Time for insurers to stand and deliver on Solvency II says its chief architect

Speaking at a conference organised by the German insurance federation GDV this week, Mr Van Hulle told German insurers that if they do not meet the regime’s Solvency Capital Requirement they will be invited for a ‘cup of coffee’ with BaFin, the country’s financial watchdog. “But, if you don’t meet the Minimum Capital Requirement, stronger stuff will be needed,” he added.

Not fulfilling the Minimum Capital Requirement will mean that a company is broke, that the management has to go and an administrator, appointed by the supervisor, will be brought in.

Four days earlier, Mr Van Hulle was equally outspoken in Bonn, where BaFin held its Solvency II conference. “The idea is simple: insurers have to stand naked in front of the supervisors. In front of the public they can wear swimming trunks and we decide how big they ought to be.”

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Mr Van Hulle might appear to be joking. But in reality, he is very serious. The EU’s front man in terms of Solvency II made it clear that the time for further compromises and delay is over. Solvency II will be introduced in 2013 and will be fully operational by 2014—whether all parties participating like it or not. “For some Solvency II issues further consultations will be necessary, but at some point in time, the discussions have to end,” he said.

“There are potential controversial points such as applying the transition rules,” he admitted. “This mainly concerns the way the phasing in is done, and the question of phasing in the equivalence of non-EU countries.”

Mr Van Hulle welcomed the news that Germany will do another test run, or a QIS6, for Solvency II but stressed that it was not an EU or Eiopa exercise. “We are happy with the results of QIS5,” he added.

Mr Van Hulle gave details on the timetable for introducing Solvency II. The regulations will come into effect on January 1, 2013 but will most likely not be fully executed until January 1, 2014.

In July the EU parliament suggested that insurers calculate and report capital requirements as prescribed by Solvency II in 2013, but it seems that Solvency I will apply until the beginning of 2014.

It is most likely that this proposition will be adopted, said Mr Van Hulle. “I have not yet seen any signs pointing in another direction.” He feels comfortable with this plan. “Solvency II should not hit insurers like a stone. There should be a smooth changeover from Solvency I to Solvency II.”

The question of equivalence also played a big role at the GDV conference on Monday in Berlin. Munich Re’s Chief Financial Officer, Jörg Schneider, told the 300 delegates that Solvency II could become an ‘export hit’ and form the basis of a global regime.

Its basic principles had been confirmed by the events of the financial crisis. The EU countries have every reason to be self-confident in this matter in discussions with other governments, including the US, he said. “Solvency II has led to a situation where things are moving in the US, too.”

The discussion came four days before Eiopa’s board of supervisors discuss the first three of numerous reports on equivalence adequacy, dealing with Japan, Switzerland and Bermuda. The focus will be on Bermuda, which so far poses the biggest problems.

Eiopa’s board of supervisors consists of the insurance supervisors of all member states. They will meet on October 20 and 21. The reports will then go as a recommendation to the EU commission in Brussels.

There seem to be only minor conflicts with existing regimes in Japan and Switzerland, however Bermuda currently does not meet the requirements for parts of its market. But Bermuda is likely to go a long way to meet the EU on this matter.

Current caveats Eiopa has with Bermuda deal mainly with the degree of discretion Bermuda’s watchdog, BMA, has when registering insurers, the requirements around changes in business, management and qualifying holdings and a lack of a risk-based approach to solvency requirements.