EUROPE’S insurance industry issued a stark warning to EU lawmakers yesterday that draconian new regulation would have “dire consequences” if implemented in its current form.
In an uncharacteristically outspoken protest, Europe’s four major industry bodies signed a joint letter to EU commissioner Michel Barnier objecting to onerous new capital requirements imposed by Brussels.
The unprecedented step reflects growing concern at how the regulation, called Solvency II, will damage the industry.
The letter from industry bodies the PEIF, CEA and the CRO and CFO Forums, slammed parts of the draft rules as “excessively conservative and prescriptive” and said the changes would “risk driving insurers out of their long-term business”.
“Stakes are high and time is running out,” they warned. “A failure to properly implement this reform would have dire consequences for an industry that represents a significant component of the EU economy, capital markets, old age savings and jobs.”
Insurers have repeatedly voiced fears that Solvency II’s demands are complex, poorly drafted and demand companies hold too much capital.
Lord Levene, chairman of Lloyd’s of London, has said it will cost the market’s members £300m to implement.
Solvency II, which has been under discussion for a decade, aims to match firms’ capital better to different risks but the capital levels were hastily revised to far higher levels after the financial crisis. It is due to come into effect in January 2013 but is still not finalised and recent tests found it to be prohibitive in areas such as disaster insurance.
“The current proposals impose excessive capital requirements on catastrophe risk,” Lloyd’s general counsel Sean McGovern said.
Hugh Savill, a director at the Association of British Insurers – a member of CEA – told City A.M. the letter was “an unusual step” for the industry that “shows it is serious”.
“The implementation measures are not going the way we would like,” he said. “We don’t think it is going down the right track at the moment and we think something ought to be done.”
The letter stopped short of calling for Solvency II to be abandoned but said Barnier and the new EU insurance super-regulator should resolve the concerns by the summer.
ABI director Peter Vipond said it “signals both the industry’s concern but also its determination to work with regulators to finalise the rules quickly and make them work for a long time”.