Europe’s insurers call for clarity on Solvency II

Participants in the meeting organised by FFSA, France's insurance association, expressed hopes that negotiations at the European level will show progress in the near future, and that EIOPA, the insurance market regulatory body, will be able to launch a new round of assessment tests early in 2013. But, no clear deadlines were announced by Gabriel Bernardino, Head of EIOPA, nor by officials from the European Commission and Parliament that attended the meeting. The lack of a clear timetable was criticised by insurance leaders such as Carlo Cimbri, the CEO of Italy's Unipol, who complained that uncertainties linked to the planned new rulebook affects the business planning of insurance companies and the design of new products.hide"The longer it takes, the more costs the whole process creates for us as we have to keep paying consultants and so on," agreed Bart de Smet, CEO of Ageas. He supported a gradual implementation of the new rules, once they take final shape, so that companies have enough time to adapt. Mr Bernardino said that the ball is currently in the politicians’ court. "We really need to have the commitment from the political side in order to implement Solvency II," he said. Mr Bernardino pressed for a credible timetable so that the market can prepare itself for the directive and reiterated his view that implementation is unlikely to be possible before January 2016. He did say, however, that some of the elements, such as risk management and reporting requirements, could be phased in from 2014. Burckhardt Balz, Member of the European Parliament involved with Solvency II, conceded that the directive is not where he expected it would be today when he came to the same conference last year. But he said that those involved in the negotiation have decided to give priority to ensuring that the future rules are sound and high quality rather than rush it through to meet a deadline. Mr Balz also said that he expects the next set of impact assessment tests applied by EIOPA to the sector to be ready by June or July 2013. This would create the space for those involved in the talks to reach compromises about the final implementation of the directive, added the MEP. The day-long conference in Paris was mostly dedicated to the issue of how insurers can keep funding the economy once the new capital and reporting rules are implemented. This has been a key topic of discussion on both life and non-life markets since the directive first took shape. This has especially been the case in France where the lack of a market for private pension funds means that insurance companies have more weight in capital markets than in other European countries. Insurance executives took the opportunity during last week’s event to reinforce their warnings that, if Solvency II imposes risk-weighting criteria that punish long-term investments, they will be forced to stop providing capital for the wider economy. "Solvency II is not a system that really benefits clients, as prices will go up, while risks are transferred to them," said Thierry Martel, the CEO of mutual insurer Groupama. "It also punishes the economy, as we will stop playing our role of long-term investors." Addressing such complaints, Mr Bernardino warned that insurers can only make long-term investments if they have long-term liabilities to match. "We cannot just pretend that we can have long-term investments with short-term liabilities," he said. "And to apply the same kind of regimes to short-term and long-term liabilities is wrong. If we do that, we will create problems." Mr Bernardino also warned that any final solution for the Solvency II negotiations must take into account the fact that the industry has in its books insurance products that were created and sold in the market based on very different economic and financial expectations. As a result, low interest rates, for instance, are killing the business models of some life insurance companies, he said. "We have to recognise that we have a back book. We have products that have been made for, let's face it, a different economic environment. We have to recognise that we have a problem here," said Mr Bernardino. The EIOPA chief also pointed out that, no matter what form Solvency II will end up taking, it is impossible to eliminate volatility in the sector. "We cannot avoid some volatility in a risk-based environment like the one of Solvency II," he said. "To try to eliminate all the elements of volatility is not realistic," concluded Mr Bernardino.

Europe’s insurers call for clarity on Solvency II

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