On a trip to Taiwan for this week's International Association of Insurance Supervisors conference, I found myself confronted with a local delicacy in the form of a rather generous lunchtime helping of raw octopus. As a staunch advocate of prudential regulation-themed metaphors, it was not long before my mind led me towards recent developments in Solvency II.
Like our delicious invertebrate friend, the soon-to-be new standard in European regulation possesses many different arms, which – whether relating to balance sheet valuation methodologies, corporate governance or reporting requirements – require consistency and coherence between them if the rulebook applied to the European insurance industry is to operate in a functional manner. And, like a number of the plates of uncooked cephalopod sitting on the table in front of variously apprehensive guests, Solvency II currently remains unfinished. Nonetheless, it is most definitely a meal that is not going to disappear from the menu; the insurance industry is going to need to learn to eat it.
Delayed service
In recent years, delays to Solvency II have threatened to result in these regulatory limbs moving in different directions. The latest, and much-speculated-upon, delay to the rulebook’s implementation (recently confirmed by the European Commission as being moved to 1 January 2016) led individual Member States to consider how best to structure their national legislative arrangements in the period leading up to Solvency II.
In order to avoid the formation of a distracting ink cloud caused by an outpouring of national regulators’ pens, the European Insurance and Occupational Pensions Authority (EIOPA) earlier this year consulted on a number of ‘guidelines for the preparation of Solvency II’ designed to ensure consistency in regulators’ approach to the interim period. These guidelines are not intended to constitute an early implementation of the new standard but rather to assist insurers and their supervisors in preparing for the start of 2016.
Covering four of Solvency II’s ‘arms’ – system of governance, submission of information to national competent authorities, forward-looking risk assessment and pre-application for internal models – national regulators must now propose if, and how, they propose to implement EIOPA’s guidelines from the start of 2014.
An appetising aftertaste?
Regulators need to present industry, and each other, with a clear timetable and proposed supervisory approach in the build-up to full Solvency II implementation. To do so will ensure the smoothest possible transition possible towards the new regime. This, in turn, will mean less disruption and a better deal for consumers.
The next few months will provide us with greater certainty as to how national regulators will approach the two-year interim period. It is therefore a shame that arguably the most celebrated eight-limbed being of all – Paul the Octopus, famous for predicting the outcome of football matches at the 2010 World Cup – is no longer available to provide us with the answer tomorrow. I just hope the blame does not rest with me or one of my fellow diners.
The ABI’s forthcoming Solvency II Conference – ‘Looking to the Future’ – is being held on 31st October and presents a timely opportunity to discuss a number of important issues, such as the interim measures, in more detail. The event will bring together insurers, regulators and politicians, including the recently-appointed new Financial Secretary to the Treasury Sajid Javid MP as one of the keynote speakers. The Conference’s various discussion themes will consider what actions are needed to ensure the successful completion and implementation of Solvency II for UK insurers and their customers.