Views on Solvency II, the planned risk-based capital adequacy directive for the insurance industry, are still far from positive amongst European insurance companies. Earlier this week Axa, the global insurance company, issued a strong warning that it could make insurance prohibitively expensive and stifle growth across Europe.
Henri Castries, the chief executive of Europe’s largest insurer, issued a stark warning that the heavy-handed approach being demonstrated by the European Commission (EC) in the drafting of Solvency II would result in European insurers holding too much capital and that this would, in turn, have the knock on effect of making insurance prohibitively expensive, stifling growth across Europe and forcing many companies out of Europe. Castries said that the new regulation could force insurers to hold unnecessarily high levels of regulatory capital, levels unrelated to the real risks that they faced. He said "If it is so, it is going to end up being very nasty, because big players like us will have a reduced interest in investing further in Europe, and consumers will pay a heavy price for that". Whilst acknowledging that the current patchwork of local regulations needed to be replaced, Solvency II needed to ensure that the capital that insurers held more closely matched their risks. This would improve capital efficiency and reduce prices for consumers.
Work on Solvency II has been going on at the EC for over 5 years and, whilst many are in agreement that the way forward is to link capital requirements to a risk-based analysis of an insurance firm, there is strong opposition to the plans to use Basel II, the banking risk-based directive, as a template (see Chase Cooper News: Rocky Road for Solvency II, from April 6th).
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