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Regulators ease up on Solvency II proposals

Regulators have reined back certain Solvency II proposals in final advice published yesterday.

Committee of European Insurance and Occupational Pensions Supervisors chair Gabriel Bernardino wrote to European Commission director general Jorgen Holmquist late last night informing him of plans to pull back on some of the regime’s more controversial proposals.

Bernardino says, in the letter: “Stakeholders raised a number of comments in relation to Ceiops’ interpretation of some provisions. The European Commission has also sent a list of seven issues where it believes draft advice was not fully aligned with the Level 1 text.

“Ceiops has carefully considered the list and has provided solutions.”

A major concern for UK insurers was the exclusion of an illiquidity premium in the risk-free rate. Analysts predicted life offices would have to raise billions of pounds worth of additional capital to cope with the plans.

Bernardino says: “Although the choice of the reference rate is a technical issue, Ceiops recognises that due to the level of quantitative impact on the level of technical provisions this has strong political implications.

“This applies, in particular, to the inclusion of an illiquidity premium in the risk-free rate. Hence, further work would have to be carried out with a clear concept and mandate in light of the framework contained in the advice. Ceiops is prepared to take the lead in this area.”

The Association of British Insurers welcomes Ceiops’ move but believes there is still much to do to deliver a successful outcome for Solvency II.

Director of financial regulation Peter Vipond says: “The positive message is that Ceiops has recognised that some of their original ideas were unsuitable, as insurers across Europe made clear. The challenge remains to shape Solvency II, allowing it to deliver its original aim of prudentially sound firms with consumers’ interest paramount.

“It is pleasing that Ceiops has recognised that the liquidity premium must be included, although it has restricted this to business-in-force. More progress is needed here and we will continue our efforts to find a suitable solution.”

The Commission will now produce its implementation proposals at the end of 2010.

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