Daily briefing: Friday - Solvency II hamstrung

Will Solvency II ever see the light of day? The European Commission has been trying to herd cats for the past 13 years to get this ill-fated project off the ground. Now, with the turmoil in Europe, the EC is attempting to herd diseased cats.

We learn today that the Italian insurance regulator is relaxing capital requirements to help its domestic insurers cope with a damaged bond portfolio from Greece and Italy. JP Morgan estimates that if the insurance industry across Europe were to write down their capital to market value it would cut off 10% of capital.

All this is happening at a time when Solvency II is meant to strengthen and protect the capital position of insurers. Instead, the irresistible forces of financial and economic gravity are pulling insurers in the opposite direction.

The problem for Solvency II was that it was overly ambitious, trying to bring in line the capital supervision of an institution like Lloyd’s, a world class insurance market with a long tradition and history, alongside Eastern European countries that didn’t even have an insurance industry 25 years ago. Solvency II was first discussed in 1999. A target date was agreed for 2010, then 2012, and now the new deadline is 2014. If the EC couldn’t get Solvency II together during the boom years of the last decade, what hope does it have in today’s difficult climate? Perhaps the enduring lesson of Solvency II will be that one-size-fits-all just doesn’t work.

Referral fee ban sidestep shuffle

Jack Straw warns that those flouting the referral ban will be jailed.

The former Justice Secretary has shown great determination to clean up the motor insurance industry. The problem is that claims management companies are wily. They’ll find a way to circumvent the ban, such as owning majority stakes in law firms and then passing over claims to share in the profits.

Claims management firms would say this improves access to justice, while insurers worry about fraud. This is a debate that’s set to rumble on.