Survey Concludes Europe’s Regulators ‘Gold-Plating’ New Insurer Capital Rules

December 15, 2015

Domestic regulators are increasingly “gold-plating” new European insurance capital rules by adding their own more stringent requirements, according to a survey of insurance trade associations.

Two-thirds of national trade insurance bodies surveyed by Insurance Europe, the umbrella group for the organizations, said local regulators had been hardening up the rules for Solvency II ahead of implementation on Jan. 1, 2016.

Solvency II dictates the amount of capital insurers need to set aside for underwriting, investment and operational risk, and is considered more onerous than existing rules. European insurers are racing to get ready for the new rules; some in-house solvency models have yet to be approved.

The directive is classed as a minimum requirement, meaning national watchdogs also have some wriggle room to toughen up aspects.

Gold-plating has risen since a previous survey in June, when only a quarter of the organizations surveyed felt their regulators were shoring up rules, Insurance Europe said in a statement.

“Solvency II is already an extremely conservative and extensive regime,” Igotz Aubin, head of prudential regulation at Insurance Europe, said in the statement.

“It is…important, especially at this late point, to limit additional requirements and conservative interpretations.”

An Insurance Europe spokesman declined to name the countries or the types of gold-plating.

Dutch regulators, however, are taking a tough line on the interest rate insurers use to discount the value of their liabilities back to present levels.

The Dutch are following the market rate, which is lower than the rate required by current European rules, making liabilities appear larger and forcing insurers to hold more capital.

Insurance specialists also say some regulators have asked for extra detail on top of regular reporting requirements on capital levels.

EU insurance watchdog EIOPA says Solvency II’s principles-based approach means many areas are subject to interpretation and dialog between national supervisors and insurance companies. “EIOPA will be monitoring this closely,” its chairman, Gabriel Bernardino, told a briefing last week.

“If something that we see as divergent has an impact on the ultimate goals of Solvency II – policyholder protection for example – then we have the tools to act in order to act to make it much more convergent.”

The authority is likely to use guidelines and opinions, rather than fresh rules, to ensure national supervisors are consistent in applying Solvency II, he said.

One unresolved issue being examined by Dutch regulators is the treatment of carry-forward losses – spreading out a large loss over several years to reduce taxes.

Such losses can be carried on a balance sheet as a deferred tax asset, but regulators carrying out stress testing question whether that makes sense when considering solvency. Those assets might not have any value in the scenario that an insurer began making losses and wasn’t eligible for taxes anyway.

(Reporting by Carolyn Cohn, Jonathan Gould and Toby Sterling; Editing by Mark Heinrich)

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