EIOPA's Montalvo on the Solvency II impasse - "more complex than it was originally foreseen"

EIOPA published a transcript of Carlos Montalvo, their Executive Director, speaking with Risk Universe magazine about the current state of play in the Solvency II/Omnibus II world. Always nice to hear from the horse's mouth, and he had a fair amount to say (with not all of it regurgitation!);

• "The objective of Solvency II is not to reduce risks, but to allow companies to properly understand, price and manage the risks they face" - we frequently hear from the EU institutions on what the 'objective' of Solvency is, so I might do a clean-up post on this, particularly as the scare stories on the impact of the LTG assessment outcome on granny and grandad's pensions are increasing the prominence of the topic (the Advisory world being a prime example). 
• "Solvency II is more complex than it was originally foreseen" - early contender for understatement of the year...
• Credible timeline is "a must have".
• Insurers should "make sure that Boards of firms keep considering Solvency II a priority" - after  4 years of phoney war, easier said than done Señor!
• EIOPA's interim measures "...an excellent way for all parties to use the extra time of the delay as a way to be better prepared for implementation".
• Internal Models are "a fundamental management toolkit" - quite the opposite take of the wonderful blog post from one of Willis's finest last week, writing that actuarial models "take combinations of assumptions and torture them to come to conclusions"!
• "The ORSA Process must be owned by the company" - without any useful elaboration on what 'ownership' entails and how it should be documented from a system of governance perspective. I would add that the questioner's view that firms are still "struggling" with ORSA feels a touch dated, otherwise what has industry been spending its money on for the last 3 years

The standout comment on p4, for all the wrong reasons, is around the potential use of ORSA supervisory reports for the calculation of capital add-ons, stating "...if we would do so, it would be a one and done exercise". Can't work out if this is a misquote, mistranslation, or if I need a trip to the optician, but if there is any threat of ORSAs being used by national supervisors for this purpose, a direct, plain-English statement to that effect would be appreciated by all.

Clear Path Analysis - Interview with EIOPA's Montalvo

The guys at Clear Path Analysis have come through with another suite of exclusive Solvency II material, following along from their efforts in September 2012 and 2011 (sign up required if you are not already hooked up with them).

This is dominated by asset allocation and Pillar 3 requirements, and I'll cover through those in due course. It was the interview with Sr. Montalvo from EIOPA which immediately caught my eye, so I picked the following bones out of it:

• Solvency II is "...nothing more and nothing less than a risk-based supervisory framework"
• Solvency II "aims to be a neutral system" with regard to asset allocation
• "The new framework creates business opportunities rather than operational risks"
• "No Pillar prevails, all are equally important" 
• The capital weightings on asset lines are based on "...sound technical calculations that were taken by the supervisory community (and in particular by the actuarial teams involved)" - is this a tacit acknowledgement of a residual element of black-boxedness?
• On IFRS convergence "...we had to move forward because in the accounting areas progress was not being sufficiently made". 'Aimerez-vous rencontrer M. Kettle, M. Pot?'
• On early implementation, "...once we see how it is working, [EIOPA] will have the courage to say which things can be improved"

Perhaps his sweetest quote is worth isolating:

EIOPA on Solvency II implementation - "no doubt about it"

Now that most Solvency II stakeholder's hands have been temporarily filled with the LTG spreadsheets and assorted accoutrement, Seniors Bernadino and Montalvo have hit the trade press with more aggression than an Irish prop forward in order to clarify their position on the drivers behind their opinion on interim measures at the end of 2012, as well as the ultimately likelihood of Solvency II implementation.

From Sr. Bernadino to the Actuary magazine

• On the shortcomings of Solvency I - "...if you have more risk, you should have more capital"
• "I think it will take until then [2016] to get started" on Solvency II
• "We [EIOPA] believe 2014 and 2015 can be used as an opportunity to enter into the system in a better way"

From Sr. Montalvo to Reactions magazine

• "Solvency II will be implemented, and there should be no doubt about it"
• "EIOPA will do the necessary work to make the implementation of Solvency II happen on January 2016"
• Emphasises that we are "not building from Solvency I", in the face of "Solvency 1.5" questions
• Notes that EIOPA's opinion on interim measures is borne from concerns that the delay may lead to "different national solutions [emerging] to the detriment of a good functioning market"
• "Differences between supervisory cultures" is part of the IMAP inconsistency problem - no implication that either the UK is doing too much or mainland Europe not enough
• Makes the point that stakeholders "...must avoid the temptation of re-opening more issues" - hard to think of any contentious issues which aren't already wide open for debate, but clearly some concern that the current smorgasbord could be supplemented.
• For those at the smaller end of the market, he gies a specific example of where an Actuarial function could be staffed by someone other than a "pure actuary"

All this in the week where a succession of industry figures in London lined up to flog Solvency II's hobbling carcass, whether it be the IMAP element (Hiscox), or the very premise of one-size-fits-all regulation (Pru). Not a good week to be trying to kill a horse in the UK gents...

ABI Conference today - reason why the EU Parliament stayed away?

Still very early after the ABI conference today (I wasn't there, so relied on some heavy duty tweeting from Elliot Varnell and Insurance ERM).

All the great and good were there (van Hulle, Montalvo, ABI, FSA, and all the CROs in the UK who blagged a day off!), however there was no representation from the EU Parliament which, bearing in mind we are in trialogue season and there is plenty of debate still to be had, is conspicuous to say the least. A Burkhard Balz or a Peter Skinner would surely have been a good attendee to get the right balance.

However, Insurance Times flagged this from Sr. Montalvo at the conference today - looks like the EU Parliament have missed the pre-Christmas window for discussion Omnibus II, and, looking at a late January debate now, have left almost no wriggle room between debate and the Omnibus II vote.

Who this compromises the most out of the troika is unclear (EIOPA I suspect, being the unelected body), but Parliament's absence surely saved the event from a seasonably frosty atmosphere!

More on FSA Solvency II delay to 2014

Some cute contradictions beginning to emerge off the back of the FSA's pronouncement on extending the IMAP window to 2013 and the go-live date itself to 2014 - EIOPA's top man Carlos Montalvo warned the following day not to "put Solvency II in the fridge" (chillingly?), which is all well and good when Omnibus II appears to be pretty well refrigerated itself!

Similarly, Post magazine have reported that smaller firms will be relatively happy at the FSA's news on the basis that they are not as far down the road. Interestingly one of the "Big Small" firms, LV+, has an executive quoted in the Wall Street Journal no less to express his dissatisfaction at the "unhelpful" prospect of delay, and noting that they plan to crack on with a 2013 target.

It should be noted that the quote was pulled from a press release from some Marketforce research due to be published in November which seems to be focused on supporting the very early adoption ruled out in the same week!

Sr. Montalvo - "No delay to Solvency II" - sure about that?

Forgot to post this yesterday - outstanding quote from the EIOPA chief executive at the ABI's conference on the same day that the Council text was published!

ABI Conference - Single European Regulator?

EIOPA's Chief Exec kindly planted the seed of the single EU regulator at the ABI today - bearing in mind how the EU functions are struggling with consensus for Omnibus II right now, this is one matter best pushed to the back of the cabinet!