Despite progress on Solvency II, insurers still may be dissatisfied, Fitch says

Despite some movement by European authorities toward hitting the January 2016 target date for implementing the Solvency II regime, an agreement reached late Wednesday is still likely to leave some major insurers dissatisfied, according to Fitch Ratings.

On Wednesday in Brussels, the EU Council and the European Parliament reached a provisional agreement on the Omnibus II directive, which would allow Solvency II to become operational, according to a statement on the council’s website.

“Agreed new rules contain so-called “‘ong term guarantees’ (LTG) measures which adjust current Solvency II framework to cope with ‘artificial’ volatility and low interest rate environment, and allow for the smooth transition from the Solvency I regime to the Solvency II,” the statement says.

“In addition, Omnibus II directive contains enhanced requirements for risk management, supervisory review process, public disclosure and possibility to review LTG, in order to ensure prudence and transparency of the framework.”

However, Fitch said the amendments are based on the European Insurance and Occupational Pension Authority’s Long-term Guarantees Assessment study, and this is unlikely to satisfy some insurers, since “significant extra capital may still be needed.”

“…(W)e understand that several major insurers considered the study to be inconclusive because the scenarios underlying the assessment were not, in their opinion, meaningful,” Fitch noted in its own statement Thursday.

“Solvency II itself – and any new measures contained in the Omnibus II Directive – is unlikely to have any significant impact on insurers’ balance sheets in the next few years because of the timescale involved in finalising and phasing-in new rules,” the firm also noted. “We do not expect Solvency II to have an impact on insurers’ credit ratings during this time.”