The Negotiator

Klaus Wiedner, the new Head of the Insurance and Pensions Unit of the European Commission, took up the post at a time that may yet turn out to be the most crucial in the negotiations of the Omnibus II Directive. In this exclusive and first formal interview since his appointment, he talks to Gideon Benari, Editor of Solvency II Wire, about his strategy for the upcoming trilogue and the challenges and advantages of taking on the Directive as a newcomer to both insurance and Solvency II.

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The audio recorder is covered by a scrunched up napkin; only the pilot light glows a matte orange indicating we are recording. In front of us we each have a small dessert plate with an assortment of cut fruits and a little chocolate dessert-looking thing with a tiny spoon. The hall, where over 350 delegates of the Insurance Europe annual conference in Rome have just finished lunch, has not quite emptied. Clusters of diners enjoying the last of the fine Italian food are scattered across the ornate rectangular hall. There are people milling around our table, within earshot. This was not how my interview with the new Head of the Insurance and Pensions Unit of the European Commission, Klaus Wiedner, was supposed to take place. I was planning on something a lot less public.

Mr Weidner took up the role at the unit responsible for Solvency II in March this year. He has no background in insurance and his appointment fuelled much speculation on whether an outsider will help or hinder the laggard directive – the most comprehensive overhaul of insurance regulation in the history of the European Union, already seven years in the making. What’s more, the process has stalled on one of the most technically complex areas of discussion – the valuation of long-term guarantee products in a market consistent regime. We are at the far end of the hall, at a large round table, which seated eight or ten diners not too long ago. I had to move a wine glass and an unused butter knife to be able to open my notebook in front of me. The covered recorder points at Mr Weidner. “The general feeling amongst the industry, but also amongst the regulators, is that we underestimated the volatility problems that we can have in situations where there is a real crisis. So I think there is a general consensus that some of the things, for example the long-term guarantee package, need to be changed. The measures need to be taken and we can’t just take Solvency II as it was originally conceived,” he says. Pressed for time, we tuck straight into the heart of the matter: the upcoming Omnibus II trilogue negotiations, which will be dominated by the so-called fair value, or long-term guarantee debate. “The fair value principle is good and should be kept. The only question is that it can have as a consequence that, at some moments in time, the fair value would give a picture that would incentivise some insurers to immediately dispose of some assets although in the longer term they would still be valuable assets.” “So the trick will be to find some kind of mechanism that dampens this volatility especially in modes of crisis.” His answer, as much else about him, has a certain managerial pragmatism to it. A quality that will be needed in spadesfuls given the ‘mess’ that landed on his lap when he took up the job.

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Solvency II itself is already part of European law. It was signed onto the statute books in 2009. But before it could come into effect an amending directive (the now infamous Omnibus II) was proposed in January 2011 in order to formalise the powers of the newly established European Insurance and Occupational Pensions Authority (EIOPA).

