02 October 2007

ECON meeting on Solvency II

In a first exchange of views on the recently published draft proposal on Solvency II, Rapporteur Peter Skiner (GB, PSE) outlined his views and presented a working document.

“There are still several open issues including the geographical diversification effects for groups, and harmonisation of actuarial methodologies”, Mr Skinner said. “Moreover, issues such as securitisation in particular regarding credit default swaps need to be discussed.”

“The proposal touches also on several sector specific issues like the use of members' calls to cover capital requirements by mutual insurance companies”, he continued. As to the health insurance providers, there are no changes proposed by the new solvency framework. As to the smaller and medium sized companies (SMEs), the directive includes some provisions to allow them a proportionate and manageable implementation. The results of the quantitative impact studies will contribute to this process.

With regard to supervisory activities “the accountability of supervisors and transparency of their way of work needs to be assured”, he stated. “Clear allocation of competences between group and local (solo) supervisor, and effective mechanisms for cooperation and information sharing need to be put in place.”

During the discussion Mr Hoppenstedt (D, EPP) said that next to the purely technical issues important aspects also include political items, namely Competition issues and Consumer Protection. His views were supported by Mr Höckmark (SWE, EPP), Mrs van den Burg (NL, PES) and other Parliamentarians.

Mrs van den Burg also outlined the importance of supervisory issues, namely on aspects of group supervision and the role of a lead supervisor and how this is linked to issues like burden sharing and risk of default.

Referring to the UK experience with “Equitable Life” Mrs Bowles (UK, ALDE) underlined that risk-based supervision is something that cannot be under-resourced.

Mrs Starkeviciute (LIT, ALDE) questioned whether the risk based approach has failed, referring to the recent financial turmoil. She warned to give too much guarantees to policyholders and of the role of the government as a lender of last resort.

Mrs Beres (F, PES) reminded to think about a “proper level of harmonization at level 1” and to learn from the discussions about the Basel II arrangements.

Finally, she demanded Solvency II to cover also Pension Funds.

Timeline:

A Public Hearing will be held on 18 December followed by a second exchange of views on the 19^th December.

Mr Skinner plans to produce a draft report in January which will then be presented in ECON Committee on 26 February. According to this timetable, the deadline for amendments would be in May 2008, followed by a vote in ECON Committee due in June or July.

However, all these dates are subject to change.

Working paper by Peter Skinner

© Graham Bishop