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 technical standards, implementing measures and guidance under Solvency II experienced delays whilst an additional Directive - known as ‘Omnibus II’ – was negotiated. Omnibus II was published in the Official Journal of the European Union. It introduces amendments to various EU secondary legislative instruments in order to enable the implementation of Solvency II and provides specific tasks for EIOPA and ESMA, in particular clarifying the role of EIOPA in ensuring harmonised technical approaches on the calculation of technical provisions and capital requirements. The new rules also amend Solvency II itself, as well as the Prospectus Directive, to take account of the new EU financial services supervisory system following the creation of EIOPA and ESMA in 2010. Overall, the amendments can be broadly categorised as: the definition of the appropriate scope of technical standards; enabling EIOPA and ESMA to settle disagreements; enabling the existing rules to operate in the context of the new supervisory system; and, transitional requirements and other amendments to Solvency II. Member States must transpose Omnibus II by 31 March 2015 and apply the rules of Solvency II from 1 January 2016.
Level I Text of Solvency II (December 2009)
Directive 2014/51/EU amending Directives 2003/71/EC and 2009/138/EC and Regulations (EC) No 1060/2009, (EU) No 1094/2010 and (EU) No 1095/2010 in respect of the powers of the European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA) (May 2014)
Note on the Solvency II Directive (April 2010)
EIOPA techncial assssment of LTG package (June 2013)