But at about the same time, the Euro crisis began to rip open the spreads on some European government bonds and the realities of applying current market consistent prices to value obligations (such as annuities) that will only have to be honoured many years from now become horribly apparent. The results of EIOPA’s fifth Quantitative Impact Assessment (QIS 5) showed just how badly the balance sheets of insurers would be affected. And as industry and regulators began to realise the magnitude of the problem, Omnibus II became the coat hanger upon which all possible solutions were being hung. A package of measures was designed and an attempt to reach an agreement between the European Parliament and Council failed last September, at which point EIOPA was asked to conduct an impact assessment of the proposed measures. It is the Commission’s role to help broker a deal that is acceptable to both the Parliament and the Council, the two co-legislators. For Omnibus II to pass, both have to agree on the final text. This effectively requires an agreement from all Member States. As we make our way through the desserts I wonder how this amiable outsider’s experience would inform his ability to proceed. At the time of his appointment, little was known about the man now sitting next to me making his way through the assortment of cut fruit with intent. An assortment of online biographies and potted press coverage told you that Klaus Wiedner, an Austrian national and a career civil servant, has spent the better part of the last nine years in the Commission’s Public Procurement Directorate, first as its Deputy Head and since 2009 as Head of the Public Procurement Legislation II unit. His appointment in March was his first detailed encounter with Solvency II – at the coalface, mano-a-directive. “The difference is that we have one big but very active stakeholder group [the industry], whereas in procurement you had NGOs, representatives of undertakings and representatives of all the contracting authorities and entities. We had over 250,000 [stakeholders] across Europe, so in fact the feedback was much more diverse. Here basically what you have is the regulators and the supervisors on the one hand and on the other hand you have the industry and you are trying to strike the right balance.” Mr Wiedner, who will be 45 in October, believes his training in commercial law is an advantage. Before joining the procurement unit he spent eight years at the Commission’s Legal Services working on competition and public procurement law. He has represented the Commission in over 100 cases at the European Courts, close to 90% of which were won, by his estimation. Although he pointed out that success depends not only on the agent, but also on the quality of the Commission decision defended and the support of the Director General. Prior to joining the Commission in 1996 he worked for the Austrian Ministry for Economic Affairs for three years, a post he took up after completing his legal studies. “I am a lawyer,” he says, “I always wanted to be a lawyer but I was interested in economic law, like competition and to a certain extent procurement.” During his studies at Graz University in Austria and The College of Europe in Bruges he wrote about subjects close to these interests: an undergraduate final year project on mayoral elections in Austria and Germany in 1990 and a comparative study on EU guidelines and their implementation in a 1991 PhD dissertation. In 1993 he wrote a paper on subsidiarity in EEC Competition Law. Being new to insurance does not faze him. On the contrary, in many ways he views it as an advantage. “There are a number of technical issues that you need to understand from a political point of view and you have to filter and translate it into a language that is understandable to non specialists. So the fact that I am not an expert can obviously have some disadvantage but it also has the advantage that you basically press your people to really communicate well so that I understand and make sure the rest understand as well.” He believes this will also help several other stakeholders who do not have the technical expertise but need to take part in the political decision making process. Once again that practical and pragmatic managerialism percolates from his answer. It reaffirms my impression from our first meeting about a month earlier – that of a man confidently aware of the challenge he faces and the advantages and limitations of stepping in without baggage. The contrast between the environments of the two meetings could not have been greater. Instead of the somewhat chaotic clatter of the post lunch chatter and the uniformed catering staff clearing up used plates and wine glasses with sediments of drink, we were surrounded by the eerie silence of an empty VIP lounge at the Commission’s Charlemagne Building in Brussels, sitting on white leather sofas looking out through the large glass windows overlooking the Jardin de la Valee du Maelbeek. We met during a break in the public hearing on Financial Supervision in the EU. My initial impression of a dynamic, good-humoured and clear-headed manager remains – a no nonsense kind of guy. There was little, if any, bureaucratic Euro-speak to skim off what he said. At the time, he had only been in the post for two months. He said his first order of business was to speak to as many stakeholders as possible, to get to understand the different actors and what they wanted. Back in Rome, as yet another uniformed member of the catering staff swoops past our table looking for items to clear, we return to the question of the upcoming trilogue. He says that to negotiate a directive you need to know how to approach the negotiations between the Parliament and Council as well as the other stakeholders tactically. “This is something that now is extremely important in the Solvency II context.” In 2009 Mr Wiedner secured the adoption of the Directive on Defence Procurement and later achieved political agreement on the General Procurement Reform, which was secured by his successor at the end of June this year. For him, one important lesson was to have a clear vision at the outset. “You need to have a vision at the beginning of the trilogue of what the result of trilogue will be, which is not necessarily your first proposal.” And in the world of Solvency II what is your vision of the trilogue? “The vision is that we keep with the instruments that EIOPA is proposing in the LTG package. And we calibrate. We know that these measures are more important to some Member States than to others, because they have more implications than others. Nevertheless I think it is good that EIOPA is starting from a European design of these measures.” Despite the difficulties in mediating competing demands he highlights the importance of reaching a broad consensus. This is preferable to one that is achieved through a qualified majority vote. “We need to find a solution that works for almost all Member States. That is our ambition. So we don’t like to get the project through, just about.” We progress through the interview at an industrious pace. The sliced pineapple, strawberries and sliced melon get the same treatment: we are almost at the chocolate dessert-looking thing with the tiny spoon. The orange pilot light glows faithfully, jutting from underneath the napkin, which I have had to stop another of the uniformed catering staff from clearing away. On reflection I realise that it was not only my eagerness to make the most of the limited time, or the lake of activity around us that was generating the pace. It was Wiedner. That is how he operates. Even if we were somewhere quiet, as we had been in Brussels, he would deliver his answers in a considered business-like manner peppered with the occasional genial laugh. Our original plan was to meet during the latter part of lunch, sit in a quiet corner of the hotel lobby or maybe outside on the terrace overlooking the gardens. But it was not to be. Just before lunch Mr Wiedner spoke on a panel – to my knowledge the first time he addressed the industry in his new role. The panel was chaired by his predecessor, Karel Van Hulle. It was a tense but solid performance. The discussion centred on long-term investment. Afterwards he was caught up in the usual post-panel waltz, surrounded by delegates wanting to meet the new man in person and impress upon him their view and a business card. The experience must have been all the more intense given it was a first for everybody. By the time we managed to get together it was too late to isolate him from the lunch crowd. I gave up on dessert and waited for him in the lobby only to return to the dining hall to pry him away from the clutches of more delegates and dignitaries. It looked like cut fruit and the chocolate dessert-looking thing with the tiny spoon was lunch for him. I had to ask about sharing a stage with Karel. He held the post since 2004 and helped usher the regulation through two European Parliaments since the legislative process began in 2007. In European insurance regulatory circles he is a larger than life figure. “We have a good relationship,” Mr Weidner says, but admitted the experience was a little weird. “He has been doing this for seven years and was very much engaged. He probably doesn’t have the same ideas as I have but I don’t know. Sometimes we have a chat. Probably I’m trying to bring in a bit more pragmatic touch to the thing but that’s because I don’t have a philosophy built up over seven year that I need to apply. So I am looking at the different tools and seeing how can we best get to the compromise.”

