Key Parliamentary vote on Solvency II
Fri 30 Mar 2012
Implementation of Solvency II moved a step closer when the European Parliament’s Economic and Monetary Affairs Committee (ECON) voted to approve Omnibus II.
The Omnibus II Directive will amend the Solvency II Framework Directive, to bring it in line with the EU’s Lisbon Treaty and to take account of the EU’s new supervisory structure. It will also postpone the application of Solvency II to insurers and reinsurers, probably until 1 January 2014.
The EU’s legislative process requires Omnibus II to be formally approved by the European Parliament, the Council of the EU and the European Commission. ECON’s vote, which took place on 21 March 2012, establishes the Parliamentary position on Omnibus II, so it is an important step towards agreement on the final form of this Directive.
Parliament’s position on Omnibus II includes proposals on matching premium, counter-cyclical premium and extrapolation - a result of considerable lobbying effort on the part of the European life insurers. Unfortunately, final details of the deal are not considered satisfactory by the industry, which requires further adjustments. These proposals are of limited relevance to Lloyd’s.
Omnibus II will also amend Solvency II’s position on third country equivalence, by introducing temporary equivalence for some third countries. There are three separate tests of equivalence, covering reinsurance, group solvency and group supervision. The process of assessing a third country for equivalence can be lengthy, so most countries will not have had their equivalence assessed before Solvency II comes into force. Temporary equivalence will nevertheless permit third countries to be treated as if they are equivalent for a limited period.
ECON’s position includes strict conditions that must be met by any third country qualifying for temporary equivalence and limits the period of temporary equivalence to five years, extendable by one more year if European institutions need more time to complete an equivalence assessment.
Lloyd’s believes that ECON’s conditions are probably too onerous, making it very difficult for any third country to qualify for temporary equivalence. On the other hand, it is comfortable with the maximum period proposed, as too-lengthy a period will remove any incentive for third countries to move towards equivalence within a reasonable timescale.
ECON’s vote opens the way for the next stage of the legislative procedure. Trialogue discussions between the Commission, the Parliament and the Council (represented by the Member States’ Finance Ministers) are scheduled to start on 11 April 2012.
The final Parliamentary vote is expected in July 2012, so that the Directive can be published in the EU Official Journal in early autumn and work on Level 2 implementing measures can commence.