Brussels, 17/11/2005 (Agence Europe) - "Solvability II has a contribution to make towards the objective laid down by the Lisbon agenda of making the EU into the most competitive economy by 2010", said Gérard de La Martinière, President of the European Federation of National Insurance Associations (CEA), at the joint conference of the CEA and the research institute "The Geneva Association", which was held in Brussels on 14 November. The Commission is working internally on a draft directive, to be based on an extensive impact assessment and active consultation of the industry. It provides for the adoption of a legal framework at European level around July 2007. Like the financial markets as a whole, insurers have raised the issue of controls carried out by the national regulators on groups with cross-border, European or international activities. "We are convinced that the development of insurance products is one of the keys to breathe new life into the European economy", said Mr de La Martinière, who believes that "Solvability II" will promote an "improved capital placement", which will "only be possible via a system based on risk management and an economic approach". He pleaded in favour of capital obligations to allow a correct balance between consumer protection and the competitiveness of the sector.
"Solvability II is also a priority for the Commission", said Elemér Terták, director of financial services at the European Commission, who added that the objective is to adopt the future legal framework around "July 2007". He explained that the "Solvability II" approach raises several "challenges": the drafting and implementation of a "high-quality piece of legislation which answers the industry's needs", "a relationship between prudential rules and accounting rules" and the "limitation of the administrative burden". Karel van Hulle, head of the "insurance" unit at the European Commission, confirmed that a "draft directive" is currently "being discussed internally". We will also carry out an " impact assessment with all interested parties", he explained, and "there is still time" for "good ideas" to be put forward.
Those taking part discussed the potential impact of the convergence of controls carried out by level 3 of the "Lamfalussy" approach, which is that of the national regulators represented within CEIOPS. "More and more businesses are complaining about the complexity which arises as a result of the fragmentation of controls", said Gérard de La Martinière, who believes that "Solvability II" will help practices to develop: "the regulators will have to adapt to the new system and check that appropriate risk management techniques are being used by the companies. They will also have to take account of the pan-European operations of groups, by introducing the lead supervisor principle", or allowing the control authorities to take the lead. "Excellent cooperation between the regulators is necessary", said Karel van Hulle, who recognises that "Solvability II" will lead to an "increase in the level of harmonisation" of practices among regulators, which is why these must be actively involved in the drafting of the future regulatory framework. He also raised the subject of the "very low levels of activity on a genuinely cross-border basis" currently and the "high number of small and medium-sized insurance companies". John Tiner of the British Financial Services Authority (FSA) indicated his preference for "better collaboration" between national authorities. "The home regulator should take precedence, but should not be alone", he said.
Elemér Terták also presented the Commission's current and future work on insurance: codification of "life insurance" and "nonlife insurance" directives, international accounting standards, guarantee funds (for which no decision will be taken before 2006, he said), "workshops" on "prevention" and the "financial management of costs" relating to "natural disasters" or to "terrorism".
Within the insurance sector, the CEA plays the role of coordinator, to update the "Solvability II" approach. This approach consists of bringing the existing regulatory framework up to date by focusing it increasingly on risk management. It is based on three pillars: definition of quantitative obligations in terms of capital adequacy, so that any losses can be absorbed, the management of risks the industry is faced with, the publication of information promoting correct financial management and discipline within the market. "Solvability II" is the insurance equivalent of the "Bâle II" approach for the banking sector, which was recently the subject of the capital adequacy directive (see EUROPE 9038).