EU under Pressure to Delay Solvency II Insurer Capital Rules

By | July 16, 2012

The European Union may be forced to put back the January 2014 start date for its Solvency II capital regime for insurers after talks to agree a final draft of the strict new rules collapsed, Europe’s top insurance sector lobby said on Friday.

Thursday’s failed talks between EU officials and lawmakers meant there will now be no deal until after the EU Parliament returns from its summer break, squeezing an already tight legislative timetable and making a delay more likely.

Meeting the original deadline will be “very challenging to say the least,” Olav Jones, deputy director general of Insurance Europe, told Reuters. “The timetable will need to be looked at, and take into account how things develop in September.”

Further delays to Solvency II, originally intended to take effect this year, would anger insurers who say prolonged uncertainty over their future capital requirements has been deterring investors from buying their shares.

It could also dent the international credibility of the EU, which had intended Solvency II to be a global gold standard that could serve as a model for other countries’ rules.

“On a global level countries are watching in on the EU to make sure it can pass the legislation,” said Emma Greenow, an EU regulatory advisor at law firm DLA Piper.

“If we cannot get our own house in order it makes it quite difficult for third countries looking in.”

The Association of British Insurers, the lobby group for Europe’s biggest insurance industry, said it was disappointed no deal had been reached.

Solvency II, aimed at making insurers hold cash reserves in strict proportion to risks they underwrite, has been repeatedly held up by disagreements between EU countries over how to calculate the capital buffer for long-term life insurance contracts.

Thursday’s talks foundered after Germany insisted that some proposed calculation methods needed to be tested across a wider range of life insurance products.

A deal would have allowed EU lawmakers to vote on Solvency II in October, clearing the way for national governments to adopt the rules by June 2013, and leaving insurers six months to comply with the locally applicable version of the regime.

The breakdown in negotiations will likely push a parliamentary vote back until late 2012, putting the rest of the timetable at risk.

Delays to Solvency II’s start date could be avoided by an agreement to phase in aspects of the new regime, a move that would buy EU countries time to settle differences, said Paul Clarke, an insurance partner at PricewaterhouseCoopers.

German Euro-parliamentarian Burkhard Balz last month proposed a seven-year transition period for life insurers’ existing stock of policies.

Joerg Schneider, finance chief at reinsurer Munich Re, and Gabriel Benardino, head of EU insurance regulator EIOPA, both suggested in interviews published this week that elements of Solvency II be phased in.

The EU’s biggest countries and the European Commission want to keep Solvency II’s 2014 start date. But last month the Czech Republic became the first EU member state to openly call for a delay, saying the deadline should be put back a year to allow the legislative process to finish.

Solvency II, 10 years in the making, was expected to lead to higher capital requirements for many insurers, although big players such as Allianz, AXA, and Generali were seen as well prepared for the new rules.

Some insurers have complained about the cost of complying, and others fear the regime could make their overseas units less competitive against local rivals.

(Editing by Dan Lalor)

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