Solvency II hits buffers as EU ministers ditch group proposals

The launch of the new European solvency regime is likely to be delayed after EU finance ministers watered down key provisions.

The European Council of Ministers this week backed a version of the Solvency II regime that omits a proposal to allow multi-national insurers to be regulated by one body across borders – known as group supervision.

At the same meeting Alistair Darling, the chancellor, opposed a plan to reduce the amount of capital European insurers must hold, demanding instead that they hold more capital in the form of cash.

A proposal had been put forward to give insurers’ stock holdings a more favourable treatment within capital assessments.

The council’s decision on group supervision puts it on a collision course with the European parliament, which wants those provisions included.

The council and parliament must agree for the legislation to progress. Peter Skinner, the MEP steering the legislation through the parliament, has insisted the body will not back down.

Sources said the implementation of Solvency II was likely to be delayed so the impasse could be sorted out.

“The working date for its implementation was 31 October 2012. A lot of preparation work has to be done, so no one will be surprised if it is a bit late,” said one source.

The row centres on the provisions relating to international group support and supervision. These rules would enable insurance groups to move capital across boarders and give one regulator lead oversight.

The UK supports these proposals but other states are concerned they could limit their powers.

The ABI said the council’s decision could undermine Solvency II. Stephen Haddrill, the association’s director-general, said: “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 group support is reinstated to ensure a system of regulation fit for the 21st century. Without these provisions the directive is a waste of time.”

Haddrill said the lack of group support provisions lay behind the current banking crisis and that Solvency II provided an opportunity to put this in place for the insurance industry.

He said the ABI would continue to work with the UK government to keep the group proposals in the final directive.