20 March 2008

ECON draft report on Solvency II

The EP ECON Committee published the draft report on Solvency II. With regard to the MCR calculation rapporteur Peter Skinner proposes to adopt the compact approach as this is the most appropriate method to ensure that MCR values that are sensible, which provide a proper safety net and a proper relationship with the SCR.

With regard to third country equivilance, the rapporteur proposes that where the solo solvency regime of a third-country is at least equivalent to that of the EU, the group solvency calculation shall take into account, as regards that third-country (re)insurance subsidiaries, the SCR and eligible own funds as laid down by this third country. The group supervisor shall carry out the verification of equivalence and shall consult the other supervisors concerned and CEIOPS before making a decision. The Commission shall decide whether the third country solvency regime is equivalent. However, this can only be concluded by regulatory procedure with scrutiny involving the European Parliament.

Further issues for clarification:

- The concept of solo supervisor.

- Eligible Own Funds must be consistent for reasons of competitiveness and absorption of losses. Articles relating to this must be adapted to reflect this practice where missing from the Commissions text. In particular, a definition of Surplus Funds which is used in only a few EU Members States is necessary.

- The calculation of fair value is still absent from the definition of consistent market value and the rapporteur believes that a provision to ensure that this is adequate to the task for a risk based approach is concluded in a timely manner.

- The Commission should make a proposal to enhance existing consumer rights at the horizontal level. With appropriate consultation and by developing good practice it is possible to seriously enhance the knowledge, awareness and decision making process for consumers.

Draft Report

© Graham Bishop