Under current solvency rules, insurance groups in the EU are
treated as a collection of separate entities, each supervised
individually and locally.
The draft Solvency II framework directive aimed to streamline
this system by introducing a dedicated group supervisor in the
group's 'home' member state. The group supervisor would work in
cooperation with local supervisors, but would have the final say on
all aspects of group supervision.
The framework also proposed a system of group support that would
allow part of a subsidiary's capital requirement under Solvency II
to be met by a guarantee from the parent company that funds would
be transferred from the group if required.
In October, a European Parliamentary committee backed the plans
for group supervision and support, but amended the proposals to
introduce mandatory supervisory 'colleges' made up of the group
supervisor and the national supervisors.
Some member states, however, are concerned that the group
support provisions would result in the withdrawal of funds from
(usually smaller) states where insurance subsidiaries are based, to
the parent company's home state, which in many cases will be the
UK, France or Germany.
Disagreements within the European Council of Ministers led to a
vote on the framework directive being postponed several times. In
November, convinced that compromise could not be reached, the
French European Presidency stripped out the provisions for group
support from the text, retaining the principles of cross-border
supervision and cooperation.
Despite opposition from Britain, Ireland, Finland, Denmark and
the Netherlands, the Council of European Finance Ministers, known
as ECOFIN, approved the amended version without further debate on
2nd December.
It is not yet clear how the different views of the Council and
Parliament on group support will be resolved. The first
parliamentary reading of the framework directive has already been
put back to February 2009. If agreement on the final wording cannot
be reached, the directive is likely to go to a second reading,
jeopardising the European Commission's hopes for implementation in
2012.
CEA, the European insurance and re-insurance federation, said it
was disappointed by the removal of group support from the
draft.
"The European insurance industry has always maintained and
continues to believe that the group support regime is a fundamental
element to Solvency II's economic risk-based regulatory regime,"
said CEA President Tommy Persson. "The future regulation of
Europe's (re)insurers must reflect their economic reality and that
reality for many is that they form part of a larger group".
Stephen Haddrill, Director General of the Association of British
Insurers said that, without the group support provisions, Solvency
II would be "a waste of time".
“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," he said. "This
does not make sense and needs to change for a successful Solvency
II that protects consumer’s interests.
“The Council has put at risk five years of hard work by
insurers, the Parliament and Commission, who are all agreed on the
importance of the group proposals. It is vital that group
support is reinstated to ensure a system of regulation fit for the
21st century."
Want more content like this? This story was written by the insurance and reinsurance legal experts at Pinsent Masons, the law firm behind OUT-LAW.COM. See our legal info for Insurance and Reinsurance.
