On 5 February 2016 the European Commission adopted an implementing regulation on the risk-free rate under the Solvency II Directive. This Implementing Regulation lays down technical information to be used by insurance companies when calculating technical provisions and basic own funds for reporting with reference dates from 1 January until 30 March 2016.
On 30 September 2015, as part of a package of measures forming part of the Capital Markets Union initiative to remove barriers to investment in the EU, the Commission made a number of amendments to the Solvency II Delegated Regulation.
The main element concerns infrastructure. “Qualifying infrastructure investments” will now form a distinct asset category under Solvency II and will benefit from an appropriate risk calibration, lower than that which would otherwise apply (for example the calibration of the stress factor for such an investment in unlisted equity is lowered from 49% to 30%). This will ultimately lead to a lower capital charge.
Investments in European Long-Term Investment Funds (ELTIFs) will benefit from the same capital charges as equities traded on regulated markets, lower than that for other equities, bringing them in line with investments in European Venture Capital Funds and European Social Entrepreneurship Funds.
- Equities traded on multilateral trading facilities (MTFs) will also benefit fromthe same capital charge as equities traded on regulated markets.
A transitional measure for equity investments will be extended to unlisted equities, so that insurers will not suddenly withdraw from equity investments. There is also clarification on how insurers should apply the transitional measure to equities held in managed funds.
- Press release on the Action plan on building a capital markets union
- Frequently Asked Questions on the Action plan on building a capital markets union
- Frequently Asked Questions on the Solvency II delegated regulation
- Amendment to the delegated Act on Solvency II
- Amendment to the delegated Act on Solvency II: Annexes
On 10 October 2014 the Commission adopted a Delegated Act containing implementing rules for Solvency II. Following approval of the European Parliament and Council, this was published in in the Official Journal on 17 January 2015, as Commission Delegated Regulation 2015/35, and entered into force the following day.
The implementing rules cover, inter alia: the valuation of assets and liabilities, including the so-called “long-term guarantee measures”; how to set the level of capital for asset classes an insurer may invest in; the eligibility of insurers’ own fund items to cover capital requirements; how insurance companies should be managed and governed; equivalence assessments of third-country solvency regimes; the internal model framework; rules related to insurance groups. Simplified methods and exemptions apply in some cases to make the application of Solvency II easier for smaller insurers in particular.
The rules on capital requirements for asset classes promote high-quality securitisation by laying down lower capital requirements for investment by insurers in high-quality securitisation. The definition of high-quality securitisation, based on a report by EIOPA, is aligned in the Solvency II implementing rules and in the Commission’s Delegated Act on a Liquidity Coverage Ratio for banks.
Reasons for revision
The Solvency II revision process aims to:
- take account of current developments in insurance, risk management, finance techniques, international financial reporting and prudential standards, etc.
- streamline the way that insurance groups are supervised and recognises the economic reality of how groups operate.
- strengthen the powers of the group supervisor, ensuring that group-wide risks are not overlooked
- ensure greater cooperation between supervisors. Groups will be able to use group-wide models and take advantage of group diversification benefits.
The new system will lay down
- quantitative requirements and how to calculate them
- qualitative requirements (risk management and supervision)
- requirements for supervisory reporting and disclosure of information.
|Different levels of rules|
|Level 1: Framework Directive|
|Level 2: Implementing Measures – delegated acts (Commission)|
|Level 2.5: Technical Standards EIOPA|
|Level 3: Guidance by EIOPA to ensure consistent implementation and cooperation between MS|
|Level 4: Rigorous enforcement of Community legislation by the Commission|
The new Solvency II Directive – a recast of several directives – is applicable as from 1 January 2016 (see Press release).
- Directive 2009/138/EC of 25 November 2009 on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II directive)
- Directive 2013/58/EU of 11 December 2013 postponing the application date of Solvency II
Omnibus II Directive
The Solvency II Framework Directive (2009) on the financial position of insurance undertakings has had to be adapted in response to:
- new architecture for its implementing measures introduced in the Lisbon Treaty (2009)
- new financial supervision measures introduced in Regulation 1094/2010 establishing the European Insurance and Occupational Pensions Authority.
These changes are implemented through the “Omnibus II directive”.
Technical standards and guidelines
- concern purely technical matters (no strategic decisions or policy choices)
- require the expertise of supervisory experts
- are adopted by the Commission based on drafts submitted by the European Insurance and Occupational Pensions Authority (EIOPA).
Regulatory Technical Standards (RTS)
These are standards for the consistent harmonisation of rules in EU legislative acts.
Implementing Technical Standards (ITS)
These are standards for the uniform application of legally binding EU acts.
Areas to be covered, as proposed in the Omnibus II Directive, are:
- uniform reporting templates
- harmonised technical input to the standard formula
- harmonised procedures and templates for cooperation
- the exchange of information between supervisory authorities
Overview and state of play
of ITS relating to Solvency II
(last updated: 18.01.2016)
- The European Commission adopted a third group of three Solvency II Implementing Technical Standards on:
- The European Commission has adopted a second group of seven Solvency II Implementing Technical Standards.
- European Commission has adopted a first group of six Solvency II Implementing Technical Standards:
The European Insurance and Occupational Pensions Authority (EIOPA) can issue guidelines to supervisors and undertakings which is not legally binding, but companies or supervisors not complying will have to explain their reasons.
Quantitative impact studies and impact assessments
Quantitative impact studies (QIS) are carried out to help determine the quantitative requirements for new solvency rules. The parameters to be tested are decided by the Commission. Several quantitative impact studies (QIS) have been carried out by the European Insurance and Occupational Pensions Authority (EIOPA).