MEPs tighten up Solvency II proposals for insurance multinationals

Under current solvency rules, insurance groups in the EU are treated as a collection of separate entities, each supervised individually and locally. The Solvency II Framework Directive aims to streamline this system by introducing a dedicated group supervisor in the group's 'home' member state who would be responsible for monitoring the group as a whole.

But many smaller member states are worried that this will leave their national supervisors with too little influence. In many cases, the group supervisor will be from the UK, France or Germany, where most of the major insurance groups have their head office.

In response, MEPs on the European Parliament's Economic Committee voted to amend the proposals to introduce supervisory 'colleges' made up of the group supervisor and the national supervisors responsible for each financial group and its subsidiaries.

They believe this system will make it easier for supervisors to cooperate and share information. Disputes would be resolved by the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) acting as mediator. If the group supervisor decided not to comply with that ruling, CEIOPS could force it to explain its reasons.

Some MEPs from Eastern European countries, however, are still concerned that the draft Directive fails properly to address the needs of players in their own markets, such as smaller mutual insurance companies.

Lithuanian MEP Margarita Starkevicute, who voted against the text, commented: "The fact that big insurance groups still try to push this Directive forward shows that they do not understand that their operational model is not sustainable and they have to update it unless they want to face serious financial problems".

But the CEA, the European insurance and reinsurance federation, broadly supported the amendments. Michaela Koller, the CEA's Director General commented:

"We are pleased that this vote keeps the timetable for the Directive on track, as delays in implementing this enhanced approached to the calculation and regulation of insurers' solvency requirements would send the wrong message both to European consumers and to the international community, particularly during the current market turmoil". 

Other changes put forward by the committee included adjustments to the calculation of the Minimum Capital Requirement (MCR), which defines the point below which the insurer's licence will be withdrawn. This is will now be between 25–45% of a company's Solvency Capital Requirement (SCR) instead of between 20–50% as originally proposed. A firm whose capital falls below the SCR will face regulatory intervention.

The Framework Directive will be debated by finance ministers from all member states early next month before getting its first reading in the European Parliament. The European Commission hopes final agreement can be reached by the end of the year or early in 2009.