European Parliament passes crucial vote on Omnibus II package

The deadline for Solvency II to be transposed into law has been brought forward to January next year after the vote was passed by the European Parliament today.

The date of 31 March, 2013 had been proposed for the initial transposition by the European Council.

But the new regime will still be implemented in 1 January 2014 after gaining approval from the Parliament’s Economic and Monetary Affairs Committee (ECON).

The result of the vote will come as a relief to insurers who now have a firm target to work towards but will give regulators less time to prepare for Solvency II.

European insurance regulators’ body Eiopa had previously said that the implementation date needed to be resolved as matter of urgency.

The committee also agreed on a number of other measures within Omnibus II including a form of matching premium – whether insurers will be able to adjust the discount rate to reflect the risks being run on long-term insurance products such as annuities – as well as an extrapolation measure for the German market and counter cyclical premium.

In addition it agreed on temporary equivalence for five years with the option for an additional year if the country could show it was moving towards equivalence. The proposals have been modified to include a process for establishing temporary equivalence for the USA.

The Association of British Insurers director general Otto Thoresen said the measures agreed were far from perfect but paved the way for the next round of discussions.

“We urge the Finance Ministers, the European Parliament and the European Commission to work together in the weeks to address the outstanding issues,” he said.

“It must remain possible for insurers to continue to deliver products with long-term guarantees that are attractive to consumers. These are products that people rely on for their income in retirement.

He continued: “Linked to this is the ability of insurers to contribute across Europe to helping governments drive economic growth post the financial crisis, a challenge which we in the industry are keen to meet, if regulation allows.

“The final text must not constrain European insurers from competing successfully in the global market. The issue of equivalence must be resolved in order for the EU insurance industry to remain competitive and this will be an issue for which we, and our European counterparts, must seek a successful regulatory outcome.”

KPMG’s Solvency II director Janine Hawes said: “Today’s vote comes as a great relief to the insurance sector and enables Solvency II to move one step closer to reality. 

“The industry has won some important battles, including recognition of the need for a mechanism to avoid insurers being forced to sell investments due to market volatility at a time when their liabilities have not crystallised.

“However, the mechanism for achieving this is not yet fully resolved. Peter Skinner MEP acknowledged today that they do not yet have ‘all the answers’, but that the vote enables the position to move forward.” 

PwC’s global Solvency II leader Paul Clarke said:  “Despite a number of political challenges and various delays, it is great news that the majority of amendments put forward by parliament have been approved in the vote. This is important progress and the industry is now one step closer to having rule certainty.

“Many insurers view the inclusion of a matching adjustment under Solvency II as essential for their ability to offer affordable long-term annuity products. While it is positive that the amendments approved today include a version of this concept, it remains to be seen whether this will address all of the industry’s concerns.

“If an agreement can be reached on matching adjustment that is acceptable to both policy makers and the industry this would be a significant win, not just for the insurance industry but for consumers, as it should avoid reductions in the range of long-term annuity products on offer and increases in product prices.”

DLA Piper, Brussels, EU regulatory policy adviser Emma Greenow said that today’s vote on Omnibus II meant work could restart on the adoption and finalisation of the implementation of Solvency II.

“Importantly the vote in the Economic and Monetary Affairs Committee of the European Parliament now signifies the start of the next phase of the process through the trialogue discussions which are highly likely to see further amendment and change to the final Omnibus II text,” she said.

“The impact of the measures adopted today will be felt by UK insurers as last minute compromise amendments have made some concessions to the provisions for matching adjustments in contract terms – mitigating in part the damaging negative implications for pensions contracts in the EU, however further work and clarity on this must be undertaken at the trialogue level.”

Today’s ECON vote was passed by a majority vote (with 38 for, five against and no abstentions) although some clauses were rejected.

It now passes into the trilogue phase, where the European Parliament, Council of Ministers and the commission must consider their respective drafts of Omnibus 2 and reach an agreed position to put to the parliament plenary vote on 2 July. The first trilogue meeting has been provisionally scheduled for 11 April.

If a positive vote is reached at the first reading on 2 July, then Omnibus 2 may appear in the Official Journal shortly after parliament’s summer recess, allowing the release of the next stages of Omnibus 2.