PwC's Managing upstream risk: Regulatory reform review - An asian perspective December 2013 | Page 29

On 25 November 2013 the Council of the European
Union published the likely final compromise text of
the Omnibus II. The publication of this text follows
the conclusion of the technical debate at the Trilogue
meeting of 13 November 2013 and provides clarity
on some of the key requirements of the Solvency II
regime.

2. Potential for easing the regulatory reporting
requirements for smaller insurers.

Below is a brief summary of some of the key
areas where Omnibus II will amend Solvency II’s
requirements:

The European Parliament is currently scheduled
to vote in plenary to approve the text in February
2014. Following approval by both the Parliament and
Council the Directive will be published in the Official
Journal (likely to be May 2014) and become part of
EU law.

1. Further clarification on the Long Term Guarantee
Package –
• Risk-free curve and extrapolation
o Extrapolation will now be performed over
40years as opposed to 30 years
o The “ultimate forward rate” has not been
specified within Omnibus II
o No clarification within Omnibus II around
how EIOPA will determine the level of
credit risk adjustment which is deducted
from observable market rates to arrive at
the risk-free curve

3. Provisional ‘equivalence’ of third countries.
4. Transitional arrangements and phasing in.
5. Extension of the recovery period for a breach in
the SCR and raising of the floor of the MCR

Omnibus II confirms that the implementation
date of Solvency II will be 1 January 2016 and
requires Member States to transpose the Directive’s
requirements into national law by 31 March 2015.
National supervisors will be given the legal power to
grant approvals in areas such as internal models and
ancillary own funds from 1 April 2015.

• Matching Adjustment (MA)
o The requirement that asset cash flows
cannot be changed by a third party has
been slightly eased – inclusion of such
an asset is now allowed provided its
proceeds can be re-invested (in another
asset of the same or better credit quality)
to replace the expected cash flows
o The prescribed limit on the proportion of
portfolio invested in BBB rated assets has
been removed and replaced with a cap
o The MA cannot be used alongside the
discount rate transitional measure
• Volatility Adjustment (VA)
o Member States may grant their supervisors
the power to allow or, in exceptional
circumstances, to reject the use of the VA

Insurance | Regulatory Reform Review

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