Frustrated of Brussels

Where did it all go wrong? Solvency II was that rare thing – a piece of legislation that had the backing of its intended subjects. So it is all the more frustrating that it has been kicked into the long grass because of a turf war in Brussels. This argument is not about the validity of the legislation – it’s about the egos of the European member states and their eagerness to hold onto power.

Here’s how it began. Group supervision, whereby multi-national insurers can be regulated by one body across borders, was enshrined in the original legislation and has been approved by the European Parliament, which is made up of full time representatives of member states.

But the Parliament has to agree legislation with the council, which is made up of representatives from the governments of the member states. By their very nature, these representatives will be more concerned about the clout and autonomy of their own states. And in this case, some of the smaller countries are worried that they will have insurers operating within their borders but, because none of them are domiciled there, they will have no regulatory power. So if there’s a repeat of the AIG fiasco, through no fault of their own, they could theoretically be left to pick up the pieces, they argue.

France currently holds the presidency of the EU and has proved sympathetic to this point of view, hence this week’s decision to remove group supervision from the form of legislation the council is supporting.

So now there are two forms of legislation – one backed by the parliament including group supervision, and one backed by the council without it. This is officially stalemate, and while each party will have to revisit the legislation in an attempt to reach a compromise, the 2012 implementation date is looking less likely by the day.