In December 2012, the European Insurance and Occupational Pensions Authority (EIOPA) threatened to said that it would consult on "comply or explain" Guidelines that would implement most of Solvency II's Pillar V across most of Europe in January 2014 (my earlier blog is here).
On 27 March 2013, EIOPA threatened us again by publishing published four Consultation Papers on its proposed Guidelines, together with a cover note and three explanatory texts.These publications describe EIOPA's plans for world domination the phasing in of Solvency II.
If the Guidelines are made in their current form, they'll be addressed to the National Competent Authorities (NCAs) of the European Member States, and they'll require them to (i) apply a version of Pillar V to their firms; or (ii) explain - publicly - why they haven't done so.The Guidelines on:
- The System of Governance, "develop" Solvency II's governance requirements;
- The ORSA, are based on EIOPA's Final Report of July 2012 (available here), with amendments to reflect the fact that EIOPA's Report was expressly subject to change, and this is merely a "preparatory phase";
- The Submission of Information to the NCAs, propose that the NCAs require ask firms to submit a subset of Solvency II's reporting templates and narrative reports on a quarterly and annual basis (including the results of each ORSA within 14 days);
- Pre-Applications for Internal Models, cover most of the internal model framework, should "increase convergence of supervisory practices" and "help [firms] prepare to submit a final application" in the end.
These proposals deliberately seek to "phase in" Solvency II – even though:
- It's far from clear that the trilogue parties (including Europe's elected representatives) still want Solvency II to be made and brought into force;
- A material number of significant and relevant policy issues are still to be resolved;
- Some Member States won't be able to comply, and others will choose not to do so; and If a Member State complies, but a (re)insurer doesn't, EIOPA won't expect the NCA to sanction the firm – although some will do so in any event.
Hmm. Well. At a very basic level, this is good news: UK (re)insurers have spent more than £3 billion preparing for Solvency II. This could help them get a modicum of return on their money. That aside? It looks like bad news all the way. Although EIOPA's cover note explains that its planning assumption is that Solvency II will apply from January 2016, it still commits itself to a review "at the end of 2013 based on the latest [Omnibus II] developments". (Shouldn't that be done and dusted by late October?). It also asks the NCAs to submit annual progress reports beginning in 2015, and somehow manages to imply that they'll also be needed in 2016, 2017(etc.) Add in the consequences for the single European market and competition; the costs of adjusting to another interim version of Solvency II, before readjusting to the final rules; and it's all a bit of sorry (EEA) state.
Little wonder then that (i) Lloyd's response is reported to have been "what planet are these guys on?"; (ii) Andrew Bailey (CEO of the PRA) has described the cost of implementing Solvency II as "frankly indefensible"; and (iii) the FSA is still to update its website to tell us about the Guidelines, and the approach the PRA will take when it decides whether to comply…or explain.
EIOPA's consultations are open until 19 June 2013. "EIOPA intends to publish the Guidelines … in the autumn of this year".