Buyers and insurers unite against ‘extreme conservatism’ of CEIOPS Solvency II plans

The Comité Européen Des Assurances (CEA) published a report last month that said the price of many life products could be forced to rise by 20-30% and that non-life products with catastrophe exposures could be forced up by 5-20% because of the tougher capital requirements introduced by the planned new capital adequacy regime.

Later last month, Kerrie Kelly, Director General of the U.K. Association of British Insurers, used her speech at the annual conference of the Financial Services Authority to stress how ‘intensely frustrating’ the ABI finds the latest advice from CEIOPS to the Commission, that added significantly higher capital requirements than was previously suggested.

“It remains intensely frustrating that what was originally a sensible and well considered directive… has instead become a vehicle for European regulators to require layer upon layer of additional capital.

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In doing so, they ignore the fundamental risk-based approach of the Directive and the need to recognise the social and economic value of insurance products that are accessible and affordable,” Ms. Kelly told the FSA audience.

FERMA reacted rapidly to the CEA report. Peter den Dekker, President of the federation, said: “The fact that insurance companies are concerned that they will have to raise premiums by 20% for non-life insurance is a notable development. However, our main concern is the potential reduction in the number of insurers capable of covering our risks. This could force us to retain more risks on our balance sheet, impacting our ability to invest and remain competitive in a global economy.”

And, AIRMIC, the U.K. insurance and risk managers’ association, added its weight to the growing opposition to Solvency II that has been toughened up because of fresh evidence provided to CEIOPS by the recent financial crisis and the supposed systemic risk threat posed by insurers to the wider financial system.

AIRMIC said that the reform had ‘strayed’ from its original mission and, if applied as CEIOPS advises, will impose burdens on the sector that are ‘out of all proportion’ to the problems it intended to tackle.

LITTLE SYSTEMIC RISK

AIRMIC agreed with FERMA, the CEA and the Geneva Association [the insurer group that published a report last month that it hopes proves that the insurance sector actually poses very little systemic risk and therefore does not merit the tougher capital requirements (see analysis page 9), that insurers should not be punished for the risk management failings of the banks.

“The sharp increase in capital requirements for insurance companies under Solvency II means that there will be less choice of insurance, less flexibility and greater cost. Insurance companies do not pose a systemic risk to the economy and, unlike many banks, they have not been found wanting in the recent financial crisis,” said John Hurrell, Chief Executive at AIRMIC.

“Our members are concerned that they’re going to take a lot of pain for very little gain when buying insurance for their organisations. There’s a feeling that the E.U. is addressing a problem that doesn’t exist,” he added.

FERMA and ECIROA, the European Captive Insurance and Reinsurance Owners’ Association, along with brokers Aon and Marsh, have written to national finance ministers and the European Commission to lobby for changes to Solvency II, not least because it currently looks like the Directive as it stands will force many captives out of business (see March issue of Commercial Risk Europe).

The Commission and European Parliament have stated that they are happy to listen to constructive input from interest groups and so the opportunity to prevent an overly-conservative adoption of the Directive seems possible.

Certainly the U.K. industry appears to be prepared to have a go, as Ms. Kelly of the ABI told the FSA conference: “These proposals are now being scrutinised very closely by the European Commission and it is essential that everyone—ABI, industry members and those FSA and Treasury officials representing the U.K.—supports the Commission in pushing back against the extreme conservatism of the CEIOPS advice to ensure common sense prevails.”

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