EU Politicians Reach Agreement on Solvency II Rules

European politicians reached an agreement that may pave the way for new rules designed to make insurance companies safer.

The deal among the European Commission, European Parliament and Council of the European Union in Brussels yesterday may allow the final adoption of Solvency II by the EU Council and the European Parliament, the Lithuanian Presidency, representing the EU Council, said in a statement on its website today.

The agreement “will reduce taxpayer exposure to risks of the insurance sector by establishing EU-wide requirements for this industry on similar lines to those for banks,” the EU Parliament said in a statement today.

Insurers are Europe’s biggest institutional investors with 8.4 trillion euros ($11.3 trillion) under management. They are lagging behind banks in adopting a framework to help them withstand losses in any repeat of the 2008 financial crisis. Aegon NV (AGN), the owner of U.S. insurance firm Transamerica Corp., and reinsurance company Swiss Re (SREN) were among firms that received financial support after the collapse of Lehman Brothers Holdings Inc. and the U.S. bailout of American International Group Inc.

“We welcome the decision in Brussels very much and continue with our preparations for getting our internal model approved,” Immo Querner, chief financial officer of Talanx AG (TLX), Germany’s third-largest insurer, said in a call with journalists today. “We will now take a close look at the details of last night’s agreement.”

Regulations Delayed

Solvency II, intended to harmonize the way insurers allocate capital against risk, was scheduled to come into force last year. Its introduction was delayed several times over issues such as calculating capital needed for liabilities for products with long-term guarantees such as annuities and investments such as government bonds. Insurers and regulators plan to implement the rules on Jan. 1, 2016 with a transitional period, should an agreement be reached in time.

“Good news for EU insurers -- deal just reached in trilogue between European Parliament and council on Omnibus,” Michel Barnier, the EU’s financial-services chief, said via Twitter.

Last year, speculation increased that the regulations would be sidelined by some EU countries as they prepared to introduce some of the rules piecemeal.

Basel III

Policy makers intend Solvency II to be for Europe’s insurers what the Basel Committee on Banking Supervision’s global capital rules are for the continent’s banks -- a common set of rules applied across the EU. They will replace regulations developed in the 1970s that had been superseded by a patchwork of national laws. Current Solvency I rules concentrate mainly on insurance risks, while Solvency II also takes account of investment risks.

Like Basel III, the levels of capital reserves required under Solvency II can either be determined by the regulator’s standard model or a firm’s internal model, which must be approved by the regulator. Almost all of the biggest EU-based insurers have opted for internal models.

“Years of intensive lobbying have paid off for the insurance companies of the largest member states,” Sven Giegold, economic and financial spokesman of the Greens and a member of the European Parliament, said in statement on his website. “The deal between Council and the majority of the European Parliament ignores the advice of European Systemic Risk Board, academics heard by the Parliament and of Eiopa,” the European Insurance and Occupational Pensions Authority.

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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