Alternative Investment Management Association Representing the global hedge fund industry
In December 2009, Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (recast), (Solvency II), was published in the Official Journal of the European Union. Solvency II updates the regulatory regime for European insurance and reinsurance firms by replacing a previous series of 13 EU Directives (Solvency I) with a new risk-based regulatory framework to increase protection for policyholders.
Solvency II is structured across three 'pillars' - (1) quantification; (2) governance; and (3) disclosure - and includes requirements for insurance companies to:
Solvency II poses certain challenges for hedge fund managers which receive allocations from EU insurance companies. The Pillar 1 capital requirements impose onerous capital standards upon insurance companies which use the ‘standard model’ for their allocations to hedge funds, and the data reporting requirements under Pillars 1 and 3 will demand significant amounts of investment level data to be delivered to insurance companies by fund managers in a very short space of time.
The Level II measures under Solvency II have been delayed whilst an additional Directive - known as ‘Omnibus II’ – was negotiated. Omnibus II contains, among other things, transitional measures to reconcile Solvency II with the new European supervisory architecture introduced by the Treaty of Lisbon. Political agreement on Omnibus II was reached in November 2013. It now falls to be endorsed by Member States before finalisation. Publication of the Solvency II Level II measures is likely to occur in Q1/2 2014.
The Solvency II framework is anticipated to become operational on 1 January 2016.
Key Legislative Texts
Level I Text of Solvency II (December 2009)
Note on the Solvency II Directive (April 2010)
EIOPA techncial assssment of LTG package (June 2013)