European elections 2014

Solvency II – timely and proportionate implementation of regulatory requirements

The Solvency II project will change the insurance landscape more than any other recent reform project. The Solvency II framework has now been defined. The next task is to elaborate the details of the regulations. It is crucial that this project be completed as soon as possible, so as to eliminate existing uncertainty and enable undertakings to implement the new rules in an efficient and timely manner. The envisaged entry into force in 2016 remains ambitious.

The design of the further specifications must be in line with the supervisory purpose. In this regard, we hold the following positions:

GDVNo adjustment of credit and basic risk of the interest rate term structure
The interest rate term structure is based on market data (swaps). It is adjusted by a factor which is intended to reflect credit and basic risk. This adjustment is arbitrary and leads to deviations in the balance sheet recognition of assets and liabilities. Moreover, this adjustment makes the basic concept of the term structure less comprehensible and should therefore not be implemented.

GDVConfirm decisions on Long-Term Guarantees
The measures designed to secure Long-Term Guarantees provoked broad debate and controversy. For this reason, the compromise on Omnibus II that was ultimately reached should be respected consistently in the further design of the delegated acts. This holds in particular for a specific formula regarding the volatility adjustment. For instance, only market data up to year 20 should be used for the extrapolation of the interest rate term structure.

GDVImprove proportionality
The principles of proportionality and materiality should be implemented in a consistent manner in order to avoid imposing any undue burden on small and medium-sized undertakings and insurers with simple risk profiles. This holds true in particular for reporting requirements, governance requirements and the Own Risk and Solvency Assessment (ORSA). For this purpose, extensive simplifications on Level 2 are indispensable.

GDVAppropriate determination of equity requirements
The risk modules of the standard formula are decisive for determining equity requirements. For this reason, an appropriate design of these modules is vital. The financial situation as well as the risk exposure of insurers should be appropriately recognized and misdirected incentives regarding investment policy should be avoided, which is currently not the case. A revision of the risk modules is urgently required. This applies in particular to the market risk module and the calibration of the catastrophe risk module.

GDVPractical organisation of the governance functions
In the spirit of organisational freedom, it should be possible for undertakings to combine their governance functions, as long as this is appropriate to their risk profiles and does not interfere with the proper fulfilment of tasks. In addition to that, it should be possible to assign functions directly to Management Board members.

GDVContinue to consult closely with relevant stakeholders
The Delegated Acts and Implementing Acts that remain to be finalised include many technical details of great relevance to the practical implementation of the regulations. In order to ensure a design that is in line with the requirements of the insurance business, the relevant stakeholders should continue to be involved in the process.

GDVThe powers of supervisory authorities must be defined more clearly
It is of vital importance to involve the European Insurance and Occupational Pensions Authority (EIOPA) – as an independent expert authority – in the legislative process of developing the subordinated legal acts in an efficient and transparent manner. Accordingly, the powers of supervisory authorities need to be further clarified and defined.

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