22 September 2008

ECON meeting 22 September

Committee held an exchange of views with Thomas Steffen on the preliminary results of the QIS 4 results and held a debate on the draft report on UCITS.

Exchange of views with Thomas Steffen, CEIOPS– preliminary QIS 4 results

Solvency II - 2nd exchange of views

Thomas Steffen, chair of CEIOPS, presented the preliminary findings from QIS4. He told MEPs that there had been an almost 40% increase in insurance industry participation in QIS4 compared with the number of companies who participated in the previous study, QIS3. The EC had set a target participation rate of 25% for individual insurers in the European Economic Area and 60% for cross-border groups. Actual participation rates were 34% and 65% respectively.

The use for simplifications and proxies was well received, he said, with the favourite simplifications for the calculation of risk margin or the interest rate risk module. Proxies are mosly useful for the calculation of the best estimate, particularly for smaller companies, he said. Further detail on the application criteria will be subject to the Level 2 measures.

The MCR combined approach with a 20% floor and a 50% cap was an acceptable compromise for the majority of supervisors, he said. There were more positive signs than under QIS3, but industry generally still preferred the "compact approach". The combined approach still needed some refinement.

However, the majority of industry and supervisors rejected the introduction of a duration dampener with regard to the equity risk. He reported that the impact of the dampener was smaller than expected, reducing the capital requirement by only 9%. Questioned by rapporteur Peter Skinner (PSE/UK) how big this majority is, Mr Steffen outlined that all but one big and one very small jurisdiction reject the concept.

With regard to the SCR results Mr Steffen reported that the majority plans to use a (partial) internal model.

On Group Solvency he said that in the standard formula the estimated group diversification benefits are between 7-27%. Internal model results show on average a lower SCR compared to the standard formula.

In general, he said, the findings of QIS 4 show support of the underlying principles, such as the calculation of best estimate, the SCR modular structure and the propostionality principle.

CEIOPS will provide its final advice to the Commission by October 2009 and will publish its final report on QIS4 in November.

The following discussion concentrated on the clarification of technical aspects of the preliminary findings. However, many MEPs also asked if recent financial market developments would have led to other results. Kasten Hoppenstedt (EPP/DE) raised the question as to the impact the AIG issue had had on Solvency II. He announced that he would withdraw his amendments concerning pension funds because he wanted to avoid disrupting markets even more. However, he expressed doubts about the position that an underfinanced retirement provision was better than none at all.

Sharon Bowles (ALDE/UK) voiced criticisms of the duration dampener which was, in her opinion, mathematically unsound. She asked Mr Steffen to comment on an amendment by Mr Purvis concerning international group diversification effects beyond the European Economic Area.

Mr Steffen outlined that in the case of AIG the losses were caused by issues not related to the core insurance business. However, in light of the AIG we would have changed what we asked in QIS4, he said and announced that his Committee is willing to do a review if requested. He noted that the AIG holding was supervised at federal level, while the various insurances were supervised by state supervisors. This had led to no one having the full picture of the risks. Solvency II would exclude this problem.

Ieke van den Burg (PSE/NL) remarked that even group insurance supervisors would not have the full picture as insurance companies were involved in activities other than insurance. A cross-sectoral approach was therefore necessary. She saw the need for a similar exercise for pension funds as there were similar issues but they could not be included in the present one. Jean Paul Gauzes (EPP/FR) asked why share risk was treated differently from the one of fixed income products. He noted that pension funds could have 50% of their capital invested in shares.

Ms Starkeviciute (ALDE/LT) mentioned that 60% of participants were larger insurance groups, i.e. the majority of participants reflected the opinion of larger groups. She deplored that CEIOPS always put forward the opinion of the majority and did not mention minority positions. Pervenche Beres (PSE/FR) expressed concerns at the fact that, in order to come to a first reading agreement, many decisions were left to Level 2. This meant that Parliament was not doing its job. She regretted the short-sighted choice to exclude pension funds, although they were closely linked.

Mr Steffen replied that full holding supervision was introduced by Solvency II. A cross-sectoral approach was provided for in the financial conglomerates directive and he suggested the same for Solvency II. He denied that he had put forward only the opinion of bigger groups; smaller and medium-sized groups had been actively cooperating as well. In his view, it was the job of CEIOPS to present in particular the majority opinion, but minority opinions were given where appropriate. Replying to Ms Berès, he stressed the need for a balance between legal certainty and flexibility. Details had to be settled at Level 2. The pensions issue was a matter for a future review of the pensions directive.

Timeline:

30 September – Trialogue with Commission and Council

7 October – Vote in Committee

Further information:

Last week, the Council Presidency proposed a compromise on Title III. (Document attached below)

Coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)

First exchange of views

Rapporteur Wolf Klinz (ALDE/DE) presented his draft report (view) noting that he is generally supportive of the proposed changes but regrets the delay with regard to the Management Company Passport. Mr Klinz drew in particular the attention on three main issues he wants to amend.

He underlined that taxation of cross-border mergers of funds had to be considered, the time for notification should be shortened to 5 working days, and finally the first basic Level 1 provisions for a Management Company Passport should be introduced.

Commenting on the proposed amendments Astrid Lulling (EPP/LUX) pointed out that the main controversy will be the issue of the Management Company Passport. In particular, supervisory issues and regulatory competencies have to be addressed before such a provision can be accepted. However, Jean-Paul Gauzes (EPP/FR) underlined that he very much welcomes the introduction of the MCP as also the majority in Council wishes this to be included.

Speaking for the Socialist party Donata Gottardi (PSE/ITA) was rather supportive to the report and said that no major discrepancies exist and underlined that mutual trust among supervisory authorities in Europe has to be strengthened.

Timeline:

6 October – second exchange of views

© Graham Bishop