Cicero Policy Briefer

Issue 21, February 2008

The European Parliament and Solvency II

By Peter Skinner MEP, Labour MEP for South-East England

When asked to write this article, the conversation left me with an impression that writing about insurance was exciting in some way or form. Write something controversial, I was told. Well, there might not be much excitement about insurance but there are certainly some very committed and excited people who work within it!

From the European Parliament’s point of view, the timetable for the discussion and approval of the Solvency II proposal has already started and the draft report is being finalised at the time of writing. After two exchanges of view, a public hearing and a workshop the ECON Committee will have consideration of the report one last time before amendments are debated and finally in July in Committee voted on. After the summer a plenary vote will be set, anticipated for the late autumn, for the law to be agreed by all the MEPs and passed.

A number of issues have surfaced and need clarification and defining within the context of this report.

After the recent hearing in December in the European Parliament, the seemingly overwhelming view that was expressed by the experts was that in QIS 3 (quantitative impact assessment), the test results for the modular method of calculation of the minimum capital requirement (MCR) were unsatisfactory. A proposal to test a so-called "linear approach" as an alternative has been left for the QIS 4 survey; industry will have a time to reflect and to respond to the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and Parliament will reflect further on the results later in the autumn of this year.

Perhaps the most overriding issue is the discussion on group supervision and, within that, on lead supervision. Most readers will already know that the host supervisor will play a vital role in the day-to-day supervision of a non-domestic company or subsidiary. Instead, the emphasis is on the supervisory authority which lays claim to be the home regulator for the group for holding capital and for providing group support. This will allow for a much more efficient and economic approach to use of capital. This is particularly important as it allows the freedom to exploit the diversification of assets.

An equally tough question about host supervisors relates to the potential of capital add-ons and other additional supervisory functions at local level. The current proposals in Solvency II are clear about a principle-based approach and not being too proscriptive.

Companies outside of the EU constitute another consideration which remains somewhat fraught with tensions. After all, why go all the way towards a standard in the 27 EU member states which is to be regarded as a potential global template—and still allow non-EU companies access to that same market, but with less supervisory rigour in their own domestic regimes?

Peter Skinner is the Labour MEP for South-East England and can be contacted here.