Insurers Struggle With Strategy Under Solvency II Uncertainty
March 15, 2013 by Best's News Service
BRUSSELS – Serial delays in the European Union’s effort to implement the Solvency II capital adequacy directive are generating more vocal concern from the industry about cost and strategic uncertainty.
Solvency II, at one point slated for January 2014 activation, now has a January 2016 target date, but insurers and their representatives are worried about how — and whether — the path to that goal will be cleared.
Insurance Europe, the European trade federation, sent an open letter to Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority, urging that “interim measures” be taken in the run-up to Solvency II, while also warning that the wrong measures could be costly to insurers.
The federation said it is particularly concerned that the introduction of compulsory quantitative reporting requirements before the adoptions of Omnibus II could “pre-empt the outcome of the Omnibus II process and create potentially unnecessary costs.”
Omnibus II is a directive the European Union must pass to pave the way for national regulators to implement Solvency II. Passage of Omnibus II by the European Parliament has been delayed three times and now is scheduled for Oct. 22, if “trilateral” talks between Parliament, the European Commission and European Council can straighten out questions about the treatment of long-term insurance contracts by then (Best’s News Service, Feb. 26, 2013).
“In all these interim measures, it is essential that regulators focus on limiting the cost of Solvency II to insurers and their policyholders, otherwise the costs of Solvency II will become apparent long before the benefits, and there is a real risk that the project will fall into disrepute,” Insurance Europe said in the letter.
Further complicating the issue is the retirement of Karel van Hulle, who as head of the insurance and pensions unit of the European Commission’s Internal Markets and Services department was the commission’s point man on Solvency II implementation. Van Hulle retired on March 1, and his successor, Klaus Wiedner, will take up the post on March 16, according to Joao de Abreu Rocha, spokesman for the Internal Markets unit.
Wiedner, an attorney, has most recently been head of one of two public procurement departments in the EC’s procurement unit. He had previously worked at Austria’s Ministry of Economic Affairs.
Insurers are also commenting on problems associated with the serial delays and uncertainty regarding Solvency II’s implementation. Tidjane Thiam, chief executive of life insurer Prudential plc, said in the insurer’s 2012 financial statement that the delayed implementation of Solvency II complicates the replacement of the current Insurance Group Directive regulatory regime with a more risk-based approach.
“Solvency II may provide such a framework but we now know that it will not be implemented before Dec. 31, 2015,” said Thiam. “In common with other insurers, we have been working with regulators to ensure that the current capital regime remains robust while we wait for the implementation of Solvency II.”
After explaining Prudential’s efforts to revise calculations related to surplus contributions from the group’s U.S. subsidiary, Jackson National Life, Thiam added, “Uncertainty about the final Solvency II outcome remains. We will continue to evaluate our options, including consideration of the group’s domicile, in the event that the final outcome is negative and potentially impacts our ability to deliver value to our customers and shareholders.”
Thiam added that Prudential welcomes “the decision by the U.K. Financial Services Authority to strengthen the existing Individual Capital Adequacy Standards regime in the absence of the implementation of Solvency II.”
Robert Hiscox, outgoing chairman of Hiscox Ltd., also took aim at the Solvency II problem in his company’s 2012 report. Hiscox wrote that the financial burden on insurers of preparing for Solvency II “has been considerable,” while noting also that a “one-size-fits-all” model for risk assessment is a worry.
Hiscox did sound an optimistic note on the run-up to implementation. Noting “a credible timetable will probably point to an implementation date not earlier than 2016,” he said “it should be possible in an interim phase to start to incorporate in the supervisory process some of the key features of Solvency II.”
Three U.S. units of Prudential plc currently have a Best’s Financial Strength Rating of A+ (Superior). Underwriting units of Hiscox Ltd. have a Best’s Financial Strength Rating of A (Excellent).
(By David Pilla, international editor, BestWeek: David.Pilla@ambest.com) BN-NJ-03-14-2013 1543 ET #
