Posted on Jul 20, 2012 by Sergio Ulloa
A vote planned for October by EU lawmakers will most probably be postponed following the failure to reach an agreement on a final draft of the strict new set of rules proposed for regulating the insurance industry, known as Solvency II.
EU officials and lawmakers failed to come to an agreement before the beginning of the European Parliament's annual summer break, and will now have to try and squeeze even more into the already busy post-break timetable in September.
The likelihood of making the original deadline will be "very challenging, to say the least," according to Olav Jones, the Deputy Director General of Insurance Europe.
Solvency II deals mainly with new rules governing the level of capital insurers must have to cover their risks, largely increasing the current requirements. As negotiations continue to drag on, insurers are facing uncertainty over their future capital requirements, and prolonging this uncertainty is having a negative effect on the confidence of potential investors. The industry is frustrated by the delays, and are doing their utmost to help the talks reach a conclusion as soon as possible. However, no one wants an unacceptable compromise passed into law. "Nobody amongst the parties negotiating wants a delay but at the same time we do not want to deliver something that is wrong," stated European Parliament Economic and Monetary Affairs Committee Chair, Sharon Bowles.
Originally planned to come into force later this year, the current start date of January 2014 for Solvency II will most probably be pushed back again, unless an agreement can be reached in order for it to be voted on in October. This will then give national governments until June 2013 to adopt the legislation, and giving insurers 6 month to comply, before the deadline of January 2014.
Differences between EU member states regarding the methodology for calculating the required capital buffer for long-term life insurance contracts have repeatedly served to frustrate any attempts at reaching a deal. Thursday's round of talks were no different, after Germany insisted on wider testing of some proposed calculation methods.
A proposed solution to the delays, which is gaining more support all the time, is to implement the new regulations in phases, with the parts that are agreed upon being implemented while elements that require further discussion and modification would be implemented when finalized.
Solvency II regulations have been under consideration for 10 years, and will lead towards higher capital requirements and other more stringent regulatory requirements for insurers. Most of the bigger insurers are thought to be well prepared for this, but there have been fears expressed about the possible negative effect on overseas competitiveness.
Meanwhile, Oracle has announced the availability of Oracle Insurance Solvency II Analytics, software aimed at helping insurers quickly understand how best to make their businesses compliant with Solvency II requirements, as well as to more accurately assess and manage risk using a single, unified platform. The software comes with a host of out-of-the-box reports designed specifically to aid compliance with the proposed new legislation. While the entirety of Solvency II has not been set out, many companies, whether in the insurance industry or those providing services to insurers, have long been trying to be prepared for the new requirements. However, with the current atmosphere of uncertainty they need to be prepared to respond to new developments as well.