While Solvency II went live at the start of the year, there were key elements of the regime for which the ‘no objection’ period only ended this year. These have now all cleared their final legislative hurdle and are discussed below.
These were published in the Official Journal on 1 April as the Commission Delegated Regulation (EU) 2016/467 and entered into force on 2 April.
The main aspect relates to the introduction of a new asset class of “Qualifying infrastructure investments”, intended to encourage insurers to invest a greater proportion of their investments into this asset class. This was a key objective under the European Commission’s Capital Markets Union plans.
The solvency capital requirement (SCR) charges under the standard formula which apply to qualifying infrastructure investments from 2 April are significantly reduced, as follows:
Other important changes relate to:
On 4 March, the Commission Delegated Decisions for both countries were published in the Official Journal, confirming their equivalence status. These became effective on 24 March.
For Bermuda, with the exception of captives and special purpose insurers, full equivalence has been confirmed in respect of all three areas (reinsurance, solo prudential regimes for the purposes of Article 227 and group supervision). The Decision effectively relates to classes 4, 3B and 3A (Property & Casualty insurers) and E, D and C (life insurers).
For Japan, temporary equivalence applies in respect of reinsurance until 31 December 2020 with a potential one year extension and provisional equivalence applies in respect of its solo prudential regime until 31 December 2025, which is renewable for further periods of 10 years.
There is no retrospective application stated in any of these papers. Accordingly, insurance companies/groups will not be able to take these amendments into account in their Solvency II Day 1 reporting. In particular, this means that any "other methods" relating to the group supervision of Bermuda headquartered groups will need to be complied with in relation to this initial reporting requirement. Those entities with December year-ends will also not be able to reflect the Delegated Regulation amendments in their quarter 1 reporting.
In relation to the infrastructure changes, whilst the SCR reduction is significant for standard formula firms, it remains unclear whether this will be sufficient to encourage insurers to move into the asset class. It is also unclear how many investments will meet the “qualifying” status. Please see here for our previous article that explains this aspect further.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.