On 5 May 2011, the European Commission (the “Commission”) published a summary of responses to its consultation on the level 2 implementing measures for Solvency II (which was published on 24 November 2010). The Commission’s summary can be accessed here, and the annex to the summary, which sets out a list of respondents, can be accessed here.
The Commission had invited feedback from the respondents, which was to be supported by quantitative and qualitative evidence, on the impact, cost and benefit of the level 2 implementing measures. This was in order to support their policy decision-making process.
The Commission report that the majority of the respondents were concerned with a small number of key issues, as follows:
- The impact of long-term products
Many respondents were concerned about the future viability of long-term products (particularly those with guarantees) given the volatility of the value of assets and liabilities and the measurement of the specific risks that the undertakings offering these products are exposed to. Following the comments received, a working party has been established in order to analyse the issues relating to long-term products, and the Commission has stated that necessary steps will be taken to ensure the characteristics of these products are reflected adequately in the level 2 implementing measures.
- Volatility and pro-cyclicality
Respondents also commented on the need to ensure that mechanisms that were designed to address pro-cyclicality, such as the Pillar I dampener, work effectively, without creating artificial volatility.
- Proportionality and limiting the reporting burden
Respondents highlighted, in particular, the need for concrete application of the proportionality principle in relation to the Pillar III requirements. For example, by exempting certain undertakings (based on the size, nature and complexity of the risks in their business) from the quarterly reporting requirements.
- The need for transitional measures in certain areas
Transitional measures were requested, in order to avoid market disruption. These were seen as required particularly in the areas of own funds, reporting requirements and third-country equivalence.
The Commission has stated that it will now be focussing its impact assessment on the level 2 implementing measures on the policy issues surrounding these four issues.