Brussels, 31/07/2007 (Agence Europe) - The International Association of Mutual Insurers (AISAM) and the Association of European Cooperative and Mutual Insurers (ACME) have published their position on the draft directive Solvency II (see EUROPE 9464 and 9465). This legislative proposal is based on three pillars: - setting minimum capital requirements based on the economic assessment of the risks run by insurance companies; - increasing cooperation between national regulators responsible for supervisory activities; - strengthening obligations on the publication of information in order to enhance market discipline.
Mutual insurers welcome the draft directive as a “real opportunity to align capital requirements with underling risks” of the sector; they identify, however, “two particular challenges”: 1) “the new regime has to strike the right balance between the risk-based approach and the proportionality principle, and between diversification and specialisation” without which it would be “extremely difficult” for mutual insurers to implement the new rules while continuing to serve their member-customers in the most effective way; 2) “the continued absence of a European Mutual Society statute will significantly limit the contribution of mutual insurers” to the European integration of the European insurance sector, compared with their competitors.
The two organisations are happy with several parts of the draft directive, for example the total balance sheet approach and the suggestion that a “group controller” be named to supervise activities at group level. They also want their specific characteristics to be taken more into account. Among their concerns is that their members' accounts should continue to be treated as equity equivalent. In addition, very small mutual insurance societies - active only nationally and in particular lines of business - should be excluded from the scope of Solvency II. AISAM and ACME are also concerned about deeply subordinated debt and hybrid capital, and the clarification of points regarding taxation of eligible capital to ensure a company's solvency. Mutual insurers also consider that “geographical diversification” - which is a way of decreasing the risk within an insurance portfolio - should satisfy two conditions: “it must remain consistent with a risk-based approach” and “it must preserve a level playing field between mutual insurers which cannot develop international business … and other players”.
AISAM and ACME say that the future regime will increase pressure on smaller insurance companies because of the cost of compliance with the rules applicable to insurance companies (second pillar of the reform). Larger companies, on the other hand, have greater financial resources and better access to capital, often at better rates. “Solvency II may push this competitive advantage to new levels” and catalyse “pressure for consolidation”, mutual insurers note. They add: “While there is no European statute for mutual societies, as there is for all other insurers, it is impossible for the mutual insurance sector to consolidate cross-border and grow stronger in a way which is coherent with mutual values. The adoption of a European Mutual Society statute is indispensable for mutual insurers to be able to compete … in the new Solvency II regime”.
Over two thirds of European insurers belong to the mutual and cooperative insurance sector, which accounts for close to 30% of all insurance premiums paid by European policy holders. AISAM and ACME represent about 80% of the mutual insurance market in Europe. Their members are active in at least 16 European countries and employ over 300,000 people. (mb)