The Solvency II Experts News

The CEA has sent a letter to CEIOPS expressing strong concerns over CEIOPS’ draft advice on the implementing measures for Solvency II. The CEA is concerned that CEIOPS appears to have abandoned the principles-based and economic approach it originally adopted. CEA comments that the draft advice is characterised by a ’systemic injection of quantitative and qualitative elements of conservatism’. According to CEA a number of the proposed measures are inconsistent with the principles underlying the Framework Directive and inconsistent with the agreed fundamentals of the new regime. Click here to download this letter

The CEA, the European insurance and reinsurance federation, is delighted that informal but unanimous agreement has been reached at political level in Europe on the text of the proposed Solvency II Framework Directive after prolonged negotiations.

“This is a decisive step towards the new, enhanced regulatory regime that we have been seeking for Europe’s insurers,” said Michaela Koller, CEA director general. “We are happy that the timetable for implementing the Directive is on track. Solvency II is an important and timely piece of legislation and any delay would have been most unfortunate in the current economic climate.”

The CEA, however, feels that carving out group support from the text agreed means that Europe has missed the opportunity to introduce a tool that would have met the need for the efficient and effective supervision of multinational groups which was highlighted last month in the De Larosière Group’s report on financial supervision. “The industry looks forward to Europe taking this step as soon as possible,” said Alberto Corinti, deputy director general of the CEA.

The text of the Framework Directive agreed informally today by the Committee of Permanent Representatives is expected to be formally endorsed next week. The European Parliament will put the Directive to a plenary vote on 22 April. Formal adoption of the Framework Directive could then take place during the 5 May Economic and Financial Affairs (ECOFIN) Council.

“The CEA stands ready to continue contributing to the work on the Level Two implementing measures of the Directive, to ensure that the best possible framework for the supervision of Europe’s insurers is achieved,” said Corinti.

The CEA, the European insurance and reinsurance federation, today set out the key issues that have been highlighted by insurers as a result of last year’s QIS4 exercise, the fourth quantitative impact study run by the Committee of European Insurance and Occupational Pensions Supervisors (Ceiops) as part of the Solvency II project.

In a paper submitted to Ceiops, the CEA sets out the issues that the industry would like to see addressed in the development of possible QIS5 technical specifications and, ultimately, the implementing measures for the proposed Solvency II Framework
Directive.

Among the issues, the CEA highlights the need for more analysis on the calculation of technical provisions and the calibration of some solvency capital requirement
(SCR) models. It also calls for more work to be done on how to apply the proportionality principle in Pillar I.

“We appreciate the high quality of the work done on Solvency II and the good cooperation we have had with Ceiops and the European Commission,” said Alberto Corinti, deputy director general of the CEA. “We hope that our paper will prove helpful as we tackle the issues that require further work.”

The high level of insurance industry participation in QIS4 demonstrated insurers’ commitment to the Solvency II regime. The industry remains firmly convinced that Solvency II will bring significant benefits to both insurers and consumers.

“The CEA looks forward to cooperating closely with Ceiops to ensure that the implementing measures do not depart from the economic risk-based principles that lie at the heart of the regime and that the Solvency II timetable is not delayed,” said
Corinti.

Click here to download full paper.

Following today’s agreement by the EU Council of Economic and Finance Ministers to a general approach on a text of the draft Solvency II Framework Directive that excludes the group support regime, the CEA, the European insurance and reinsurance federation, calls for open and constructive discussions between the Council, the European Parliament and the European Commission to try to reach agreement on a common text.

“We have high hopes that the trialogue between the Council, Parliament and Commission will lead to a compromise on group support so that the text preserves the integrity of the economic risk-based principles that are the raison d’être for Solvency II,” said Michaela Koller, director general of the CEA.The CEA had already expressed disappointment that the text presented to the Council had removed all mention of the group support regime, which allows for the supervision of insurance groups in line with their economic reality. The CEA continues to believe that the group support regime is fundamental to Solvency II, since it allows for the economic assessment of a group’s risk and capital as well as the enhanced coordination of supervisors involved in the group’s oversight.

The European Parliament is due to vote early next year on its draft report that supports group supervision and the group support regime. Adoption of the report, if not coupled with a rapprochement of the positions of the Parliament and Council, would formalise the differences between the text agreed by the Council and the text adopted in Parliament, triggering a second reading.

“Given the different views in Council and in Parliament, it is important that the discussions on the open issues continue and that they are clearly focused on reaching a consensus that reflects the ultimate goals of the proposed regulatory regime and remains broadly in line with the original Commission proposals,” said Koller.

The CEA, the European insurance and reinsurance federation, is disappointed that the text of the draft Solvency II Framework Directive that will be put to the EU Council of Economic and Finance Ministers for approval on 2 December has removed all mention of the group support regime, which allows for the supervision of insurance groups in line with their economic reality.

“The European insurance industry has always maintained and continues to believe that the group support regime is a fundamental element of Solvency II’s economic risk-based regulatory regime,”

said CEA president Tommy Persson. “The future regulation of Europe’s (re)insurers must reflect their economic reality and that reality for many is that they form part of a larger group.”

