The details of the EU's new Solvency II regime need to be drafted correctly if there are not to be unintended and potentially negative consequences for the insurance industry and its customers, according to Sergio Balbinot, president of Insurance Europe.
Balbinot's comments followed the European Parliament's approval of the Omnibus II Directive, a formal approval that has taken several years to get past opposition from several member states concerned about Solvency II's impact on the capital requirements of their life assurers.
Insurance Europe noted that the Delegated Acts that were currently being drafted "deviate from the intentions of the legislators in several respects, such as long-term guarantees and third-country equivalence". It was the dispute over long-term guarantees, common in the German life sector, that had led to demands for changes in the original Solvency II Directive of 2009.
"If not corrected, the Delegated Acts would seriously limit insurers' ability to provide the long-term investment and stability Europe's economies need", claimed Balbinot, adding that the Delegated Acts as currently drafted would "have a major impact on the availability and price of insurance products, and would harm the ability of European insurers to complete internationally".
Balbinot contends that the wordings and calibrations would not work as they are intended to work. He said that the method for setting the credit risk adjustment was flawed, and that changes needed to be made to ensure that it was not calibrated too high and was not too volatile. He also claimed that the volatility adjustment – intended to provide some shelter from short-term market volatility – was lacking in detail and once again required changes to ensure that the calibration did not deviate from the decisions made in Omnibus II.
Balbinot also said that the risk charges for long-term investments, such as infrastructure projects, investment in small- to medium-sized investments and securitisations, were "unnecessarily high".
The group also claims that the text for determining the capital charges for currency risk were flawed, and that there were "unnecessary and costly restrictions on the classification of and limits to own funds" which needed to be removed.
Finally, Insurance Europe asserted that the Delegated acts "negate the provisions on granting provisional equivalence to third-country regimes that are important to Europe's internationally active groups".
Meanwhile, Insurance Europe has said that the January 21 approval by the European Parliament Committee on Legal Affairs of the EC's recent audit proposals would prove to be inappropriate for multinationals. The full European Parliament will vote on the issue on April 3. It introduces mandatory rotation of audit firms and a restriction on fees for non-audit services for all European public-interest entities.
Insurance Europe said that the matter needed "further consideration to make it workable". The current proposal permits member states to have shorter rotation regimes than those in the regulation. That, it was noted, meant that subsidiaries of multinationals could be subject to a different rotation cycle. The proposal restricts fees for non-audit services to 70% of the average audit fees paid in the last three consecutive financial years. Insurance Europe said that the details of this restriction needed clarifying.