CEA: still time to get Solvency II right despite fears over Ceiops

A new CEA report demonstrates that overly prudent capital requirements would restrict the insurance industry's role not only as a risk-absorber but also as an institutional investor financing long-term economic growth.

A report published today by the CEA, the European insurance and reinsurance federation, warns of the macro-economic effects of imposing excessively prudent capital requirements on the European insurance industry under the new Solvency II regulatory regime.

The CEA said it strongly supports the EU's Solvency II Framework Directive in the form in which it was approved, which requires that capital requirements are complemented by qualitative supervision in areas such as governance and organisational structure.

However, it added Europe's insurers are concerned that the implementing measures proposed by the Committee of European Insurance and Occupational Pensions Supervisors may revert to the dated and simplistic Solvency I approach of adding "prudence on top of prudence" in the financial requirements they impose.

"We believe there is still time to get Solvency II right, and our report is intended to facilitate constructive debate on the detail of Solvency II with Ceiops and the European Commission within the framework set by the Council and the European Parliament" said Tommy Persson, CEA president.

"The insurance industry has serious concerns about the effect of some of the current proposals, as they would be bad for consumers, bad for Europe's economy and bad for the insurance industry.

"The reduction in investment and underwriting capacity would have worrying downsides at macro-economic level."

Policyholders would be hurt the most, as the prices of many life and non-life products would increase, the CEA report claims. With investment returns lower, consumers would have to reduce their current spending to fund their retirement.

At macro-economic level, the report demonstrates that overly prudent capital requirements would restrict the insurance industry's role not only as a risk-absorber but also as an institutional investor financing long-term economic growth. The likely under-funding of pensions would also have serious social costs.

The CEA believes over-capitalisation would affect the competitiveness of the EU insurance sector and its ability to attract new funding, putting it at a disadvantage in the global market.

It added that a balance is required between protecting the consumer through capital requirements and guaranteeing the consumer a wide choice of competitively priced insurance products by supporting a healthy and competitive insurance market.

In conclusion, the CEA calls on both Ceiops and the European Commission to take this balanced approach and to fully reflect the spirit of the Framework Directive when drafting the implementing measures.