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!

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So with the Trilogue process itself necessarily one of closed doors, secret handshakes and unpublished shady deals, at least we formally know that they reconvened before the summer holidays thanks to Sharon Bowles' diary handler!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...

ABI and PRA on 'Meeting the Challenges of a Changing World' - Solvency II in particular...

Low Yield issue - not just for insurers

While I disposed of my son for the summer last week for an extensive potty training course in Bordeaux (PS you might want to avoid the 2013 whites!), the ABI gathered the great and good for their biennial conference, themed Meeting the Challenges of a Changing World.

A corresponding publication from the ABI which the event hung its hat off to a certain extent is particularly useful for anyone in the emerging risk/ORSA/reverse stress testing space, touching on 7 specific 'challenge' themes, which are themself further broken into sub-categories. With the ABI providing a mouthpiece for the interests of the UK insurance industry (and being currently Chaired by an avid opponent of Solvency II), it was worth picking up on this document's take on Solvency II, specifically;

• That it could be a future constraint on the nascent equity release market
• Its well documented "...potential effects on infrastructure financing"
• That British insurers should "...[continue] being proactive and engaged in trying to shape vital regulation such as Solvency II rather than simply criticising it from the sidelines". Not sure if the implication is that the UK is drifting from the box-seat in this regard, but certainly in the context of the next decade, a slated in/out referendum on EU membership may make proactivity on Solvency II a moot point!

The regulatory meat in this lobbyist event sandwich came from a keynote speech by the PRA's Andrew Bailey which, in the process of publicly revealing a few nuggets of truth, still left me safe in the knowledge that insurance is still the banking industry's boring cousin - that he needed to "...make clear at outset that insurance supervision matters as much as banking supervision" and stress that "...insurance supervision is a skill on its own" while supporting most prevailing regulatory techniques with the prefix 'what we learned from Banking is...' tells its own story.

That aside, the following comments are worthy of highlighting;

• The PRA's current trend of using "business model analysis" in their supervisory work - surprised that this was not already par for the course frankly (what else other than the types of analyses referenced at the bottom of p4 would you be doing?), but one would expect that the advent of ORSA will enhance everyone's activity in this field soon.
• Taking that into account, it is "...logical for us to make early adjustments to our existing regime to incorporate the ORSA under ICAS+"
• The suggestion that management "...take responsibility for understanding and mitigating the risks in their business" - 'managing', rather than 'mitigating' surely, we'll tolerate anything within appetite!
• That the truly woeful "Solvency II/Crossrail" costing analogy used by Mr Bailey to a parliamentary select committee was the PRA "...making a point on behalf of firms".
• That "PRA have not withdrawn from involvement in Solvency II, far from it", though recognises that the result around the classic matching adjustment is not what UK plc would wish for - goes on to comment that we "...still have a good way to go to make the Solvency II regime manageable in its use and implementation"
• That, as far as Sol II's legislative progress is concerned, negotiations "...continue over summer, with a conclusion expected in the autumn", and that the official implementation date discussed recently on this blog is "clearly unrealistic".

In a week where a wall of silence has descended upon the co-legislators and the Commission, it is reassuring to see at least one NSA body with a solid-ish implementation plan, regardless of the immediate lack of things to implement - however judging by the words captured by Gideon of Dr. Wiedner, the lightly briefed (and from what I could read, lightly fed) replacement of Karel van Hulle, I suspect that Solvency II on the whole remains "Klaus but no cigar"...