Further delays to the implementation of Solvency 2 will compromise the ability of European insurers to deliver protection for their clients in a riskier world, according to Professor Karel Van Hulle, speaking at the Risk Management Forum of the Federation of European Risk Management Associations (FERMA) in Maastricht today (Monday).
See FERMA views on Solvency 2 below.
Professor Van Hulle, who retired as head of pensions and insurance at the European Commission in March, told the 1400 European risk professionals attending the Forum: “The insurance industry will become increasingly important in this risky world but without sound risk management and a risk-based solvency regime, insurers will not be able to deliver. They will lack the data and tools to know that they can honour their commitments.”
He said that the entry into force of Solvency 2 is not now likely before 2016, because the failure to agree on Omnibus II, a measure to amend the framework directive for Solvency 2, has stalled developments since 2009. A three-way discussion involving the European Parliament and Council and the Commission is intended to resolve the main outstanding issues on Omnibus II in October 2013.
Professor Van Hulle urged these trialogue parties to finish this last step as soon as possible in the interest of all stakeholders. “This is an area where Europe can show leadership,” he said.
Solvency I, the prudential regime for insurers currently in effect, has important limitations, said Professor Van Hulle. For example, it does not require insurers to take into account the current low interest rate environment. Nor is it a risk-based approach where there is awareness of the shifting exposures that face the insurance industry. This makes it difficult for insurers to respond to societal demands such as:
- Privatisation of parts of social security including health insurance and long term care;
- New challenges: pensions – climate change;
- New technologies: will the system function as we have designed it? Will human beings function as planned?
- A continuing role as institutional investors.
Said Professor Van Hulle: “The insurance sector is the only major economic sector for which there is so far neither an agreed international accounting standard nor an agreed international solvency framework.”
FERMA views on Solvency 2
The President of FERMA, Jorge Luzzi, said: “The continuing delays to the adoption and implementation of Solvency 2 are already creating uncertainty for captive owners who do not know what capital and reporting requirements they will have in future.”
FERMA welcomes a rigorous and consistent prudential regime for European insurance companies, but it has repeatedly stressed that the regulations should be proportionate to the risk. “Solvency 2 should make a clear distinction between insurance companies serving the public and captive insurers whose only business comes from their parent companies,” said Jorge Luzzi.
“We are also concerned that Solvency 2 could result in a reduction in the capacity of the market to cover emerging risks and unusual exposures. We fear that some niche insurers, who provide useful specialist capacity, could find their business no longer attractive once they have to meet the new capital requirements of Solvency 2.”
Notes to journalists
Risk management professionals, including risk and insurance managers, insurers and brokers, from across Europe are participating in the three day FERMA Risk Management Forum in Maastricht.
For full details of the event: https://2013.ferma-forum.eu/
For high resolution pictures, contact Lee Coppack as below.
Lee Coppack, FERMA media coordinator, at firstname.lastname@example.org
Onsite number: +44 7843 089904.
From 3 October 2013: +44 208 318 0330