European bodies close ranks against Ceiops capital guidance

Industry bodies have launched a last ditch plea to European regulators to scale back the capital sums insurers will be required to hold on their balance sheets under the new Solvency II directive.

Ceiops (the Committee of European Insurance and Occupational Pensions Supervisors) is expected to present its final set of recommendations on implementing the directive to the European Commission at the end of this month.

Speaking at the World Insurance Forum in Bermuda this week, Geneva Association secretary-general Patrick Liedtke attacked regulators’ bid to tighten the capital requirements on insurers in Solvency II.

“The very sensible approach to Solvency II [that existed before the financial crisis] is being hijacked by people who want easy solutions. Suddenly, regulators feel that this industry requires more capital. To do what? To survive exactly the kind of real-life stress test we have just passed with flying colours,” he said.

He spoke following the publication last week of two reports by European insurer umbrella bodies, both of which were heavily critical of Ceiops’ recommendations.

European insurance association CEA warned that the “excessively prudent” requirements proposed by Ceiops would have “widespread detrimental effects” both on the insurance industry and the wider economy. It said the 30%-50% increase in capital requirements recommended by Ceiops would reduce investors’ appetite for the industry, with a knock-on impact on its underwriting capacity.

As a consequence, the report said, the price of general products would rise 5%-20%. The biggest impact would be felt by those most exposed to natural catastrophes or those with long-tail claims.

The resulting reduction in the insurance sector’s ability to act as a risk-absorber and institutional investor, combined with the increased rates for businesses, would have adverse macro-economic consequences, said the CEA.

The CEA’s concerns were echoed by the pan-European Association of Mutual Insurers and Insurance Cooperatives. It warned that many mutually and co-operatively owned insurers would be forced to close or merge if Ceiops’ proposed capital requirements were introduced.

John Hurrell, chief executive of Airmic, backed Liedtke’s argument that the introduction of Solvency II using Ceiops’ recommendations would have a “significant impact” on the insurance industry’s capacity – without delivering “appreciable improvements”.

“Our members are reasonably happy with the level of security that their insurers have,” he said.