Eiopa report could hold up Solvency II, KPMG warns

Proposals issued by the European Insurance and Occupational Pensions Authority (Eiopa) on the application of Solvency II to insurance products with long-term guarantees could lead to further delays in the proposed EU regulations, KPMG has warned.

Eiopa has analysed the findings of a Europe-wide study into Solvency II on products with attached guarantees and sent its recommendations to the European Commission on Friday.

Eiopa is urging the commission to undertake measures, including replacing the “counter cyclical premium” with a “volatility balancer” and implementing “classic matching adjustment” rather than “extended matching adjustment”.

KPMG head of Solvency II for the UK Nick Dexter said: “Although the European Parliament plenary vote on Omnibus 2 was pushed back to October to accommodate the findings of this study, new concepts such as the volatility balancer may require further testing, resulting in further delays.

“In addition, the proposed matching adjustment is effectively the same as that in previous drafts of the directive and hence it may be viewed that the debate has not moved on. It could therefore be difficult for all European parties to reach a mutually agreeable conclusion this year.”

KPMG European head of Solvency II Peter Ott said he was concerned that the proposed solutions may not go far enough to ensure that all parties are satisfied and hence lead to further disagreements.

“Although the ‘volatility balancer’ concept will add some much-needed predictability to the issue of volatility in unstable market conditions, the suggested magnitude is unlikely to be large enough to be fully effective,” he said.

“Coupled with the suggestion of a long convergence period, it is likely that certain European countries will look very unfavourably at the Eiopa proposals.”

Labour MEP and Solvency II rapporteur Peter Skinner welcomed the Eiopa findings.

“It is clear that a lot of hard work has gone into this report, and I believe it will be useful for our deliberations,” he said. “The next stage will be the recommencement of trialogues between the co-negotiators, hopefully before the summer.

“I was pleased to see a thorough and detailed assessment of all the relevant issues that were requested in the terms of reference. I look forward to the technical briefing that Eiopa will deliver next week.”