“Eiopa will publicly consult on the technical standards and guidelines as soon as possible during 2014, in order to deliver them in time for a good and timely implementation by the market,” Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority, said in a speech in Frankfurt today. “The next two years should be used to actively implement measures to avoid the worst case scenarios.”
European politicians reached an agreement last week paving the way for new rules to make insurance companies safer after 13 years of wrangling with the industry and regulators. Representatives for the European Commission, European Parliament and Council of the European Union agreed on rules on how to assess capital insurers need to set aside to meet future obligations.
The deal in Brussels allows for the Solvency II regulations to become operational on Jan. 1, 2016, with a transitional period of 16 years to adjust existing business, after approval by the EU Council and the European Parliament. Frankfurt-based Eiopa is developing the rules with local regulators.
“Unfortunately, the completion now and the future introduction of Solvency II they all fall in a time of considerable stress,” German Deputy Finance Minister Thomas Steffen said in Frankfurt today. “For extremely long-term business, especially in my country, the transition has turned out to be crucial.”
Solvency II, intended to harmonize the way insurers allocate capital against risk, was scheduled to come into force last year. Its introduction was delayed several times over issues such as calculating capital needed for liabilities for products with long-term guarantees including annuities.
“Solvency II will include appropriate transitional mechanisms to deal with the solvency issues of the low interest rate environment,” Bernardino said. “Nevertheless, we cannot wait for 2016 to deal seriously with this issue.”
Insurers are Europe’s biggest institutional investors with 8.4 trillion euros ($11.4 trillion) under management. They are lagging behind banks in adopting a framework to help them withstand losses in any repeat of the 2008 financial crisis.
“The worst scenario is to have a low-yield environment for the next five years,” said Denis Kessler, chief executive officer of Paris-based reinsurer Scor SE. (SCR) That could “lead to a terrible turmoil on the life insurance market” with consequences such as the need for capital raising, consolidation and “insolvencies of smaller insurers,” he said.
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