Calls for Solvency II to be delayed gather strength

Delaying Solvency II (SII) until 2015 would be better for the insurance industry than risking longer delays by rushing to meet the 1 January 2014 deadline, according to Ernst & Young.

The prospect of further setbacks to the pan-European solvency regime has emerged after the latest trilogue discussions between the EU Commission, parliament and the Council again failed to agree on the contents of Omnibus II (key changes to SII).

EU financial services commissioner Michel Barnier has reportedly proposed that the deadline be postponed to 1 January 2015.

The main problem is the matching adjustment, which determines how short-term volatility in bonds held by insurers to maturity are dealt with under SII. Previous discussions called for an impact assessment of the matching adjustment. Its findings are due to be reported in March 2013.

The EU can continue to aim for the 2014 deadline, but run the risk that the impact assessment will require changes that take it beyond it. Alternatively, it could decide now to delay SII, which would enable the industry to wait for the results of the impact assessment.

Ernst & Young SII executive director Tim Ford says proceeding without knowing the outcome of the assessment could push SII’s implementation beyond 1 January 2015.

Ford says that the importance of getting the matching adjustment right, and because some EU countries’ lack of readiness, means delaying now would be better.

He said: “We think the impact assessment is necessary. In that context, the delay to 1 January 2015 looks a pragmatic approach to provide clarity and allow time for that assessment to take place.”