Omnibus II a done deal - Greens left feeling, errr, green?

So, having become bored with collapsing into their own tedium like a room-temperature flan, the Omnibus II negotiations reached an inevitably grim climax yesterday, with a deal bashed out to everyone's mutual distaste at the last possible minute - the basic details are here from the European Commission.  

Bearing in mind the volume of noise on the subject over the last 24 hours in particular, I figured I'd better pull a consolidation post together for my own benefit if nothing else!

The highlights are (apparently - no text released as yet);

1. Transitional measures extended for 16 years
2. Massive equivalence carve out (10 year "temporary" renewable facility)
3. Transposition date moved to end-March 2015
4. Matching adjustments and volatility adjustments more generous to the industry than recommended
5. The generosity of those adjustments countered by some qualitative measures around planning and disclosure.

Winners?

• Industry - Allianz's CFO rather boldly speaks on behalf of the entire European Insurance Industry, stating the deal is "...ambitious but acceptable". Prudential's CEO thinks it is "great progress" and "a good package", while Talanx "welcome the decision very much".
• Heavily indebted governments and companies - Burkhard Balz is happy to trumpet that "...we have also ensured that insurance companies will be able to continue to fulfil their role as long-term investors" through the lengthened transitionals and juicy adjustments. This will hopefully encourage insurers to splash some cash on long-term debt instruments and infrastructure projects where they may otherwise have stayed shorter-term.
• EIOPA - While they were happy to simply "welcome" the agreement, Sharon Bowles emphasises that "This marks the point at which Eiopa becomes fully fledged".
• Sharon Bowles - has surely enhanced her reputation by finally landing the most fraught European negotiation since the Abba reunion.
• Consultancies - will surely use the "tight timescale" routine to press gang the nation's NEDs and Execs into writing one more cheque.

Ambivalent?

• Insurance Europe didn't have much to say, other than acknowledging that the deal is not ideal, though provides a "workable base". They remain concerned about the "ambitious timetable".
• Groupe Consultatif also reinforce their continued support.
• The European Council apparently couldn't be bothered to send a big hitter to trumpet the big news, leaving it to one of the COREPER lads (well, an ambassador)!

Losers?

The Left - while it is no surprise that Sven and the Greens were left sulking (and doesn't the boy blog well!), the extent of his rancour, whether Party line or personal, doesn't augur well for when he and the ECON crew take it through Plenary, for example noting that the deal;

• "...[is a] flagrant violation of common market principles"
• "...[is a] grab bag of goodies"
• "...ignores the advice of the European Systemic Risk Board"
• "...resulted in the EP adopting a far more industry-friendly package in self-denial of the original mandate voted by ECON "

Perhaps most bitterly, he then promises to "...personally make sure that all companies making use of the agreed privileges will be named and shamed on a website including their brands and the billions of missing capital". 

You don't want to make the Greens angry now, do you...

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 - 7 year transitional periods, white noise and Omnibus II on the move

A particularly weird week for Solvency II, with more aimless racket than a drunken tennis player, yet only a slither of substance to it.

Ignoring if I may the robust line being taken by the UK Pensions Minister about occupational pension schemes falling under Solvency II and the Daily Mail's scare piece on annuities becoming potentially more expensive, the big story has of course been Burkhard Balz's alternative for life insurers (presumably on the trialogue table for longer than the last couple of days, but leaked this week to FT Deutschland for the scoop) to transition in the more onerous capital aspects of Solvency II over as many as 7 years.

Bearing in mind the rather blase attitude at the time towards extending the Omnibus II plenary vote to September ('all they are doing over the summer is technical drafting' was the party line), to have something so significant being kicked around the table at this late stage is a truly grim prospect, particularly if it is loaded with national, rather than pan-european considerations.

Of course, conjecture around knock on effects on the legislative timetable is only as good as its source - hence I have linked through to the Omnibus II procedure file, which has been updated to reflect a late October plenary vote (when it was previously Sept 2012, July 2012, April 2012, Jan 2012 and Dec 2011!).

I'll leave it to the experts to work out whether 2014 is realistic given the trialogue curveballs and the phantom plenary...

Omnibus II - June version with substantial illiquidity premium transitional changes

A linked story was reported in parallel by Risk magazine (again, subscription only), highlighting that the June version of Omnibus II contained a dramatic shift in the area of illiquidity premium. You will see the section itself near the very back of the June Omnibus II text.

The language used by Risk.net is not helpful (we are after all talking about a transitional measure, yet they and their RBS talking head note it "effectively means the full impact of the directive will not be felt until 2019").

They note more importantly that the revised transitional will allow a lock-in of yields at the 2012 year end which can be used as the basis of the transitional for the 7 year duration (if beneficial I guess).

European Economic and Social Committee paper on Solvency – 5th May

I do recall fishing for this and having no success, but the EESC Opinion Paper on Solvency II (agreed last month, but not sure when released) makes for fascinating reading.

As with most things relating to European bodies, I struggle to identify exactly what the purpose of it is, but the committee, at the behest of the European Council no less, make a number of substantial points;

• Solvency II "should not result in market consolidation, especially in respect of small and medium insurers
• Focus very hard on sustaining the provision of guaranteed long-term products, and therefore an "appropriate" interest rate term structure is indispensible in calculating SCR
• That this is not just a technical issue, but also a political issue when involving provision for old age
• Explains the reason for "implementing measures" becoming "delegated acts" at Level 2 (which I never knew the driver behind until today!)
• Heavy on smoothing the transition between Solvency I and II, and states that the transition should cover "all three pillars"
• Proper assessment of how transitional rules can be consistently linked with supervisory actions in cases of non-compliance post go-live date
• "Transition should refer more explicitly to the upgraded Solvency I standard as an (optional) minimum level" - I may be wrong, but is Solvency I not a retrograde step for UK  plc, who are already knee deep in ICAS?
• "Interest Rate term structure and illiquidity premium will not be determined by legislative bodies"
• Timeframe for effective launch of Solvency II "particularly challenging" - "Insurance companies cannot be held accountable for instructions that are to be published at a later stage"
• "The proposal that EIOPA develop draft implementing measure by 31 December 2011 at the latest would seem to be somewhat ambitious"!
• Discourages developing more Level 3's where Level 2's already exist - "In case of any doubts, for individual implementing measures (Level 2), no additional technical standards (Level 3) should be provided for; eg Level 3 would not appear to be necessary in respect of own risk and solvency assessment (ORSA), the classification of Own Funds or ring-fenced funds" 

I honestly don't know how to read this - is it the start of the goalpost moving process, the issue of a public challenge to meet tight dealines, or a reprimand for CEIOPS/EIOPA for regurgitating most of Level 2 into Level 3? I guess there will be more to follow...