Chicago — In 1815, Napolean’s grand ambitions came to an end in a muddy field outside Waterloo, Belgium. In November, the plans to redefine insurance regulations of the 27 European Union nations under a framework known as Solvency II almost suffered a similar fate in nearby Brussels.
At issue is the concept of group support, which adherents contend allows more efficient capital allocation for large cross-border insurance groups in order to meet solvency requirements.
“Group support allows insurers to make better use of their capital across all the markets they operate in under the oversight of a single lead regulator, who is able to assess the risks in different markets, set the right level of capital in total and judge whether risks in one area could damage solvency elsewhere,” says Stephen Haddrill, director general at the Association of British Insurers.
The opponents of the concept are primarily from smaller EU countries, such as Poland. They say regulators in the U.K., France and Germany, where many of the largest insurers are based, would usurp their regulatory influence over the multinational insurers operating within their borders.
French President Nicolas Sarkozy, who currently holds the rotating presidency of the EU, originally backed a version of the requirements that did not contain a group support provision. After objections, including comments from U.K. Chancellor of the Exchequer, Alistair Darling, that he would vote against the proposed changes, Sarkozy brokered a compromise.
However, the compromise has done little to mollify critics that say the provisions are too watered down to be meaningful, and imperil consumer protections by lessening capitol requirements for insurers. According to Bloomberg, in addition to restoring group support, UK regulators also are pushing for inclusion of language requiring insurers to increase cash holdings so that they are better able to weather the global economic crisis.
“While Finance Ministers are, quite rightly, dealing with the current economic crisis as an international problem needing global solutions, they are proposing a European regulation that ignores the cross-border nature of how companies operate,” Haddrill says. “It is vital group support is reinstated to ensure a system of regulation fit for the 21st century. Without these provisions the directive is a waste of time.”
Sources: Reuters, Bloomberg, Association of British Insurers
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