EIOPA needs greater oversight of Solvency II, says KPMG

The insurance industry would back a bigger drive by the European Insurance and Occupational Pensions Authority (EIOPA) to help get Solvency II back on track, says KPMG.

KPMG today outlined a series of measures needed to move the regulatory framework forward, in conjunction with EIOPA’s work to make the new directive more relevant and robust.

This follows months of delays and uncertainty around the implementation of Solvency II for insurers.

KPMG insurance partner Roger Jackson said: “There is a lot of work that needs to be done to turn the current situation of confusion and frustration around. First of all, the industry would welcome greater impetus from EIOPA to steer stronger engagement and dialogue between European regulators.

“In addition, there are also some more specific, technical suggestions which may help re-energise this regulatory framework. In particular, on a pan-European basis Pillar 2 could be de-coupled from Pillar 1 and adopted early to continue the drive towards a more harmonised approach across Europe. Pillar 1 should then be left to run its course. The UK FSA proposals on enhanced Individual Capital Assessments (ICA+) should be supported.”

Jackson said an early adoption of Pillar 2 would enable businesses to capitalise on the work they have done to date, and put in place more effective governance and risk management procedures.

“We are already witnessing regulators beginning to forge ahead with aspects of the Pillar 2 regime,” he said. “However, it is imperative there is a consistent approach across all countries to ensure a level playing field.

“This requires stronger oversight from EIOPA, including in relation to the college process, to drive a more harmonised approach to implementation and seek to force more effective collaboration between regulators.”

Jackson said firms that had invested heavily in Pillar 1 and had been encouraged to adopt an internal model by regulators may now believe they have wasted time and money getting to this stage.

“What we really need is to find a pragmatic outcome that can be achieved without further costs being incurred and work having to be unwound,” he said.

Commending the replacement of current ICA requirements with ICA+ as a positive step forward, he said the industry needed guidance on how this would work in practice.

“The FSA needs to ensure that the UK is not disadvantaged and that the approach is in line with other frameworks promoted across Europe,” he said.

KPMG’s UK head of Solvency II Phil Smart said: “The Solvency II regime seems to have lost its course of late, with some analysts now predicting it may never actually get off the ground. It is time for key industry players and regulators to admit that the framework may have been too ambitious and work together to turn the ship around. Some solid foundations have been laid and we must ensure these efforts do not go to waste.”