This cleared the way for Solvency II to enter into force on 1 January 2016. The Directive is currently expected to be transposed into national law by 31 March 2015. The conditions for our conference could not have been more fortuitous, for now we finally have clarity.

Among other things, Solvency II will require a strengthening of risk-adequate capital backing for insurers. This will mean special challenges for the industry. I am talking mainly about life insurance, where due to persistently low interest rates the switch to a pure market-value approach will mean that the obligations on the liabilities side of the balance sheet will become more expensive. That is why negotiations on the Omnibus II Directive also focused on the so-called long-term guarantee package, a bundle of measures to better track insurance business with long-term guarantees.

German positions taken into consideration

I am extremely pleased that the compromise that has now been reached takes into consideration the positions deemed most important from Germany's perspective. It calls for an adequate transitional period of 16 years for the portfolio of life insurers from the starting date of Solvency II, with a gradual phase-in of the new regime as well as a more stable yield curve thanks to an early extrapolation to the target yield – 20 years for the euro. I would like to mention in particular the volatility adjustment, a permanent instrument which will reduce volatility in Solvency II balance sheets of companies due to a massive expansion of interest spreads on the financial markets and will thus limit the risk of pro-cyclical investment behaviour on the part of the companies.

In that context, I would like to note that life insurers will incur considerable costs as a result of Solvency II – even if they apply all measures to better track long-term guarantees. They will need to spend between 3 and 5 billion euros per year – assuming constant market conditions. Though this challenge is a burden, it is a necessary one. The life insurance industry must be strengthened with sufficient own funds for times of lean returns which can be expected; guarantees and options must be priced in an economically appropriate manner going forward.

Leaving nothing to chance

Earlier on, I spoke of luck, but we cannot and will not leave anything to chance. We now need to take on the work of implementing the new regulation and continue to take great strides to successfully introduce Solvency II. BaFin will shed some light on the specific implications for companies and supervisors by the beginning of January 2014 at the latest.

About the author:

Felix Hufeld has been the top German insurance industry supervisor since the beginning of 2013, and represents BaFin on the Management Board of the European insurance supervisory authority EIOPA. In his function as Chief Executive Director, he was involved in the critical phase of the negotiations surrounding Solvency II. He is calling for accountability on the part of insurance undertakings and asking them to dialogue closely with BaFin during the transitional phase which is now to follow.