EIOPA begins consultation on first set of Solvency II guidelines

It has issued five sets of draft guidelines and an impact assessment relating to large areas of pillars 1 and 2 of the new regime, which is expected to come into force in 2016. Elements covered by the drafts include use of internal models, system of governance and own risks and solvency assessment (ORSA), supervisory review processes and methodology for equivalence assessments.

Although non-binding, EIOPA's guidelines are intended to ensure common, uniform and consistent application of the new regime by national supervisors and affected financial institutions. Comments on the drafts are due by 29 August 2014.

The Solvency II regime sets out broader risk management for European insurers and dictates how much capital firms must hold in relation to their liabilities. The Omnibus II Directive, which completes and finalises the new framework, was approved by the European legislative authorities earlier this year and is expected to be transposed into national laws by 31 March 2015, to come into force on 1 January 2016.

Recent research by professional services firm EY found a consistently high level of readiness amongst European insurers to implement balance sheet requirements under Pillar 1 of the new regime; although respondents said that there was some room for improvement in their preparations for meeting internal governance requirements and implementing ORSA processes under Pillar 2. Firms' data and system readiness for Pillar 3 reporting requirements continued to lag behind other areas of the reforms, according to EY.