KPMG welcomes trilogue agreement on Omnibus 2 package

KPMG welcomes trilogues agreement on Omnibus 2 p...

Peter Ott, European Head of Solvency II at KPMG, comments among the trilogue parties on Solvency Omnibus 2 negotiations

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Press Release
  • Agreement reached on all key areas
  • Matching adjustment and volatility adjustment calibrations increased
  • 16 year transitional period for existing insurance book
  • Solution found for US equivalence 

Following last night’s political agreement among the trilogue parties on Solvency II’s Omnibus 2 negotiations, Peter Ott, European Head of Solvency II at KPMG, commented: “European policymakers have finally managed to agree on an Omnibus 2 package, allowing the European Parliament vote in February to proceed.  It is very clear that all parties have moved from their original negotiating positions, and the final package is likely to be welcomed by insurers as a significant improvement to previous proposals and a workable solution.”

The main features of the deal on long-term guarantees are:

  • A volatility adjustment, which increases the discount rate applied to insurance liabilities by 65% of the portion of the spread that is not attributed to default risk, will reduce volatility of net assets in times of market distress;
  • A matching adjustment for certain portfolios of closely matched assets and liabilities, which recognises that insurers are less exposed to market risk where the investments are held to maturity. This will allow up to 70% of spread (for sovereign debt) and 65% of spread (for corporate bonds) to be included in the discount rate; and

  • A phasing-in period of 16 years from Solvency I to Solvency II to be applied to the existing insurance book.

Janine Hawes, insurance director at KPMG, added: “The inclusion of review clauses will enable the effectiveness of the measures to be tested with the benefit of experience. This deal draws to an end the elongated political process, allowing Solvency II to progress onto finalising the delegated acts that support the directive.”

In relation to equivalence, Janine Hawes continued: “A deal has been done to recognise that where a regulatory system follows a risk-based approach which can be seen as providing broadly equivalent levels of policyholder protection to Solvency II, that regime may be regarded as temporarily equivalent for an initial period of 10 years, which can be extended.  This offers a pragmatic solution for the USA in particular, where the state-based regime offered particular challenges regarding equivalence assessment. However, its application is not restricted to the USA, and it can be used more widely as global standards evolve which will help harmonise regulatory approaches worldwide. The development of a global insurance capital standard will help in this regard.

“There is now no doubt Solvency II is going ahead and insurers should use the next two years to get themselves ready for day one compliance. While this agreement marks a significant step in the Solvency II journey, the timeframe remains tight. Delegated acts and technical standards still need to be completed and there are fears that level 2 progress may be delayed as a result of the European elections.  It is therefore important that all parties proceed with the development and agreement of these final stages in a timely manner.”


For further information please contact:

Monica Fiumara, Senior PR Manager, KPMG
T: +44 (0)20 7694 5674
M: +44 (0)7901 105180
KPMG Press Office: +44 (0) 207 694 8773
About KPMG Global
KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  KPMG International provides no client services.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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