For more than five years now, ROAM has been the largest trade association to express
deep misgivings about the draft Solvency II regulation and, more particularly,
about some of its principles and related applications. From the start, the members most
impacted, i.e. those operating on long branches and/or specialised branches, have
clearly expressed their disagreement by pointing to what, in their eyes, are the
most unsound parts of Solvency II:
- The one-year horizon,
- The mathematical impossibility of justifying the VaR at 99.5,
- Coefficients that are too severe on certain risks and that are not scientifically justified,
A basis for evaluating the total balance sheet using accountancy standards
that are not adapted to the business model of each insurer,
A standard formula that is too complex for small players and for medium or intermediary size businesses.
All of the above brings about a risk that many players will not be able to continue doing business
or that a sharp fall in supply may occur, and as a result in many cases insurance prices will
be pushed higher without improving the security of consumers.
ROAM has also criticised the nearly exclusive use of the English language and the excessive
delays in responses, which has handed an abnormal advantage to English speakers and has
prevented the stakeholders in general from responding appropriately to the various consultations.
The initial large-scale reactions in opposition to the draft Directive came from
the British market in September 2009, which sounded the alarm about the risk
of a massive recapitalising requirement for British insurers, in addition to
all the European insurers. Such a requirement is not justified in light of the
good position of insurers during the 2008 crisis.
In November 2009, ROAM, keen to alert French and European policy-makers, as well as mutuals in all
the countries in terms that were clear and understandable to everyone, took the initiative
to create an alert blog in four languages (French, English, German and Spanish) to warn of
the dangers inherent in Solvency II and to seek a break to allow time to prepare for the new regulations.
In January 2010, the entire European insurance sector, via CEA, rose up against the future regulations
by putting forward many of the arguments advanced from the outset by ROAM, to which were added
other arguments specific to large groups (the difficulty in creating an internal model, an excessive
need for recapitalisation even for the very big players, inadequate treatment of health risks, the
negative impact on the European economy of the market risk, pro-cyclicity, facilities granted to
the UK market but not to others, disregard of the European group support regime, pension funds out
of the scope of the Directive’s application, etc.).
ROAM continued its work to raise the awareness of French politicians, the national regulators
and supervisors and asked the European Commission, the ACP and the French state treasury to
put in place general transition measures by mid-2010.
The aim of these general measures is to avoid specific measures that could hamper free competition.
ROAM wanted and sought simple, common-sense measures enabling every one (insurers and supervisors)
to prepare for a smooth changeover from Solvency I to Solvency II, as the Swiss did with the Swiss
Solvency Test, in which insurers from these countries and the supervisors had three years of
training prior to application with sanctions of the new solvency standards. This transition
measure also made sense when compared with the banking sector and the negotiations with
bankers for the application of Basel III.
Today, with 23 months to go before the application of Solvency II, criticism is growing and Germany (GDV),
along with France (FFSA), has clearly called for significant transition measures for
the application of the new rules. Alongside the aforementioned points, it appears that
the Solvency II equivalence system of third countries will create a serious imbalance to
the detriment of European insurers on the world scene, starting with the largest of them.
The recently published Omnibus II draft Directive
meets some of our demands, which is gratifying for ROAM but it nevertheless raises some questions:
Satisfaction for the inclusion of our demands :
The draft was published in French within ten days of the English
edition, and it is now in all the EU languages.
It offers detailed possibilities of global transition periods that can be
as much as 10 years for pillar I and up to three years for pillars II and III.
In many cases, it proposes to keep the reference to Solvency I as a minimum
during the transition period.
Concerns and questions :
The draft Omnibus II Directive will not be voted on before June or July 2011.
The draft Directive imposes the creation of many phases and processes on top
of the finalisation work of the Solvency II framework. How will that be
coordinated with consultations on measures under levels 2 and 3 given the
Companies still do not know what they’ll be dealing with in terms of content
of measures under levels 2 and 3 (in particular ORSA).
Companies are not certain that transition measures really exist, in light
of the latitude granted to the European Commission in this area and, therefore,
cannot properly prepare under such conditions.
The inclusion of the European Cooperative Society on the list of authorised
forms of insurance and re-insurance companies in Europe must not lead us
to forget that mutuals continue to call for a European Mutual Statute
(see the joint letter from the four French mutual families FNMF, GEMA, FFSAM and, ROAM.)
It is increasingly apparent that the timeframe for implementation is too tight to enable
all the stakeholders to take the necessary steps to guarantee a start-up under secure
conditions by the intended date (January 2013).