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The QIS5 study seems to have convinced the European Commission and supervisors that maybe the insurance and reinsurance industry should be given the slack over Solvency II that it has been screaming for.
A sudden and largely unexpected outbreak of reason appears to have broken out in Brussels.
The fifth quantitative impact study on Solvency II, known as QIS5, carried out by the European Insurance and Occupational Pensions Authority (Eiopa) shows the industry would have 20% less capital under the proposed new regime than it does under Solvency I, and that some 15% of companies that took part would not hit the solvency capital requirement (SCR).
The results of the study were no worse than under QIS4. The majority of companies will not need to raise fresh capital and, critically, both the European Commission and Eiopa have recognised that the system needs to be simpler and kinder to smaller companies, less prone to volatility, and that some hefty issues related to long-term guarantees need to revisited.
Industry specialists still believe that non-life insurers and catastrophe carriers in particularly need further help, and that mergers and acquisitions (M&A) and capital reallocation will follow. But following on from the European Commission's earlier suggestion in Omnibus II that serious transitional measures that could delay implementation of critical parts of the regime as far as 2023 are needed, the European industry is presumably a much happier place after the release of the QIS5 results.
Before considering the next steps and remaining battlegrounds, they will reflect on the fact that the basic news on capital is positive.
Rating agency Fitch summed it up neatly: "The results show that in aggregate, these companies [70% of Europe's insurers took part] hold E*395bn [$550bn] of capital in excess of their solvency capital requirements and E*676bn in excess of their minimum capital requirements (MCR). This equates to an E*86bn reduction in surplus capital relative to the existing Solvency I regime."
The good news for most, and especially customers, is that the proportion of companies that fall short under QIS5 will not be much higher than under QIS4 and, given the transitional arrangements outlined in Omnibus II and seemingly reaffirmed by the European Commission, companies that fall short should have time to sort it...