Solvency II: a moving target

The shambles surrounding the implementation of Solvency II shows no signs of abating, with insurers again being asked to start work on implementing something that is still unfinished and subject to change.

The European Insurance and Occupational Pensions Authority (EIOPA) has called for insurers to adopt its proposed framework for the reporting and disclosure elements of the new capital directive as soon as possible, with chairman Gabriel Bernardino pointing out that insurers need to “start as early as possible” with the implementation of reporting and disclosure requirements.

Yet EIOPA admitted in the same announcement that the framework was still likely to change with the introduction of the Omnibus II package of alterations, as well as other tweaks.

Insurers would be justified in being angry that they have been asked to hit yet another moving target. Implementing Solvency II is complex and costly enough as it is, without the threat of having to go back and unpick their hard work at a later stage.

And the calls for insurers to get a move on ring false when the bureaucrats dealing with the directive seem perfectly happy to drag their heels on creating the rules that insurers are supposed to be implementing.

The European Commission, European Parliament and the EU Council failed to agree on the contents of Omnibus II when they met last Tuesday. The date for the European Parliament to vote on Omnibus II has already been delayed several times, and is now scheduled to take place on 22 October.

The UK insurance industry knows what is at stake with Solvency II, and has, for the most part, pulled out all the stops to prepare for it, with Lloyd’s leading the charge.

But with more delays seeming likely, more will start to question whether Solvency II will ever see the light of day.

Despite the trauma that implementation has caused, failure of Solvency II would be a blow for the industry. Not only would they have spent money and effort for nothing, but they would have been denied a sounder capital regime.

It has been said before but bears repeating: the driving principle behind Solvency II - basing the required capital on the amount of risk being assumed - is sound and undisputed. The way this fundamentally simple principle has been tackled by European legislators, however, leaves a lot to be desired.