Mate-it's my job, bored or not
OK, then. With apologies to everyone else for the thread redirect - and I'll start from scratch so there is at least something in it for non-geeks.
Solvency 2 is the new European way of regulating insurance companies. It was supposed to come in in 2010, then 2012, then 2014. My latest guess is 2017 at the very earliest, but odds on "never" are shortening. It's progressed from a technical discussion about the management and supervision of insurance to a very political discussion about who makes those decisions.
A key principle is that liabilities (i.e. what the insurance companies hold to pay out) are valued using the market-equivalent concept I've already damned in this thread. And that insurance companies hold capital to protect policyholders against an extreme shock scenario.
Using the purist approach, anything (like an annuity) reliant on interest rates becomes horribly expensive - that's what we've seen over the last few years with the collapse of yields on fixed interest investments.
Anything (like an annuity with some measure of protection built in) with some form of long-term guarantee becomes punitively expensive. An enormous bunfight is developing between the purist academic regulators who had the initial concept and the insurance companies who have to design and sell products. Various alternative methods have been proposed to make the implementation more palatable, but none of them appeal to the academic purists, and they all look a bit like special pleading.
It's made more complex because the people who will make the decisions aren't regulators or insurance companies but European and national politicians and civil servants. And most of them don't really understand the issues because they've never sold insurance, and the national ones at least are driven by the interests of their nations and national industries.
The latest is a rather plaintive letter from a regulator more or less saying "guys, can't we at least agree that we need to agree something?"
If anyone really wants to discuss insurance company supervision - a topic on which I have strong opinions - I suggest we do it across the road in P&Lite. I should say that although Solvency 2 is one of my specialist subjects I don't deal with life insurance. And, in case any of my bosses or regulators are reading this, this is a personal opinion, not an opinion of my employer.