A key milestone in the path to formal implementation of Solvency II, the EIOPA report on the findings and recommendations of the long-term guarantee assessment has been released.

The European insurance industry has over E7 trillion assets under management and, in turn, is a significant funder of long term investment, so where the rules end up will have ramifications for the capital markets more broadly.

Commenting, Charles Garnsworthy, actuarial and investment management solutions partner at PwC, said: "The treatment of so-called long term guarantees is one of the most significant hurdles remaining before Solvency II can be implemented. The underlying question is how much capital do insurers need to back long term liabilities, particularly life and annuity business."

"The final position will also impact consumers and the cost of providing for retirement, which is particularly important given the significant gap in pension’s provision in Europe.

"The EIOPA report is a step forward in the process to achieve consensus between the trilogue of the Council, the Parliament and the Commission. It provides both information to inform the debate and proposals to move ahead. However, many insurers may find the proposals onerous and will not welcome the continued uncertainty over the final rules. We anticipate there may be concerns about the capital required for certain types of assets backing annuities in particular; and the effectiveness of measures designed to address short-term asset volatility."

Commenting on what this means for Solvency II implementation, Paul Clarke, insurance partner, PwC, added: “The release of the EIOPA report on the long term guarantee package is a key milestone in the path to formal implementation of Solvency II. Now that the report is out, the Commission can begin their response and hopefully formal negotiations can begin before the summer recess in Parliament this year. There appears to be real political will to finalise the long term guarantee package by the end of 2013 and adopt Omnibus II by Spring 2014. However this will depend on all legislators agreeing to the terms. The upcoming negotiations are key, but with the results of this assessment now out, a solution is within reach.”

Share Story: