On 27 September 2013, the European Insurance and Occupational Pensions Authority (EIOPA) published the final guidelines on the preparation for Solvency II following a public consultation earlier this year. The guidelines are aimed at National Competent Authorities (“NCAs”) and allow for the phased introduction of specific aspects of the Solvency II requirements into national supervision from 1 January 2014, in advance of the full implementation of the Solvency II regime. The following key areas are each covered by a separate set of guidelines:
• System of governance
• Forward Looking Assessment of the undertaking’s own risk (based on Own Risk and Solvency Assessment (“ORSA”) principles)
• Submission of information to NCAs
• Pre-application for internal models
Responses to specific issues raised are included in each document providing clarification in a number of areas. EIOPA also responded to more general issues raised including timings during the preparatory phase and the extent of supervisory actions expected during this period.
The 57 requirements included in the consultation under the systems of governance have been reduced to 52 with the removal of some actuarial function requirements and the rationalisation of the internal audit guidelines. The final guideline on group internal models has also been removed and several wording changes have been made to the remaining guidelines.
The 25 guidelines for the Forward Looking Assessment of the undertaking’s own risk are largely unchanged from those included in the consultation.
However under the Forward Looking Assessment, the following aspects have been deferred to 2015 for all entities:
• The assessment of the continuous compliance with capital requirements and technical provisions
• The assessment of the significance of any deviation of the risk profile from the SCR assumptions.
The assessment of solvency needs will be required on a best efforts basis during 2014 irrespective of Omnibus II discussions and the Solvency II start date.
In relation to the submission of information, the 38 guidelines included in the consultation have been increased to 39, but this reflects a reformat of one of the guidelines rather than new content. EIOPA has concluded that one quarterly submission prior to Solvency II implementation is sufficient (i.e. Quarter 3 2015 if January 2016 is agreed as the Solvency II implementation date) and EIOPA has granted 2 extra weeks for completing the annual submission in 2015 for year-end 2014 (so 22 weeks after year end). EIOPA has introduced some further materiality thresholds and exemptions in the interests of proportionality. A final list and format of templates has been provided (with new naming conventions) including a log of changes from previous versions.
Under the pre-application for internal models, undertakings are required to submit the standard formula Solvency Capital Requirement during the pre-application process. The 72 guidelines that were consulted on have been reduced to 70 with one guideline on decision making being removed and the guideline on the application of profit and loss attribution and the use test also removed.
If you have any questions or comments on this eAlert or any other aspect of Solvency II, please your Milliman consultant.