European insurers’ results in a test of new regulations may be published earlier than scheduled, the head of the supervisory body advising the European Commission on the rules said.
“We want to send our final report on the fifth quantitative impact study to the EU Commission in the first week of March, one month earlier than expected,” Carlos Montalvo, secretary general of the Committee of European Insurance and Occupational Pension Supervisors, or Ceiops, said in an interview in Frankfurt. “We are really pushing for that date, but it depends on the amount of late submissions.”
Frankfurt-based Ceiops is advising the EU Commission on developing the Solvency II directive, a new risk-based capital regime for insurers such as Allianz SE and Axa SA that’s set to come into effect in 2013. The rules are being tested in a fifth quantitative impact study, named QIS5, and results have to be submitted to local regulators and Ceiops in November at the latest. Ceiops was scheduled to publish results in April, according to the EU commission’s timetable.
“From the current point of view, there won’t be any delays to the introduction of Solvency II,” Montalvo said, referring to some demands for a later start. “If you cannot be prepared by 2013, would you be so in 2014?”
Introducing the rules as of January 2013 “would be aberrant for our business model,” France’s Groupama SA said in September, asking for a six-year transitional period.
Tier 1 Capital
Ceiops, along with local regulators such as Germany’s BaFin, is running QIS5 among Europe’s more than 5,000 insurance companies, which generate more than 1.05 trillion euros ($1.47 trillion) in annual premiums, according to the European insurance and reinsurance federation, CEA. The EU Commission, the European Union’s executive arm, and Ceiops have said they expect a participation quote of 60 percent in the study.
Giving insurers an implementation period for Solvency II comparable to the approach on new rules by the Basel Committee on Banking Supervision won’t be an option as “it punishes those insurers that have done their work,” Montalvo said. “We’ve been working on Solvency II for 10 years now, it’s not Basel III that started last year.”
Under Solvency II, insurers will have to hold a specified amount of their own funds to cover risks they shoulder for customers. Those funds will be classified in a three-tier approach, where Tier 1 will represent an insurer’s most secure capital, directly linked to loss-absorbency criteria. QIS5 is adding expected profits included in future premiums to Tier 1 capital, while the EU Commission has said a final decision on the matter hasn’t been made.
“You can’t recognize all this capital in Tier 1 as this is no cash that is permanently available or fully loss absorbing” should an insurer fail, according to Montalvo. “We have to work on a compromise” that doesn’t reduce the protection of consumers, he said.
The current impact study is likely to be the last Europe-wide test for Solvency II, Montalvo said. “If some areas need to be improved, we can easily launch an ad-hoc exercise or tests by local regulators to follow, but a full, Europe-wide sixth impact study is currently not expected and it would certainly put the current timeframe in question,” he said.
Proposed Solvency II reporting requirements “are exaggerated and need to be reduced” as they are too detailed for smaller insurers in particular, Joerg Schneider, chief financial officer at reinsurer Munich Re, said at a conference in Munich today. “I would propose a gradual introduction, especially for the reporting requirements.”
Other insurers, including Germany’s HUK-Coburg Holding AG, have also criticized Ceiops on the matter.
“We are also testing complexity and we have the fear that the current impact study may be too complex,” Montalvo said in the interview. “After we have the results of QIS5, we all -- regulators, insurers and the EU Commission -- will have to work together to reduce complexity.”