EIOPA has published its first legal opinion on certain interim measures as part of the preparation for Solvency II. The idea of introducing certain elements of Solvency II ahead of an uncertain Solvency II implementation date is being referred to as, ‘‘Solvency 1.5”.
"Solvency 1.5" was an idea first introduced by EIOPA Chairman, Gabriel Bernardino, in October 2012 in a letter to the European Commission, the European Parliament and the European Council. EIOPA executive director, Carlos Montalvo, has previously stated that the delay in implementing Solvency II represented an opportunity for the industry to voluntarily adopt the regime and that all areas of Solvency II that are non-contentious could be brought forward regardless of delays over issues relating to capital - ..”if any entities could go in the direction [towards preparedness] then that should always be welcomed by regulators, shareholders and investors”.
EIOPA’s opinion, published on 20 December 2012, outlines the proposed actions for national regulators to put certain elements of Solvency II in place by the beginning of 2014. If these proposals are adopted, insurers and reinsurers will be required to have an effective governance system and risk management system in place, including a forward-looking assessment of the entity’s own risks based on the own risk and solvency assessment (ORSA) principles. National regulators will need to be in a position to review and evaluate these systems. Entities must also have strategies, processes and reporting procedures in place to identify, measure and manage risks on an ongoing basis and to report such risks at an individual and aggregate level.
EIOPA has stated that more detailed guidelines for national supervisors on how to proceed with "Solvency 1.5" will be published in March or April 2013. These guidelines will cover the early phasing in of Pillar II, including the risk management system and own-risks assessment in addition to the pre-application of internal models. They will also cover Pillar III, which includes reporting to supervisors.
The European insurance watchdog will publically consult on the guidelines for the proposed "Solvency 1.5" for a six-week period commencing in Spring 2013. The guidelines will be subject to a “comply or explain” procedure. This means that national supervisors will have two months from the issuance of the guidelines to confirm that they will either abide by the rules or explain to EIOPA their reasons for not complying.
Please click here for the full text of the opinion.