European politicians have struck a provisional deal that could introduce new rules to the Solvency II framework.
Last night's agreement on the Omnibus II directive, the legislation underpinning Solvency II, will introduce 'long-term guarantees' (LTG), which will adjust the current Solvency II framework to cope with 'artificial' volatility and low-interest rate environment. This will also smooth the transition from the current Solvency I regime.
The directive also contains enhanced requirements for risk management, supervisory review process, public disclosure and possibility to review LTG in order to ensure prudence and transparency.
Raimundus Karoblish, chair of the European Union's Permanent Representatives Committee devising the regulations, said: 'This is a very important legislative dossier aiming at financial stability in the insurance sector and beyond. The agreement comes in time for the revised director to enter into force.
'The agreement should create a momentum for the final adoption by the EU Council and the European Parliament.'
Commenting on the agreement, Charles Garnsworthy, partner at PricewaterhouseCoopers, said: 'Agreement yesterday between the European Council, European Parliament and Commission will give the market a degree of rule certainty, but will also allow European Insurance and Occupational Pensions Authority to finalise its own drafting on delegated acts and regulatory technical standards.
'The compromise reached will not satisfy all parties entirely, however it will represent relief for many, especially now that the way forward has become clearer.
'The timetable is now clear. EIOPA's guidelines become effective from January 2014 and there is a very real short term need to be prepared to deliver in 2014 and 2015. Firms should now take stock of whether their programmes are going to meet the requirements and prioritise those areas needing attention.'
At Barnett Waddingham Kim Durniat a partner at the firm, said the Solvency II start date confirmation was the 'kick in the backside' that the industry needed.
'The proposed LTG measures will encourage a more sustainable UK annuity market, and provide greater financial stability to the sector as a whole. Solvency II is clearly no longer on hold, and the race is on for insurers to be ready by January 2016,' Durniat added.
'This is the kick in the backside that the industry needs to steer Solvency II back to the forefront of insurers' radar.'
Also praising the efforts of European politicians agreement on the legislative dossier, Matthew Fell CBI director for competitive markets, said: 'After years of hard work it's good news that a sensible and workable agreement has finally been reached, which will ultimately benefit consumers and savers across Europe.
'The removal of regulatory uncertainty in the insurance sector should free up a major source of long-term investment in the UK and Europe, which will help to boost growth.'
The provisional agreement reached with the European Parliament will have to be endorsed by EU member states before being finalised. Solvency II will become operational from January 1 2016.