Amit Lad contributed to the writing of this blog
The European Parliament confirmed on 4 September 2013 that it has rescheduled the plenary vote of the Omnibus II Directive from 22 October 2013 to 11 March 2014.
A draft of the Omnibus II directive was first published on 19 January 2011. Frustrating for many stakeholders across Europe, this is the fifth time that the Omnibus II vote has been delayed since it was first scheduled over two years ago.
What is Omnibus II?
The Omnibus II directive is an amendment of the 2009 Solvency II directive. When it was originally written, its main aim was to bring the Solvency II directive in line with the Lisbon Treaty , and to take into account EIOPA and the EU’s new supervisory structure.
Omnibus II gave politicians a chance to look the details of the Solvency II directive after the 2008 credit crunch occurred. In this light the Solvency II directive did not look as good as it did pre-2008 and so the politicians have been trying to use Omnibus II as a tool to make more technical changes to the original Solvency II directive.
In its current state, Omnibus II contains some changes to controversial parts of the Solvency II directive (such as long-term guarantees and reporting) as well as transitional measures and the date that Solvency II will actually come into force.
What is the reason for the delay?
The European Commission, the European Parliament and the Council of the EU all need to agree on the Omnibus II directive before it can be adopted as legislation.
In the past there have been delays due to disagreements over the provisions in the long-term guarantee package. This led to EIOPA conducting an impact assessment across the European insurance industry in early 2013, resulting in a report released on 14 June 2013.
It is obvious that the delay is due to not being able to reach an agreement, but the exact points of contention have not been made apparent. The Omnibus II directive contains some very important technical issues that will massively impact many insurers and these delays show just how difficult it is to reach a consensus.
What happens next?
We see three possible things happening when it comes to the rescheduled vote on 11 March 2014:
- The politicians in Brussels reach an agreement and the implementation of Solvency II can move forward. This is obviously the ideal outcome, but it will involve the politicians coming to agreement on issues that they have been debating for the last two years.
- The vote is rescheduled again to a later date. Delaying things that you cannot agree on seems to be a worrying political trend at the moment, and this option is likely to increase frustration amongst European insurers. If the vote is delayed yet again, it is likely that it will be rescheduled to after the next European elections in May 2014. It very likely that Omnibus II will survive the list of pending legislation following the elections, but it will mean that there will be a different set of MEPs that will have to agree the Omnibus II directive. Not only will they have to spend time getting to grips with the legislation, but they will undoubtedly bring fresh thoughts and their own views to the table which is likely to lead to even more debate!
- The parties involved agree to disagree and we implement Pillar II&III (which covers internal controls, risk management processes and disclosure requirements) of Solvency II and national regulator implement their favourite flavour of Pillar I (which deals with the quantification of risk exposures and capital requirements). Given that Pillar I is a key part of Solvency II and one of the main purposes of Solvency II was to bring consistency to the capital requirements for Insurers across Europe, this outcome seems like a step in the wrong direction. We view this outcome as incredibly unlikely, but one has to wonder whether the ease of this option would outweigh the benefits that implementation of a consistent Pillar I would bring!
At the Association of British Insurer’s (ABI’s) biennial conference in July this year, Gabriel Bernardino, CEO of EIOPA, noted that we needed political agreement on the Omnibus II directive this year in order for the 1 January 2016 Solvency II implementation date to be met. It now looks as though, whatever the outcome of the plenary vote, we should be pushing our implementation horizon back to at least 2017!
EIOPA have not made an announcement on what they want national regulators and insurers to do with respect to the interim measures that are due to come into force on 1 January 2014. This delay is likely to have some sort of impact as the interim guidelines were written on the assumption that the Omnibus II directive would be agreed by 1 January 2014 and that the Solvency II directive will be applicable from 1 January 2016. For example, as part of the interim reporting guidelines, Insurers are expected to develop processes to report Pillar I information, but they cannot be expected to do this until they know exactly what Pillar I is, which will not happen until March at the earliest!
We will continue to monitor updates and keep you informed of what is going on…
i The European announcement for this can be found here: http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?id=589513
ii More information about the Lisbon Treaty can be found here: http://europa.eu/lisbon_treaty/glance/index_en.htm
iii Our blog on this report can be found here: /blog/insurance/2013/06/eiopas-technical-findings-on-the-long-term-guarantee-assessment/