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Breaking NewsFS Regulatory Centre of Excellence20 January 2011

Own funds for a period of up to 10 years insurers may bepermitted to continue to meet conditions at least as stringentas those that applied under Solvency I regarding theclassification of own funds rather than having to apply Solvency IIs requirements on the tiering of own funds.

Solvency Capital Requirement (SCR) for a period of up to10 years insurers may be permitted to calculate a

transitional SCR with modified stresses, scenarios,correlation coefficients and parameters provided that thetransitional SCR is no lower than the sum of the MinimumCapital Requirement (MCR) and 50% of the difference

between the SCR and the MCR.

The transitional measures are summarised in more detail in the Appendix below.

E I OPA s r e s p o n s ib i li t ie s

Omnibus II clarifies the areas in which the European Insuranceand Occupational Pensions Authority (EIOPA) will be tasked

with developing draft binding technical standards forsubmission to the Commission by 31 December 2011. Inaddition Omnibus II proposes charging EIOPA with certainother responsibilities such as:

Resolving disagreements between supervisors in areas suchas the approval of applications to use an internal model at

group and subsidiary levels where Solvency II provides for joint decisions to be made by national supervisors. EIOPAsrole will be to mediate between conflicting views of supervisors rather than overruling their judgement.

Publishing the relevant risk-free interest rate structuresincluding an illiquidity premium in periods of stressedliquidity.

Publishing certain inputs to the standard formula SCR calculation in order to achieve harmonisation of approach.

Determining the conditions that constitute an exceptionalfall in the financial markets for the purpose of determining

when an extended recovery period following a breach of SCR is permitted.

From Regulation to Supervision, EIOPAs recently publishedS l II di k l EIOPA l d

The Omnibus II Directive will provide a framework of the areas where transitional arrangements will be available, themaximum periods that the transitional arrangements will apply for and the minimum requirements that will have to be metduring the transitional period. However, the actual transitionalrequirements and their duration will be determined indelegated acts. It is expected that draft delegated acts will bepublished for consultation in June 2011 and are expected to be

finalised by the end of 2011. As a result, the expected impact of the transitional arrangements will not be clear until mid-2011and are not expected to be known with certainty until the end of the year.

Finally, it is worth noting that as the transitional arrangementsare being specified in delegated acts they will be EU-wide innature and so it is expected that the nature and duration of thetransitional arrangements will be consistent across all MemberStates.

Am I affected?Insurers that fall under the scope of the Solvency II Directive

will be affected by amendments introduced in the Omnibus IIDirective.

What do I need to do?

Insurers might wish to consider the impact of the proposedamendments on their Solvency II implementation plans. Inconsidering the potential impact of these proposals it isimportant to bear in mind that the draft Omnibus IIDirective sets out the maximum transitional periods that theCommission will be able to adopt. The Commission willdetermine the actual period for each transitional measure(which may well be shorter than the maximum) taking into

account how long it is expected insurers will need to prepareto apply Solvency IIs full requirements. As indicated above,the impact of transitional arrangements on implementationplans will not be clear until delegated acts are published inthe second half of 2011.

C o n t a c t s

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