'Remember AIG' - EC defends Solvency II against attacks

The European Commission has released a statement defending Solvency II against a barrage of criticism that has come out of the UK over the past week.

The Commission said it “fundamentally disagrees with statements made by some insurance companies that Solvency II leaves them with no choice but to leave the EU”, insisting that Solvency II “will improve the international competitiveness of insurers, not undermine it”.

The statement is largely in response to Prudential’s announcement that it may consider leaving London for Hong Kong because of the impending Solvency II rules.

“There continues to be uncertainty in relation to the implementation of Solvency II and implications for the Group’s business,” said Prudential in its annual report. “Clarity on this issue is not expected in the near term.”

Following the Prudential’s statement, UK prime minister David Cameron described Solvency II as “ill thought-out” and said it was “endangering a great British business that should have its headquarters in the UK”.

In response to Cameron’s criticism, European Commission head of unit for insurance and pensions Karel Van Hulle insisted all parties had been involved “at each and every state of the process”.

His sentiments were echoed in this latest statement from the Commission. “Our proposals have not been plucked from the sky. Solvency II has been subject to more consultation and impact studies that any initiative carried out in the framework of financial services. They all show the benefits by far outweigh the costs.”

The current regulatory framework for insurers is outdated, it continued, and now is not the time for “complacency” in the financial sector.

“What we want to achieve with Solvency II is simple: good risk management and greater protection for policyholders. Ultimately, it’s taxpayers who will benefit too. And because we have a secure and sound framework, the EU will be a more attractive place for insurers to operate in.”

“Suggesting the Americans are doing nothing in this area is false,” it added. “Remember that the old American system gave us AIG. The US is also now regulating its insurance companies better, drawing the right lessons from the crisis.”

“There are a few issues which indeed remain to be solved,” it conceded. “But they should not be exaggerated. And we count on all parties involved, including Prudential, to work constructively in order to find suitable solutions to them. It’s up to Member States and the European Parliament to conclude negotiations now. But there is no need for alarm.”