A squabble may derail the EU legislation. Insurers must fight to keep group supervision
Getting a piece of legislation through Europe is a little like herding cats, so it should be no surprise that Solvency II has come a cropper. Group supervision, a key provision that would allow multi-national insurance groups to be regulated primarily in their domestic territory, has fallen victim to a turf war between European countries. The smaller states are scared they would play host to insurance companies over which they had little or no regulatory control, but be left to pick up the pieces in the event of any AIG-style disaster.
This point of view has won the support of the French, who held the European presidency in the second half of 2008, and thus the backing of the European Council of Ministers. But the European parliament holds the opposite view – and the two bodies must agree for the regulation to pass into law. Now the Council of Ministers is playing for time as frantic negotiations take place behind the scenes. There is a real risk that the implementation date of 2012 will be missed.
Not only that, but the concept of group supervision is in serious danger – and it is crucial for insurers that it goes ahead. Group supervision will enable the free flow of capital across jurisdictions and offer equal protection to all policyholders, regardless of nationality or borders. It should not be sacrificed to a squabble between countries worried about their own status and power.
Luckily, the European parliament is standing firm. Peter Skinner, the British MEP in charge of steering through the legislation, has said there will be no Solvency II without group supervision. No doubt he is stalling in the belief that the Czech presidency, which started on 1 January, will be more sympathetic and that an agreement with the Council of Ministers can be hammered out, probably by including important guarantees for local supervisors that lead supervisors will consult with them effectively.
He needs the support of the insurance industry and he needs to know its views. This is not the time to sit back and wait: insurers should use the cumbersome European legislative system to their best advantage and fight hard to keep this legislation in the right form, at the right time.
Incidentally, this is also an opportunity to revisit any other provisions that are looking troublesome in light of the recent economic tremors – such as mark-to-market accounting. As Philippe Maso, chief executive of AXA Insurance, has pointed out in Insurance Times, valuations could be artificially low at times of market turmoil. Insurers would have to hold on to more money to meet potential claims, or risk being declared insolvent.
Now that Solvency II is back on the table, insurers can make this argument again – this time with an economic backdrop that will lend massive credence to their views. They must be heard.
â€¢ The provisions for group supervision in Solvency II are at serious risk because of a turf war between European member states
â€¢ The 2012 implementation date could be missed
â€¢ The European parliament is fighting to keep group supervision and needs the support of the insurance industry
â€¢ This is a good time to bring back to the table arguments about mark-to-market accounting