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...

Omnibus II - back to June 2013

Inevitably, the spectre of reality has successfully haunted the facade of optimism until it requires a change of underwear - the Omnibus II Plenary has been shifted out to June 2013 over the weekend. After last year's rather ambivalent stretching of the scheduled Plenary date once the summer holidays/change of presidency approached, this looks like it possibly has more legs next year (why talk Omnibus II when the weather is so nice!)

This certainly gives the beleaguered industry a bit of breathing space to perform whatever data collection is required during the LTG impact study/QIS6 at the same time as standard financial year-end pressures start to pile up for the largest lobbyists - strangely still haven't seen anything definitive on EIOPA's mandate for the study yet, the scope of which appears to have been harder to pin down that one would expect (the FSA's Insurance Standing Group indicating one source of discontent from their September minutes

The coincidence of this being announced at the same time as news of Mr Van Hulle's impending retirement broke is a funny old one, but as Peter Skinner's decision not to run for re-election is also referenced in that article, maybe this changing of these battle-fatigued protagonists over the next 12-18 months may encourage all sides to stop tip-toeing through the tulips.

PS Early retirement? Anyone would think they're trying to get their annuities bought prior to go-live before Solvency II wipes 20% off!

EIOPA 1st Annual Conference - Anything of note?

EIOPA had their first annual conference today in Frankfurt (happy birthday!). Looks very heavy on politicos as you might expect, and there has been a few drips of information from it, in particular;

• Sr Bernadino's comments that insurers should not "pretend to play God" by implementing onerous counter-cyclical tools in addition to the facilities already in play to avoid pro-cyclicality
• Mr Barnier's introductory speech where the delay to 2014 is seen as "a plus point, enabling insurers, national supervisors and EIOPA to prepare better"- doubtless all you project managers looking at an additional year of expense will rest easy at that! He also mentions that equivalence is not looking to force countries to adopt a regime identical to Solvency II, as well as emphasising the party line on Group supervision in the context of IAIS ICPs and the ongoing SIFI debate.
• Sr Bernadino's keynote speech - May 2012 scheduled for public consultation on technical standards, which he stresses does not pre-empt the trialogues and Rapporteur Balz's Omnibus II paper going through EU parliament
• Elliot Varnell has had a busy day tweeting, so serve yourself at his feed. Interesting to see that Karel van Hulle thinks there isn't enough cross-border sales going on - having worked in that area, a good helping hand might be to remove local language requirements!

Van Hulle, Bernadino, SIFIs and Solvency II "chafing"

It was raining comment on the Thomson ILS news today (may need to subscribe, but it's free and worth it). Both van Hulle and Bernadino are quoted as playing down the significance of any decisions made on SIFIs, or "too big to fail" insurance institutions (as I recall there is some kind of decision pending, or may indeed have been released, on SIFI criteria).

Sr. Bernadino (our EIOPA big-hitter) is more concerned with low investment return and high inflation than the threat of SIFI classification on the insurers under his watch, while the thought of additional capital burdens for any EU insurers that qualify as SIFIs is "complete nonsence" to van Hulle, the Commission's Solvency II scribe.

This all despite KBW claiming that only a couple of insurers will fall inside the net (though I think this may have been US-HQd only).

Finally, AM Best got in on the act after the delays announced to Solvency II implementation last week - as well as highlighting the benefits of preparedness from a mergers and acquisitions angle (which may now also be put back a year), they also add that, while smaller companies are probably happy to receive an additional year of prep-time, the larger companies "may chafe" at the delay.

I have a nice cream for that...

Clear Path Analysis - Van Hulle interview, legislative path, Omnibus II and more

Fantastic body of work released by the guys at Clear Path Analysis (need to sign up) - extensive interviews with Karel van Hulle, EIOPA representation and insurance industry senior figures (and as a sponsored piece, surprisingly unaffected by hard selling!). A few revealing pieces from the van Hulle commentary;

• Sovereign debt - confirms the Solvency II approach on zero capital for EU national debt instruments copies the CRD4 approach in banking and that "we need the same approach", while going on to say cryptically that "when events change then the regulation will have to change as well"
• Go Live date - "believes it is the final revision"
• Omnibus II - end of the year for clarity, once parliament and council conclude discussions, with "early 2012" down for the parliament vote
• US equivalence - notes that "all discussions with the US are difficult" (saucer of milk?), but has optimism as they "seem to be moving in the direction of Solvency II". Not quite the message being sent across the Atlantic, even if true!
• EU regulator - "We have to see how [EIOPA and sisters] work first before we can go to the next stage"
• Transitionals - national regulators should not be able to vary the transitional measures to create regulatory arbitrage
• EU Parliament's advice on reintroducing regulatory technical standards - "The Commission does not believe that this is necessary"

The following was also useful for calendar planning/expectation setting on your project plans;

• Trialogues between Council, Parliament and Commission commence in November to develop common view on Omnibus II (my last point from van Hulle's comments I suspect will be high on the agenda!)
• EIOPA major consultations will commence in November this year (on ORSA and the Reporting Package/templates) and mid 2012 on standards they are expected to write.
• EIOPA still focused on Jan 2013, regardless of phased approach in Omnibus II

Groupe Consultatif Solvency II workgroup - meeting with Karel van Hulle

I suspect the GCAE's Solvency II workgroup is more prolific than their minutes suggest, however I noticed a couple of areas of note in their progress report for June;

• They met with Karel van Hulle, who noted his intention to "publish hopefully" (!) final Level 2 text in October, and that binding technical standards work is underway with EIOPA
• They discussed transitionals only insofar as "agreement on the need for these"
• They separately note that they are working with EIOPA on future premiums, but are "reserving their position on any conclusions"...