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Mr Wiedner will not be drawn into the specifics of the EIOPA report on long-term guarantee measures, which is due to be published the following day, but he is willing to share some initial impressions and thoughts on moving forward. Already at the conference there are murmurings that the measures proposed do not go far enough to address industry concerns.

“The industry reaction is, of course, understandable. They will look into what EIOPA has produced. They may not be fully happy. The question is, what is it that they are not happy about?” “My impression is that what they are not happy with in particular is more the calibration [of the proposed measures]. I mean the design of certain measures is very important and that is something that will have to be looked at in the trilogue.” He insists the solution must build on, not revert to, the past. “From a technical point of view we need to try to find a number of parameters which are important and which could be negotiated. We should not fall into the trap and go back and say we are now looking at different instruments. We need to try to find solutions that will satisfy a maximum number of Member States, but on the basis of the EIOPA report.” On this he is clear. The trilogue negotiations should be based on the measures proposed in the EIOPA report. “We had them looking into this for six months and everyone agreed they should do that.” Importantly, he says there appears to be consensus among supervisors. “As far as I understand there was a discussion amongst the national supervisors basically backing the EIOPA report with some comments, which shows that the supervisory community and EIOPA have a certain vision of what it could look like.” I remind him that there is of course the other community: the industry. “Sure. That is the test now,” he replies. The chocolate dessert-looking thing has been breached, with the tiny spoon. Do you think that consensus is going to help to consolidate national positions in the trilogue? “Let me put it this way. In case we would not have had this alignment it would have been much more difficult. Now, there is still no guarantee obviously that Member States will reflect it, but nevertheless there is some communication. It gives some guarantee that we are not completely off track, and that it is something that we can build on.” “I understand the industry coming and saying that it is not quite what we wanted and obviously it is seen from a supervisory perspective. That’s what the trilogue will be about.” We talk a bit about the troubled path Solvency II has taken to date. Given the nature of the interaction of the Commission with the co-legislators, EIOPA and the industry, does he think personal relations are important to get through the negotiations? “The most important thing is you need trust. And especially as the Commission when you come up with proposals trying to mediate between the Council and the Parliament it’s extremely important that both institutions trust you.” “It is trust that you discuss things and that you are transparent about what you feel and what you think. You talk to the other person and if there is a concern you tell them what the concern is and then we deal with it.” The two chocolate dessert-looking things now stand empty on the table, each with a tiny spoon inside. This trust building will have to extend to several new people. It is not only Mr Wiedner who is a new face at the unit, so is his deputy, and a number of the technical staff at the Commission are changing over the summer. In addition, the trilogue will take place under the Lithuanian Presidency, which begins work in July. “The first contact that we had with the Lithuanian Presidency was very encouraging because the financial attaché has been working on financial services and on Solvency II before, so she knows exactly what the whole thing is about. We get some sense of commitment to get this done so I think we are happy with the Presidency and looking forward to cooperation with them.” I suggest to him that the Directive has lost a leader and needs someone to guide the whole process through. Do you feel that you are the person who can do that? He laughs. An almost embarrassed laugh. “I think we should be careful not to personalise the process too much. What is important is that the Commission needs to take leadership and say, we think this should be done. And it is not only me. It is a number of people working on this. And as the Commission we have to be there and drive the process. That includes the political level: the Commissioner, hierarchy, myself, everyone. There has to be a clear message that we are giving – the Commission wants it.” Talking to Mr Wiedner I get a  strong impression that he takes an almost clinical approach to the trilogue. The way he talks, the words he chooses to describe the competing demands of stakeholders, it is as if they are all pieces on a chessboard in his mind – ‘if I sacrifice this, I could get that …’. He has an impressive track record of trilogue negotiations, one that will no doubt be tested in the rough and tumble of the coming months. It appears that by appointing him the Commission has put in place a negotiator. We, however, were now in the wrong place. Our table has been all but cleared. So has the dining hall. Ushers are urging the laggards to return to the main auditorium for the post lunch session. I remove the napkin and switch off the recorder. The orange light is off. We are done.

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