EU nears final deal on insurance reform

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The European Union is edging closer to a final deal to streamline regulation in the EU insurance sector and make the bloc’s multi-trillion market safer and more efficient, said EU officials yesterday (25 March).

The Solvency II reform has been bogged down in arguments for months with a core element jettisoned to seek a consensus. EU governments and the European Parliament have joint say on the reform. 

Big cross-border insurers like Generali, Aviva, Allianz and Axa want a more streamlined system for setting aside capital to cover risk and report routine data to supervisors. 

EU states officials met on Wednesday to discuss what parliament had termed its final offer. “The points of view were very consensual,” an EU diplomat who attended the meeting said. Another diplomat expected a deal to be formally sealed next week. 

Member states proposed some last minute changes of a largely technical nature before they can give a green light to the measure that would be adopted by the full Parliament in April and take effect at the end of 2012. 

“If these issues are ok with parliament the states can go ahead and adopt,” the diplomat said. 

Peter Skinner, a British socialist lawmaker steering the measure through Parliament, said a response will be sent to EU states early today. 

“I am relieved that Council has finally come up with a political response after months of negotiation at the technical level,” Skinner said. 

“The directive is there to be had and it looks like we are getting the political agreement finally to make it happen,” he added. 

One suggestion that has been put to Parliament is for a better deal that would allow French insurers to sell life insurance products that have retirement benefits on the home market only in return for tying up less capital than for pure insurance products. 

However, Britain, the Netherlands and other member states want this provision tightly ring-fenced so the products do not end up on markets in other countries. 

“What is a deal breaker here is not having sufficient safeguards […] to ensure there is no spill-over effects to other countries, that the ring-fence stays intact,” Skinner said. 

A deal will come at a heavy price of ditching a radical reform of supervision which would have given a cross-border insurer’s regulator the last word on capital across the whole group. 

(EURACTIV with Reuters) 

Positions

Bernard Spitz, chairman of the French Federation of Insurance Companies, wrote in a Wall Street Journal Europe column that "reaching an agreement on Solvency II in the coming days is highly desirable. But not just any agreement, and not at any price". He added that "EU officials can still reach a fair compromise that provides equal conditions for all pension providers, insurers and financial institutions alike. Such a result would benefit all Europeans". 

Stefan LippeSwiss Re's chief executive, told BestWeek Europe that a finalised Solvency II standard would be of great benefit to insurers and reinsurers now buffeted by conflicting signals sent by myriad accounting and regulatory rules and guidelines. "There are too many regulations to observe" currently, leading to significant inefficiency for multinational insurers. 

Following the impetus given to Solvency II by the De Larosière report, Tommy Persson, president of the CEA, a lobby group for European insurance and reinsurance firms, said that he was "delighted with the De Larosière Group's recommendation that the proposed Solvency II Framework Directive, which will create an appropriate regulatory framework for Europe’s insurers, be adopted by May". 

Background

In July 2007, the European Commission proposed a general revision of 30-year old rules governing European insurers' financial positions. The initiative has been labelled Solvency II, in reference to the current regulatory framework Solvency. 

Solvency II proposes a new risk-based approach as an alternative to the existing "flat rate" system. According to this new methodology, the higher the economic risk an insurer takes, the more capital the company would have to hold as a guarantee against default. 

The proposal also aims to reform supervision procedures, with the intention of increasing cooperation among national supervisors, especially for multinational companies. It requests more transparency from insurer and reinsurer groups. 

In the current economic crisis, “it is in Europe's interest not to fall out publicly over a key issue of financial regulation,” says Bernard Spitz, chairman of the French Federation of Insurance Companies. 

Further Reading

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