CEA comments on Solvency II consultation

The CEA, the European insurance and reinsurance federation, has responded to two consultation papers on aspects of the EC’s proposed Solvency II Framework Directive.

The key comments are below:

Insurance groups

The CEA is fully supportive of the new approach to the supervision of insurance groups as proposed by the EC. However, Alberto Corinti, CEA deputy director general, warned: “The CEA is concerned that if some aspects of Ceiops advice were adopted, the objectives of the group support regime would be undermined.

“The CEA recognises that Ceiops has made significant efforts to address the technical questions arising from the group support regime and acknowledges that some of its aspects deserve further clarification and fine tuning. Nevertheless, it urges Ceiops to reconsider some tentative conclusions which contain a fundamental misapprehension regarding the new regime. The CEA is willing to work further with all stakeholders to address these concerns and make this system a reality.”

Proportionality

A key objective of Solvency II is to develop a proportionate, risk-based approach to supervision that is appropriate both for small companies and large, cross border groups.

“The CEA believes that proportionality is key to the successful implementation of Solvency II,” said Corinti. “The principle of proportionality should apply to financial requirements, to the review of the risk management and governance processes, as well as to the disclosure requirements.

“Ceiops’s draft advice goes in the right direction. We would, however, like to emphasise that the practical implementation of this principle in all three Pillars requires further work.”

In respect of financial requirements, the CEA expects a large number of insurance companies to want to apply this principle by using simplifications for their business or parts of their business. This is because it expects that many low risk profile companies do not need to carry systematically sophisticated calculations.

In addition, the CEA said, the special features of many small and medium-sized insurers should be recognised. Failure to do so may result in an inappropriate capital charge for such companies. Practically, this means that, besides simplifications, some flexibility must be allowed within the standard approach for companies to use their own data.

“We believe that QIS4 will be a very useful starting point to gain more experience on how to apply simplifications for insurance liabilities and capital requirements, while maintaining the target level of protection. Requirements and supervisory interventions should be risk-based and not be unduly influenced by the size or legal form of the company,” said Corinti.

Own funds

The CEA has also published its position on the criteria set out in the Framework Directive Proposal for assessing the eligibility of insurers’ own funds to cover the solvency capital requirement (SCR) and the minimum capital requirement (MCR).

The two responses on groups and proportionality and the own funds position paper are all available on the CEA website.