Tekst
Sist oppdatert mandag 22. mars 2010 16:22 Skrevet av Jan Granås fredag 19. mars 2010 11:34
Monday, 15 March 2010
Pressure on the architects of Solvency II, Europe’s planned new capital adequacy regime for the insurance sector, to relax recently toughened proposals was ramped up last week as a number of leading industry bodies called for a radical rethink.
Karel Van Hulle, Head of the Insurance and Pensions Unit in Directorate General "Internal Market and Services"
The Comité Européen des Assurances (CEA) published a report that said that the price of many life products could be forced to rise by 20-30% and that non-life products with catastrophe exposures could be forced up by 5-20% because of the tougher capital requirements.
The CEA reckons that the latest set of advice provided to the European Commission by the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) could slash retirement funds by as much as 30–50% to compensate for the costs of the increased costs of capital.
Policyholders would have to reduce current spending and increase their annual saving accumulation by up to 50% to maintain their target wealth level at retirement, said the CEA.
The association, which represents Europe’s insurance companies, also said that the capital requirements suggested by CEIOPS and significantly toughened up at the end of last year, would give non-E.U. based insurers an unfair advantage, particularly in commercial lines.
FERMA is not impressed with the latest CEIOPS proposals and is working hard to try and persuade the European Commission, Parliament and Member State Ministers of Finance to have the plans watered down.
Peter den Dekker, President of FERMA, reacted to the CEA report with further dismay. “The fact that insurance companies are concerned that they will have to raise premiums by 20% for non-life insurance is a notable development. However, our main concern is the potential reduction in the number of insurers capable of covering our risks. This could force us to retain more risks on our balance sheet, impacting our ability to invest and remain competitive in a global economy,” added Mr. Den Dekker.
FERMA supports the CEA’s view that the insurance sector will be unfairly penalised through the tough new capital requirements because of the failings of the banking sector. “We believe, as stated in the report, that the lessons of the financial crisis which impacted the banking sector cannot be translated to the insurance sector. Insolvencies are much less frequent and well handled by market regulators,” stated the association.
The Geneva Association, the Switzerland-based think tank that is backed by the global insurance and reinsurance industry, two weeks ago supported this view with the publication of a report that showed how the insurance sector presents a much lower systemic risk than the banks (click here for story and look out for full analysis in the next issue of Commercial Risk Europe).
FERMA recommends that instead of steaming ahead with the current advice, a “prudent” calibration of the Solvency II models should be conducted.
In a potentially significant show of unity, FERMA’s suggestion on models was in line with proposals from the CRO Forum, the body that represents risk officers with Europe’s leading insurance and reinsurance companies.
The CRO Forum recently published a paper on the calibration of the standard formula to be used for Solvency II capital requirements and specifically on market risks in which it said that the current CEIOPS proposals could have a “devastating” effect on insurers’ asset mixes, force mass asset sales and ultimately an exodus of capital from the European insurance industry.
The group said that it had expected an increase in capital requirements for market risks following the original advice from CEIOPS after it carried out QIS 4, its last major field test. But, the risk officer group described the increases proposed in the CEIOPS Consultation Papers published at the end of last year as lying “at the extreme end”.
The CRO Forum proposes an alternative calibration of the 1-in-200 year market and stresses that is the level that Solvency II is supposed to be based on as dictated by the original Framework Directive.
“The calibration approach should not result in accounting for the worst shocks observed ever with the simultaneous worst possible correlations...as observed for very short periods of time during the financial crises. If parameters are calibrated to account for these ‘extreme events’, the aggregate 1-200 year calibrations across all risks will be far too conservative and together, not be supported by history or what is plausible in the future,” stated the group.
“We strongly believe that CEIOPS’ proposed calibrations and correlations factors for Market risks need to be revised,” continued the group in rare strong language.
The CEA agreed with the CRO Forum analysis of the macro impact on the European sector. “Higher capital charges would limit the returns to insurance company shareholders and, were they to persist, might restrict equity and debt investments in the sector by institutional investors. As profitability and prospects for growth would decline, the industry would attract fewer capital investors and would need to offer higher returns on capital and debt instruments,” stated the CEA report.
“Therefore, funding may become more expensive and difficult, given the relatively lower attractiveness of the E.U. insurance market. Some players may also face a shortage of capital and need to close down or consolidate with more capital rich competitors. Global institutional investors would be likely to move their capital from E.U. insurance companies to other locations (eg, the U.S., Asia) where the capital regime remains more favourable,” continued the report.
And, FERMA was keen to also point out the feared impact of Solvency II on captives.
It said that if capital is driven away from the commercial insurance market then large policyholders will have to use alternative solutions to cover their risks, chiefly captives.
But, while the framework Directive specifically stated that captives should be more lightly treated than standard commercial insurance companies, CEIOPS has subsequently proposed such a limited application of this proportionality principle that it has become virtually worthless, according to FERMA and other captive representative bodies such as ECIROA.
“The formulas for calculation of capital requirements and corporate governance principles need to be simplified and aligned to the captive business models. The proportionality principle should apply to captive undertakings,” stated FERMA.
“FERMA is concerned that under the present CEIOPS project most captives will be excluded from access to these simplification measures. This could result in a reduction of the number of captive (re)insurance companies, which have proven to be essential risk management and risk financing tools for large businesses,” it continued.
The European Commission has stated that it is willing to listen to policyholder and insurance company concerns about the recent toughening up of Solvency II.
But, in an interview with CRE in January, Karel Van Hulle, Head of the Insurance and Pensions unit responsible for Solvency II, said that he only wants to hear solutions not just further complaints.
FERMA said that it is working on solutions and recognised that the insurance sector could do better in this regard. “We continue our discussions with CEIOPS and the European Commission on both the general impact on the insurance market and the captive industry. Providing solutions to the European Commission is something insurers should be able to do better!” said Mr. den Dekker.
“FERMA is in positive discussions with the European Commission and is currently proposing solutions to protect the captive (re)insurance companies' interests. We trust that the European Commission will be able to balance Solvency II requirements in a way that the real economy will not be affected and our members will still be able to be competitive,” he added.
RSS for kommentarer
