Solvency II reaches breaking point

Today’s revelation that Germany and the Netherlands are contemplating introducing parts of Solvency II under their own steam shows two things.

It demonstrates that the level of frustration with the persistent delays has reached the point where countries are willing to risk undermining the regulation to progress.

But, on a more positive note, these countries’ desire to implement parts of Solvency II show that while the introduction of the EU capital regime has been persistently hampered by bickering and politics, the directive’s contents have great value.

Efforts by the individual countries to introduce elements of Solvency II by themselves would be disastrous for Solvency II as a whole. One of the fundamental tenets of the regulation is that it introduces uniform capital regulation across Europe. However, countries going it alone would destroy this.

For companies such as Allianz, Aviva, RSA, AXA and other big insurers with operations across Europe, having different solvency regimes is a challenge for many reasons. Either they have to comply with multiple regulations themselves, or struggle to compete with competitors from countries with less stringent capital requirements.

This is why Allianz - arguably the archetypal pan-European insurance group - has been so vocal about countries going their own way. Chief financial officer Oliver Baete said: “This can’t be in the interest of Europe and it’s certainly not in the interest of Allianz.”

If there is one positive to be taken from this, it is that the efforts to introduce Solvency II are not for nothing. If the regulation’s contents had no value, countries would not be so eager to push changes through. Also, they would welcome the delays as an opportunity to continue using their existing capital rules.

However, although no one can deny the value of shifting to a risk-based capital regime Europe-wide, perhaps it is too much to expect so many countries with such diverse economies and regulations to all move at the same time. Inevitably, some countries, such as the UK, would embrace the chance of solidifying their already robust capital rules and others with a larger task that would drag their feet.

Europe’s lawmakers are already having to face up to the fact that the EU may have been overambitious because of the economic, political and cultural differences between member states. Perhaps the same is true of Solvency II.