Out-Law News | 15 Nov 2013 | 4:57 pm | 3 min. read
The agreement came after a day of negotiations between representatives of the 'trilogue' of the European Commission, European Parliament and member states. Although the final text of the Omnibus II Directive has not yet been published, Internal Market Commissioner Michel Barnier said that the agreement was "a very important step towards the introduction of a modern and risk-based solvency regime" for the industry.
"Omnibus II contains important provisions that should allow the insurance industry to continue offering long term guaranteed products (typically life insurance policies being paid out in a lump sum when the policy holder reaches a certain age or in the form of annuities)," he said. "This kind of policy is an essential part of retirement planning for citizens in many member states."
"Moreover, it will ensure that insurance companies in general and life assurance companies in particular can match these long-term liabilities with investments in long-term assets such as infrastructure projects. The agreement also contains measures to alleviate the burden for small and medium-sized insurers in the area of reporting," he said.
The final text must be approved by member states and the European Parliament voting in full. A plenary vote is due to be held in the European Parliament next week which will formally postpone the introduction of the new regime until 2016.
"This agreement was crucial and long-awaited but it will not satisfy some insurers as extra capital may still be needed as a result," said insurance law expert Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com. "Nevertheless, this is a very significant development for insurers."
"It now means the path is clear for a January 2016 implementation of the new risk-based capital regime although the level II and level III texts, which will fix most of the technical details, have yet to be agreed and will need to be so before the Solvency II regime can come into force. However, the transposition date has been put back to March 2015 so this gives an additional small breathing space to complete the job," he said.
The Solvency II regime sets out stronger risk management requirements for European insurers and dictates how much capital firms must hold in relation to their liabilities. Once approved, the Omnibus II Directive will set the date of entry into force of the new regime as well as the scope of technical standards, including capital and supervision requirements, to be prepared by the European Insurance and Occupational Pensions Authority (EIOPA).
Approval of the legislation, which was originally scheduled to come into force last year, has undergone multiple delays leading to considerable confusion from the insurance industry and national regulators. The European Parliament and member states have now backed the Commission's proposal of October that the new regime will come into force on 1 January 2016. Member states will be required to implement the rules into their national laws by March 2015.
The final agreement contains compromises on the size of insurers' 'long-term guarantees', or the size of the capital buffer that they would need to hold for longer term policies. Although insurers will still be required to hold more buffer capital than they do at present and take "more realistic" views of their liabilities, the agreed requirements have been lessened to acknowledge that these insurers are less affected than others by sudden and severe market shocks, according to the European Parliament's Economic and Monetary Affairs Committee (ECON).
Transitional provisions on how the equivalence of 'third country' regulatory rules have also been provided in the final text. Once the new regime is in force, the Commission will be able to decide that a third country's system is "provisionally equivalent" to that in the EU for 10 years, with the possibility to renew its decision. The final text includes a set of criteria against which "broad equivalence" will be measured.
The agreed text also gives EIOPA a stronger role in its relations with national authorities, and the power to decide when "exceptional circumstances" allowing for a relaxation of the rules exist. EIOPA will also have the power to request more information from member states on how they have implemented the different parts of the legislation to ensure compliance.
In a statement, EIOPA welcomed the agreement and the accompanying "clarity" over the implementation of the new regime.
"The agreement is of extreme importance for EIOPA as a European institution, because it allows the Authority to fully perform its tasks related to the promotion of supervisory convergence and consistent supervisory practices," it said.