EU internal market commissioner Michel Barnier has hit back at criticism by insurance companies that the Solvency II regime is too conservative.
In a letter seen by the Financial Times, Barnier has told four leading insurance industry bodies that “criticisms levied against Solvency II, particularly that calibrations are too high, have not been confirmed by evidence”.
The correspondence, a response to a joint letter from Europe’s four major insurance umbrella groups in April, says the new capital rules are necessary to protect policyholders and improve an outdated regime
In his letter, Barnier acknowledge that some, although not all, of the more technical matters raised by the industry warrant attention.
He writes that officials “take very seriously the issue of the ongoing viability of insurance products with long-term guarantees”, adding that working groups are looking at the calculations for health and non-life catastrophe risk premiums and reserve risk.
In addition, according to the article, commission staff have proposed “a long list of suggestions” to simplify the regime.
But he adds: “The industry’s position on some of the other issues raised ... is not shared by those who will be making the final decisions” on how to implement the new regime.
Barnier’s letter was addressed to Henri de Castries, head of the Pan European Insurance Forum and chief executive of AXA; Axel Lehmann, head of the Chief Risk Officer Forum and chief risk officer for Zurich Financial Services; Dieter Wemmer, head of the Chief Financial Officer Forum; and Tommy Persson, head of the CEA, the main European insurance association.
Responding to Barnier’s letter, Eversheds partner Michael Wainwright said: “The Solvency II directive will impose a new regulatory regime on insurers comparable to the Basel II banking regime. It will be an improvement on the existing directives, but it has the same fundamental weakness as Basel II, in that it concentrates on the strength of individual companies and does not address systemic risk in the industry as a whole.
“There is a danger that it will increase systemic risk by imposing heavy and inflexible capital requirements on insurers, with the result that all insurers are forced to respond to market movements in the same way, thereby aggravating those market movements.
“This danger has been pointed out to the EU Commission, but they seem to have missed the point. The Commission’s announcement today confirms their intention to press ahead with plans to increase capital requirements on individual insurers. Instead, they should be looking to address systemic risk in the sector, including by the application of more flexible capital requirements.”
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