Arguments


The scientific mirage

Europe is currently engaged in the preparation of the application measures of the Solvency II Directive  :
The work recently carried out by CEIOPS on behalf of the European Commission leads to a significant shift in the capital requirement (in the region of 40%) compared to the other simulations that took place shortly before the vote of the European Parliament and the agreement of the Council.

----------------------------


This shift is possible only because the scientific foundation of the requirements is extremely fragile, if not non-existent, in certain areas.
Did the decision-makers really fully understand what they were choosing and voting for in the name of modernity, given that they did not have a clear explanation of the foundations of these prudential regulations?
Whilst the validity of the search for better control over risks cannot be disputed, there are grounds to fear that the accumulation of mathematical formulae has only served to further blur the issue, rather than to clarify it.

----------------------------


On the whole, in its current form Solvency II will be counter-productive and harmful, given the incentives it contains:

----------------------------


There is a need for a rapid reframing of these regulations, in the spirit of the current concerns of the majority of the governments, in order to bring about:
  • A greater degree of simplicity to ensure a greater degree of real control,
  • A wider political vision of the global role of insurance companies, so as to ensure a sustainable offer,
  • A better understanding of the issues which are specific to risk insurance on the one hand and pension related activities on the other and also, long term/short term risks

----------------------------


The elaboration of the level 2 and level 3 measures must provide the opportunity to move away from dogmatism, in order to impress upon the European Commission the urgent need to open up a more political debate on the current calibration phase so as to decide, in a frank and open manner, on reasonable measures that explicitly correspond to a specific economic burden before a necessary revision of the directive.

----------------------------


Long term guarantees versus short term guarantees

The longer the insurance guarantee, the more the profits for the insurer are hypothetical.
This is the reason, for example, why pension guarantees or construction risk guarantees are often underwritten by not-for-profit companies (mutuals, pension funds, National House Building Council (NHBC) etc...) who provide a real service to consumers.
The excessive penalisation , without an objective reason, of the requirements for these long risks or any attempt to require them to hold assets that are inappropriate to their coverage , may lead to the disappearance of these actors and this would have considerable consequences for the people of Europe and would burden the politicians with a weighty responsibility.

----------------------------


Economic instability

Encouraging companies to take out all of the margins that exist within the technical provisions in order to transfer them to the companies own funds, often via the P&L item Results of the year (therefore paying taxes and serving as bonuses and dividends for joint stock companies) run counter to the concerns expressed by the governments to stabilise the banking system.
Solvency II will increase the volatility of the insurance sector by alternating visions that are either too optimistic or too pessimistic through a more marked variation of own funds and of the results and by unduly worrying or reassuring all of the stakeholders (policyholders, supervisory authorities, shareholders, credit agencies, etc.).
Although insurers do cover risks that may be calculated by statistics, there still remains a degree of uncertainty. While risk that is statistically quantifiable is controllable since it may be demonstrated, uncertainty may be estimated through the assessment of economic, industrial and political, but rarely mathematical, elements, and is related to characteristics that are specific to the profession. This whole process takes place within the context of an on-going dialogue with the supervisory authorities.

----------------------------


Regulatory capture

The regulatory authority’s ability to remain impartial is being eroded (since the regulator falls within the sphere of influence of the parties that are subject to regulation).
The complexity of the calculations which, in practice, do not allow for the stated degree of rigour, will make the assessment of the reality of the controls carried out by the authorities impossible and will introduce a risk for the policyholders and/or an unlevel playing field.
Témoignage

ICMIF Conference, Manchester 2011
Interview of Marie-Hélène KENNEDY, Chief Executive of ROAM



"The fith Mutual Insurance Conference", 2011
Interview of Olivier DESERT, President of ROAM



Marie Hélène Kennedy
General Delegate of R.O.A.M.


world risk insurance news

Click to view the video