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March 11 (The following statement was released by the rating agency)
Today's vote by the European Parliament is a significant step towards implementing Solvency II and ensures the long-delayed regulatory regime for insurers is on track to take effect at the start of 2016, Fitch Ratings says. There are still several elements to be finalised, which could have a significant impact on capital levels, but we expect these to be agreed in time for implementation.
We understand that earlier industry concerns about the Solvency II treatment of long-term guarantee business, including annuities, have largely receded based on the latest draft of the rules. Legal & General is one of the insurers that stood to be most affected, given its sizable proportion of annuity business. Last week, L&G's Group CFO said the company expected its Solvency II capital surplus to be larger than under Solvency I.
Although we believe Solvency II is on track for finalisation, we estimate that the elements still to be decided could affect the capital positions of some major insurers by several hundred million pounds. Notable examples include details around determining the discount rate to calculate insurers' reserves and capital requirements, and the choice of economic and demographic assumptions by insurers using an internal model for Solvency II - which will be subject to regulatory approval. However, we believe the insurers we rate have sufficient capital buffers to absorb the potential effects of this remaining uncertainty.
Given the level of preparation to date and the likely transitional arrangements, we do not expect Solvency II to trigger changes to insurers' credit ratings in the next few years.
The European Parliament voted on Tuesday to approve the Omnibus II directive, which gives the EU Commission the power to finalise the draft rules of Solvency II.