CEA says financial turmoil confirms case for group supervision

As debate on the draft Solvency II Framework Directive reaches a crucial stage in the European Parliament and the EU Council of Economic and Finance Ministers, and against the background of the current financial turmoil, the CEA, the European insurance and reinsurance federation, has reiterated its firm belief that an advanced system of supervision that monitors insurers at group level is essential in the proposed solvency regime.

"While it is obviously still too early to learn definitive lessons from the current problems in the world's financial markets, one message is clear: a piecemeal approach to the supervision of large financial groups does not work," said Michaela Koller, director general of the CEA. "Regulatory and supervisory regimes must reflect the risk and capital management of the entities they oversee."

"This is crisis prevention, pure and simple. The future Solvency II regulatory regime must be able to identify the consolidated exposures of insurance groups and, in this context, supervisors should be able to act in cooperation. If Europe's insurers are to be encouraged to develop internationally, European regulatory and supervisory approaches cannot lag behind," insisted Koller.

The CEA has long argued that appropriate group supervision ultimately increases policyholder protection and at the same time facilitates the optimum allocation of capital.

"The Solvency II proposal, including the group support regime, offers a unique opportunity for aligning supervision to risk and capital management, based on a clear framework for supervisory cooperation and coordination. In shaping the regulatory structure of the future for Europe's insurers, European law-makers must not lose sight of the economic realities of the markets they regulate," Koller added.

Background

Solvency capital requirements for EU insurers have been in place since the 1970s. Following a review required by the third generation Insurance Directives of the 1990s, limited reforms, known as Solvency I, were agreed by the European Parliament and the Council in 2002. The European Commission adopted the Solvency II proposal for a more fundamental and wider ranging review in July 2007 and an amended proposal on 26 February 2008.

The current Solvency II timetable envisages that the Directive will be adopted by the European Parliament and the Council in 2009 and transposed into law in Member States by 2012.

The group support regime, in the context of group supervision, is one of the outstanding issues of the draft Solvency II Framework Directive, in particular with regard to the balance of power between the supervisor in a group's home state and the supervisors of group subsidiaries in other countries.

The CEA is the European insurance and reinsurance federation. Through its 33 member bodies, the national insurance associations, the CEA represents all types of insurance and reinsurance undertakings, eg pan-European companies, monoliners, mutuals and SMEs. The CEA, which is based in Brussels, represents undertakings that account for approximately 94% of total European premium income. Insurance makes a major contribution to Europe's economic growth and development. European insurers generate premium income of EUR 1,122bn, employ one million people and invest more than EUR 7,200bn in the economy.