Insurers join Europe’s risk managers in calling for stronger application of proportionality in SII

Insurance Europe, the body that represents the European listed insurance sector, and AMICE, the association of European mutual and cooperative insurers, have joined Ferma in calling for more robust and consistent application of the proportionality principle via the review of Solvency II being carried out by the European Insurance and Occupational Pensions Supervisory Authority (EIOPA). The deadline for consultation on a planned Solvency II review closed yesterday. EIOPA will now make its conclusions and give advice to the EC about any changes needed in the summer. The EC will then announce any changes to the regulation next January. Ferma has presented a proposal to European regulators for simpler, harmonised and more consistent Solvency II rules for captives as part of the review. The federation’s effort is led by Laurent Nihoul, group head of insurance at ArcelorMittal and a Ferma board member. Ferma and other captive representatives seem increasingly optimistic that such work will lead to a reduction in the burden on captives. Ferma has proposed a method to harmonise the way national supervisors evaluate proportionality measures for captives, to help ensure that corporates can derive the maximum value from their self-insurance strategies rather than be penalised with excess reporting and capital requirements. As Brigitte Bouquot, president of French risk management association AMRAE pointed out yesterday during the association’s pre-annual-conference press call, the market is hardening and pulling back from critical risk areas, so now is the time to use captives more, not less. EIOPA needs to accept that the principle of proportionality has not been consistently applied, particularly in relation to captives, and that this needs fixing through the review, argue Europe’s risk managers. Thankfully, Ferma and its national member associations are not alone in wanting more consistent application of proportionality under Solvency II. Two of the leading insurer associations – Insurance Europe and AMICE – have made the same call. They are not as concerned about captives, but are more worried about the disproportionate burden that Solvency II places on smaller regional and specialty insurers that do not pose the same systemic risk as larger groups but still play a critical role in the European risk transfer industry. AMICE states: “Proportionality is embedded in the Solvency II Directive and the Delegated Regulation, but its application has been limited. This has resulted in a disproportionate regulatory burden, particularly for small and medium-sized insurers (many of which are mutuals), which does not properly reflect their risk profile or provide commensurate policyholder protection.” The association continues: “AMICE supports proposals to increase the thresholds at which Solvency II applies to small insurers, to apply an appropriately calibrated regime for medium-sized insurers, and to ensure that the principle of proportionality works consistently in practice. AMICE has focused on proportionality within Solvency II for many years, and recently has made detailed submissions for practical solutions such as a regulatory ‘toolbox’.” The association added that progress with Solvency II should follow a principle-based regime. This means that supervisory convergence should not lead to more legislation and, instead, deliver simplification of existing rules wherever possible. Changes should also not assume a one-size-fits-all approach. Market consistency is desirable but regulatory reform should be “appropriate, representative, responsive and proportional”, said the association. AMICE’s secretary general, Sarah Goddard, commented: “Historically, AMICE has been deeply involved in the consultation around the development of Solvency II, particularly the implementation of the proportionality principle. Proportionality is particularly important for the mutual and cooperative insurance sector, alongside more technical aspects such as long-term equity, the volatility adjustment and interest-rate risk.” Insurance Europe issued a long and detailed response to EIOPA’s consultation, most of it focused on capital requirements and guarantee assumptions that are proving a burden for Europe’s major insurers, particularly those in the life sector. But it also commented on the need to bolster the proportionality principle. “EIOPA should be more ambitious in its proposals on reporting and proportionality, to achieve its own stated goals of streamlining disclosures and enhancing proportionality. Unfortunately, the draft proposals are far from achieving the intended aims and, if anything, in the area of reporting, EIOPA’s proposals seem to increase rather than decrease the burden on the industry,” it stated.

Insurers join Europe’s risk managers in calling for stronger application of proportionality in SII

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