Letter to European Commissioner – from “urging” to “war”
In a letter to the European Commissioner, Michel Barnier, leading insurance industry bodies called for a correction of the Solvency II implementation measures. The letter received a full gamut of coverage in the press.
The FT headline read: “EU urged to rethink insurance capital rules”, and the authors of the letter also wrote to the FT’s letter page: “EU reform plan alarms insurers”. The urging turned to a warning as the Telegraph reported: “Insurers warn of ‘dire’ outcome under Solvency II”. “Dire” was also the tone chosen by Reuters: “European insurers see “dire” impact of capital rules”. Things got a bit more pressing with IFA Online’s: “European insurers voice “urgent” Solvency II fears”. The urgency became more emphatic with Money Marketing’s: “Insurers slam Solvency II process”, while the slamming escalated into full blown conflict with the Insurance Times declaring: “Insurers wage war on Solvency II”, and it all crescendoed with City A.M.: “Insurers wage war on Europe”. It was just a letter.
German pensions could bypass Solvency II rules
German occupational pension schemes could circumvent Solvency II if the Directive does not reflect their stronger capital stability. The FT reports on the frustration of many German and other European occupational pension schemes at the possibility of being subjected to the same capital adequacy regime as commercial pension providers.
The occupational schemes are industry-owned non-profit pension funds which employers are obliged to fund by law. While they are governed by a separate directive – known as Institutions for Occupational Retirement Provision (IORP) – they may be subject to Solvency II regulation as well.
The FT article shows how the Solvency II rules could contradict IORP in aspects such as higher charges for holding long-dated debt, the use of hedging and problems with asset classification. For example, all property is treated equally under Solvency II, irrespective of its quality.
The treatment of government bonds as a single asset class, regardless of credit rating, is questioned by some. “Isn’t it a strange coincidence that mainly in times they need money, governments create regimes which drive investors into government bonds?” asks Klaus Mössle, head of Fidelity’s institutional business in Germany.
While German employers are obliged to provide for employee retirement they do not have to do so through a pension scheme. The FT explains: “The big groups often just put money aside for this purpose in a non-regulated kind of trust. It’s simple: if there is no IORP, there is no institution on which Solvency II can impose capital buffers.”
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