Solvency II could be delayed until 2014

EU member states have shelved the introduction of Solvency II for another year.

The Council of Europe, on which the member states sit, has agreed a proposal that Solvency II should come into force from 1 January 2014- a year later than the previous timetable of New Years Day 2013.

EU internal markets commissioner Michel Barnier floated the idea that the directive should have a soft launch in a speech to European insurers umbrella body CEA last week.

Under the proposals in the so called Presidency Compromise, Solvency II’s legal requirements will need to be transposed into national law by 31 March 2013.

The elements of the directive regarding supervisory approvals, such as the use of internal models, ancillary own funds, use of undertaking specific parameters in the standard formula, will apply from 1 July 2013.

However insurers will be able to receive formal regulatory approval in respect of these items in the second half of 2013 prior to the new rules going live.

Supervisors shall by 1 July 2013 require insurers to provide an implementation plan providing evidence of the progress made towards the application of Solvency II. The content of these plans is not specified but could reasonably be expected to contain detailed information demonstrating readiness to comply with all of Solvency II’s requirements.

The current Solvency I, directives will not be repealed until 1 January 2014 and so, during 2013, existing capital and solvency requirements will continue to apply.

Commenting on the implications of the latest announcement, PwC global head of Solvency II Paul Clarke said: “The Council of the European Union’s recommendation that the full requirements of Solvency II should not be implemented until 1 January 2014 is an interesting step forward, but it is not the full story. The European Parliament still needs to put forward its recommendation ahead of negotiations between the two groups before the market can fully understand where the issues around the Level 1 text and implementation date will end. It is unlikely the issue will be fully resolved until later this year, so it is vital insurers press ahead with their current plans and timetable. Any distraction now could prove potentially costly in the long run.”