Solvency II news: EIOPA and FSA consultations November 2011

Content: CP008, CP009, CP11/23, CP11/22 & FSA IMPA briefing.

Consultation papers from EIOPA and the FSA

In the first half of November a number of key consultation documents were published by EIOPA and the FSA. EIOPA published CP008 on the ORSA and CP009 on reporting and public disclosure. While the FSA launched two public consultations, CP11/23: Solvency II and linked long-term insurance business, and CP11/22 the first of two documents on the transposition of Solvency II into UK law.

EIOPA CP008 – consultation paper on the ORSA

Launch 7 November 2011   Close: 20 January 2012 EIOPA logoThe purpose of this public consultation is to gain insights on the impacts, costs and benefits of the ORSA and not, according to EIOPA, to revisit the conclusions that were drawn in the impact assessment undertaken on the Solvency II Directive. CP008 stated that the consultation will also assess the potential impact of the ORSA on “pricing, design and availability of insurance products, the corresponding effects for consumers and the wider social or economic impacts even if indirectly.” EIOPA said it did not expect the current discussions on the Omnibus II Directive and the future adoption of the proposal for a Delegated Act by the European Commission to affect the ORSA consultation. The Omnibus II text is expected to be finalised by the end of Q1 2012. CP008 – Consultation Paper On the Proposal for Guidelines on Own Risk and Solvency Assessment and a template for comments are available on the consultation papers section of the EIOPA website.

EIOPA CP009 – consultation paper on Pillar III reporting and public disclosure

Launch 8 November 2011   Close: 20 January 2012 CP009 covers the Quantitative Reporting Templates (QRTs) and guidelines on Narrative Public Disclosure & Supervisory Reporting, Predefined Events and Processes for Reporting and Disclosure. The consultation is based on the latest status of the draft Delegated Act (Level 2 text), in the form of working documents circulated to EIOPA by the European Commission. This Delegated Act is not yet finalized and has not yet been made public. According to the cover note issued with the consultation, “While these adjustments should not have a material impact on the content of the QRTs and the guidelines, it is expected that the impact from the following elements will have to be taken into account:
  • a. Possible introduction of counter-cyclical & matching premiums;
  • b. Treatment of Expected Profits Included in Future Premiums (EPIFP);
  • c. Treatment of Participations;
  • d. Treatment of Ring-Fenced Funds (RFF);
  • e. Treatment of Branches of 3rd country (non-EEA) undertakings;
  • f. Modification of certain SCR modules (e.g. property risk, structured products risk, CAT risk).
  • g. Adaptations in regular financial stability-oriented analysis.”
The reporting package is expected to be finalised over the summer 2012. In addition EIOPA announced that in December 2011 it is scheduled to consult on additional data to be collected for the purpose of financial stability purposes. CP009 – Draft proposal on Quantitative Reporting Templates and Draft proposal for Guidelines on Narrative Public Disclosure & Supervisory Reporting, Predefined Events and Processes for Reporting & Disclosure and related documents are available on the consultation papers section of the EIOPA website.

FSA CP11/23 – consultation paper on Solvency II and linked long-term insurance business

Launch 9 November 2011   Close: 15 February 2012 FSAThe consultation paper aims to present proposals for changes to the FSA’s rules and guidance relating to the operation of unit-linked and index-linked insurance business, primarily in the Conduct of Business Sourcebook (COBS) 21, Permitted Links. The FSA aims to publish a Policy Statement giving feedback in the second quarter of 2012. CP11/23 Solvency II and linked long-term insurance business is available on the FSA website.

FSA CP11/22 – consultation paper on transposition of Solvency II into UK law

Launch 9 November 2011   Close: 15 February 2012 This is the first of two consultations on the transposition of the Solvency II Directive into UK law and how it links to the European process. An additional consultation document is expected from the UK Treasury later this year. The paper aims to explain the FSA’s approach to the transposition of the Directive, the scope of the FSA’s discretion and how the fundamentals of Solvency II will be applied in the UK. The FSA aims to publish the second consultation paper in Q2/3 of 2012 and a Policy Statement is anticipated in autumn 2012. A response to the current consultation paper will be published in spring 2012 CP11/22: Transposition of Solvency II – Part 1 is available on the FSA website.

FSA IMAP industry briefing

On 3 November 2011 the FSA held an industry briefing for firms in the pre-application phase of the Internal Model Approval Process (IMAP) to discuss plans under the revised implementation assumptions; effectively shifting full implementation for firms from the start of 2013 to 1 January 2014. The briefing highlighted the cooperation between the FSA and the UK insurance industry with speeches from the regulator and Otto Thoresen, Director-General, Association of British Insurers to that effect. Julian Adams, Director of Insurance, FSA, said the FSA intended to explore ways of avoiding costs for firms while running the ICAS and Solvency II models in the run up to full implementation in 2014. However, Mr Adams noted, “What we will not do is remove from firms the current obligation in our Handbook to keep their capital position under review and to make use of their model in reaching business decisions. Removing such requirements in the run-up to the introduction of the new regime would in our view send the wrong message, and, as I have said, we need to strike the right balance between operational efficiency and policyholder protection.”

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