11 March 2010
Published in: Regulation - supervision
CEA attacks Solvency II “prudence”
The European Insurance Federation (CEA) today published a strongly worded report outlining the industry's "serious concerns" about current proposals for Solvency II. The report warns against adding "prudence on top of prudence" which risks the industry reverting back to a simplistic Solvency I approach.
The CEA's fears are based on the draft advice for Solvency II level 2 implementing measures published by the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) last year. The industry is lobbying against a sharp increase in capital requirements [see IERM, Regulation/supervision, 29 January, "Solvency II capital requirements increase by 62%"] in response to the financial crisis, although CEIOPS is showing little sign of changing its position.
The 40-page report, Why excessive capital requirements harm consumers, insurers and the economy, warns of the macro-economic effects of imposing excessively prudent capital requirements and stresses there is still time to get Solvency II right. The CEA did stress, though, that the industry maintains its strong support for the Solvency II directive.
In particular, the report aims to demonstrate that overly prudent capital requirements will restrict the insurance industry's role as a risk-absorber and as an institutional investor financing long-term economic growth. It also argues that the likely under-funding of pensions would have serious social costs. The overall affect, the CEA believes, is to damage the competitiveness of the EU insurance sector.
Alberto Corinti, the CEA's deputy director general, said yesterday that the key concerns are about the calibration, especially of the non-life risk module; the treatment of own funds which could reduce available capital; and some of the approaches for measuring assets and liabilities.
Despite months of lobbying from the industry, Michaela Koller, the CEA's director general, admitted it has achieved little concession from the regulators. "We would have expected more movement from CEIOPS," she said. Although there is a "glimmer of light on the horizon" and still a hope of compromise in some areas, overall "the position of CEIOPS is largely in line with what it set out in the draft advice."
Ultimately, the final decision on the level 2 implementing measures will be made by the European Commission which, although guided by CEIOPS' advice, is not obliged to accept all its recommendations. Koller said it is still "too early to say how big the appetite in the Commission is for changing [the implementing measures]." Officially the Commission has until October 2010 to finalize its position; however, it will draw up details for the fifth quantitative impact study (QIS5) this spring, and is therefore likely to make the key decisions earlier than required.