leaky uploader is (appears to be a Spanish consultancy firm), but the document is very much online. Sadly, it is only the January 2014 version, which as you will see in the rest of the post, has just been superseded, but it definitely pairs up with the version currently doing the rounds, I promise!

I have managed to get a sneak preview of the latest version of this document (dated 14th March) which have seemingly managed to burst the banks of the tightly-knit circle of advisors, and are now no doubt winging their way to a Solvency II Programme Director near you! There are "tracked changes" on the March document now circulating, which only appears to cover changes since the emergence of the January document hyperlinked above.

Lord help anyone who wants to trace it back to the more familiar 2011 (unpublished) draft, you might as well draw a load of foxheads on sticks...

Insurance Europe were obviously part of the privileged few for the March revisions, hence they fired out this missive last week regarding all of the Pillar 1 technical areas which they feel (on behalf of the industry) remain deficient. There are no real surprises in their list - it is the same topics which have been on the whinge-list since EIOPA's LTGA last year, and indeed earlier in the case of the Currency Risk approach and Own Funds classification.

Following on from the draft Delegated Acts being made more widely available, there has been a reasonable amount of noise in the paid-for press (here, here and here for subscribers), as well as Insurance Europe's top man having a lobbying call published in the FT (here).

Being more of a Pillar 2 man myself, I thought I would check to see what, if anything, had been tweaked in my areas of interest. The impression given earlier this year was that little had changed outside of the Long-Term Guarantee elements, and that was certainly true if you compared the November 2011 and January 2014 documents.

However, having examined the amendments in the March 2014 version, I have found is that a few areas of governance (both SOG and Internal Model governance) which were previously untouched have actually received a fair bit of treatment, for example;

• Changes to the requirements for internal audit function holders not to cover multiple control functions (this constraint has been removed). This is presumably to pacify the smaller firms across Europe who have a Risk/Compliance/Internal Audit multi-tasker, so textbook "three lines of defence" have taken a bath in the interests of proportionality.
• The devil remains in the detail though, as the amended text allows someone to "carry out" more than the IA function, but seems to stop shy of them "taking responsibility" for other functions. Not sure how that will work in practice.
• Changes in the IM Validation space, in particular the removal of the requirement for a "Validation Policy". Fair to say most firms in IMAP would have produced one of these at least a year ago now (plenty of industry references here, here, here (p8) and here for example!), and while still a document of merit, does a "validation policy" now constitute gold-plating?
• Changes in the required Internal Model Documentation, targeting a much slimmer set of compulsory documents. This includes replacing a number of "policies" with "descriptions of...", which will no doubt be well received by those supervisors with multiple internal models to assess over the next 18 months!
• The tiered timescales for submitting QRTs, SFCRs and RSRs have now moved into the Directive, via Omnibus II text (as opposed to haveing been deleted, which is what it looks like at first glance!)
• A few of the other TSIM articles (Tests and Standards for Internal Model Approval) have been enhanced. "At least quarterly..." assessment of the IMs coverage of material risks is now specified, for example. Quite how the hard-coding of the regularity cramps your actuaries' style is another thing! 

I strongly suggest you all get back to work and check for yourselves!

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, Omnibus II and Trilogue - two steps forward, two steps back?

Headline results from an Economist Intelligence Unit survey have been published this week, apparently suggesting that most global insurers continue to see Solvency II as their biggest regulatory challenge. Despite its prominence in the agendas of insurers' committees, boards and control functions, the legislation appeared to have taken a back seat in the decision-making fora of the European Union since the publication of EIOPA's LTGA in June.

So while the EU Parliamentarians go off for their hard earned 5 weeks in the sun (and by association Omnibus II/Solvency II will temporarily sit untouched like a pair of pink booties in Buckingham Palace), we can try and work out what the crack is with the dossier!

Trilogue
So with the Trilogue process itself necessarily one of closed doors, secret handshakes and unpublished shady deals, at least we formally know that they reconvened before the summer holidays thanks to Sharon Bowles' diary handler! Other than InsuranceERM's piece on a "muted start" to the negotiations (subscription only), the well is pretty dry on comment, suggesting that they got off to an inauspicious (re)start.

Parliament
As far as the latest ITER listings go (p1), ECON will not be considering the dossier again until 18th November 2013. From what I can read of the Parliamentary calendar, that is too close to supply the November Plenary with anything to vote on, and the December one is scheduled early in the month. Fair to say that, as indicated by Burkhard Balz last month, the Parliament won't vote on Omnibus II before 2014?

Council

Bed made - but covers stolen...

So the Lithuanian presidency is in town, and apparently sees the Omnibus II dossier as having "high importance" (p3) within their recently published work programme. ECOFIN have a state of play meeting provisionally scheduled for 15th October 2013.

That said, when pressed for comment when attending ECON before the summer holidays, they seems to have learned from the Paula Abdul school of making progress: for the two steps forward indicated by the Lithuanian Finance Minister's comment that the Presidency is committed to resolving, amongst other dossiers, Omnibus II (p12), he immediately takes two steps back by noting one of the key tactics will be "...focusing on uncontroversial technical issues to facilitate progress" (p13) - might be OK for some of the multitude of delayed dossiers, but not this one!

EIOPA
EIOPA naturally consider their work largely done for Omnibus II, and consider the report a "reliable basis" for making decisions on LTGs, and ultimately Omnibus II itself. Sr. Bernadino did however admit at the ABI conference a week back that, for 2016 to remain a viable "Go Live" date, political agreement on Omnibus II would be needed by the end of this year. Judging by Parliament's position above, I guess 2016 is out then!

European Commission
While Commissioner Barnier had lavished praise on EIOPA's, errr, "very good [LTGA] report", the Commission has lost its Solvency II specialist to retirement during this year, which might lead some observers to believe the Commission will be less effective as a negotiator while the new boy learns the ropes. However, Gideon managed to get some words from Karel van Hulle's replacement a couple of weeks back, and his modus operandi doesn't sound like one which will lead to a swift decision at the expense of one or two angry outliers in any case.

Specifically his comment that "We need to find a solution that works for almost all Member States. That is our ambition. So we don’t like to get the project through, just about ", suggests that anyone at the table with a gripe will get some airtime. With the LTGA outcome causing more gripe than at a constipated nursery, I suspect that the delays caused by the current 5 week vacance soleil will be a mere drop in the ocean...