Appropriate group supervision ultimately provides increased protection for policyholders through the optimum allocation of insurers’ capital.

the CEA has published a paper setting out eight key messages from the turmoil from a European insurance industry perspective. The CEA’s director general, Michaela Koller, said: “The European insurance industry has generally shown resilience to the shocks to the global financial system, reflecting the strength of the insurance business model. To ensure that insurers and supervisors have enhanced tools to resist financial crises, Europe’s insurers fully support the move to an economic risk-based regulatory regime as proposed in the Solvency II Framework Directive. ”

The CEA’s paper reiterates the message from the European insurance industry that moving to the proposed Solvency II regime will enhance risk management in insurance companies, improve their capital allocation and strengthen their ability to resist crises such as the current one. It stresses that there should be no delays in implementing the Directive. “International insurance companies should be regulated with enhanced cooperation between supervisors and group-wide supervision,” added Koller. Click here to read this paper

The CEA (the European insurance and reinsurance federation), the CFO Forum, the CRO Forum and PEIF (the Pan-European Insurance Forum) have written to the French Presidency of the EU Council, the European Parliament and the European Commission to emphasise the importance of the draft Solvency II Framework Directive for Europe’s insurers. They call for the Directive to be adopted without delay and in as complete a form as possible.

As representatives of the European insurance industry, the four bodies express their unequivocal support for the risk-based economic approach that underpins Solvency II.

They also insist that the proposals relating to the group support regime are at the heart of the economic principles of the draft Directive. The group support regime is the key outstanding issue in the current negotiations in the European Parliament and Council on the Directive.

The CEA, CFO Forum, CRO Forum and PEIF believe that the supervision of insurance groups must reflect insurers’ economic reality and allow for coordination between supervisors.

In the letter they state: “The group support regime will lead to a much improved oversight of the total risk of the group compared to the current situation and will increase the likelihood that group supervisors and the relevant local supervisors will have the competences in order to be able to
react to issues early.”

The four organisations also emphasise the vital importance of the new regulatory framework in the current financial climate and insist that it is imperative that agreement is reached on the outstanding areas of negotiation so that adoption of the Directive is not delayed.

 The CEA, the European insurance and reinsurance federation, has welcomed
 today’s vote in the Economic and Monetary Affairs Committee of the European
 Parliament on the Solvency II Framework Directive.

 “The CEA welcomes the text approved by the Committee and supports the
 decisions reached by MEPs on group support and the minimum capital
 requirement,” said Michaela Koller, director general of the CEA. “Solvency II is based on
 a modern approach to enhanced risk management, increased transparency and pan-European oversight. This already provides a response to likely future calls for changes in regulation as a result of the current market turmoil.” Click here to read full article.

 As debate on the draft Solvency II Framework Directive reaches a crucial stage
 in the European Parliament and the EU Council of Economic and Finance Ministers, and against the background of the current financial turmoil, the CEA, the European insurance and reinsurance federation, has reiterated its firm belief that an advanced system of supervision that monitors insurers at group level is essential in the proposed solvency regime.

“While it is obviously still too early to learn definitive lessons from the current problems in the world’s financial markets, one message is clear: a piecemeal approach to the supervision of large financial groups does not work,” said Michaela Koller, director general of the CEA. “Regulatory and supervisory regimes must reflect the risk and capital management of the entities they oversee.”
 
“This is crisis prevention, pure and simple. The future Solvency II regulatory regime must be able to identify the consolidated exposures of insurance groups and, in this context, supervisors should be able to act in cooperation. If Europe’s insurers are to be encouraged to develop internationally, European regulatory and supervisory approaches cannot lag behind,” insisted Koller.

The CEA has long argued that appropriate group supervision ultimately increases policyholder protection and at the same time facilitates the optimum allocation of capital.

“The Solvency II proposal, including the group support regime, offers a unique opportunity for aligning supervision to risk and capital management, based on a clear framework for supervisory cooperation and coordination. In shaping the regulatory structure of the future for Europe’s insurers, European law-makers must not lose sight of the economic realities of the markets they regulate,” Koller added.

The CEA has prepared an FAQ document to explore some important legal and technical questions that have been raised with regard to the group support mechanism.

This document describes how group support will work in practice, drawing from both the principles of the Framework Directive and established business practice for insurers and fi nancial services more generally and aims at addressing the legal questions that arise in connection with the group support regime as envisaged by the European Commission’s proposal for a Solvency II Framework Directive.

Click here to download the full document

The CEA believes that failure to adopt a risk-based approach to the calculation of the minimum capital requirement (MCR) in the European Commission’s proposed Solvency II Framework Directive would perpetuate the disadvantages of the current regulatory system.

”Approaches to calculating the MCR that are not consistent with the overall system could jeopardise the effectiveness of the whole Solvency II regime. The MCR should be appropriately linked to the solvency capital requirement so that both reflect the true risk profile of the insurer,” said Michaela Koller, director general of the CEA, the European (re)insurance federation, who was also speaking today at a London conference on Solvency II organised by the Association of British Insurers (ABI).

Click here to download full press release.