Van Hulle: Long-term investment agenda must not side-track Solvency II
Solvency II should not be side-tracked by politicians’ efforts to encourage insurers to invest in infrastructure projects and other long-term assets, warns Karel Van Hulle, the former head of insurance at the European Commission.
Van Hulle (pictured), who retired at the end of February as leader of the commission’s Solvency II project, warns that the emphasis on promoting long-term investment by insurers could be detrimental to the sector and policyholders. The focus of policy-makers, he says, should be on developing a sound, risk-based solvency regime.
“Long-term investment and growth are important but the insurance industry alone cannot resolve this and, without a risk-based solvency regime, too much emphasis on long-term investment and growth might actually endanger the sector and produce in fact the opposite: a false impression of soundness and strength,” says Van Hulle.
“Insurance is a long-term business and the risks will only materialise over a number of years. The insurance business model is very specific. Let us concentrate in the first place on the liabilities rather than on the assets, in the interest of policyholders.”
The European Commission is consulting on ways to increase the supply of long-term financing to investment projects such as energy, communications and transport infrastructure as a way to boost growth in Europe.
The insurance industry is seen as key provider of long-term finance and the European Insurance and Occupational Pensions Authority (Eiopa) is currently examining whether Solvency II’s standard formula’s design and calibrations in relation to insurers’ long-term investments in certain asset classes should be adjusted.
Last week, Eiopa published the results of its preliminary analysis in which it found that there was no evidence to suggest that the calibrations should be amended. It will publish its final report in July.
Van Hulle also stresses that European rule-makers should not to try to develop a perfect Solvency II regime and instead should concentrate on finding a swift agreement on the main outstanding issues once the long-term guarantees impact assessment (LTGA) is completed.
“I hope that [the Omnibus II] negotiations will proceed quickly after the completion of the technical [LTGA] assessment by Eiopa and that both the European Commission and Eiopa will show leadership and convince the co-legislators that they should now concentrate on solutions and not try to develop a perfect regime,” he says.
The comments are echoed by Eiopa executive director Carlos Montalvo. Responding to the insurance industry’s calls for Solvency II’s currency risk calibrations to be amended, Montalvo says Solvency II needs to be finalised quickly and that imperfections can be addressed once the regime is in force.
“I would like to publicly call for prudence: let’s not reopen more issues at this stage. We need Solvency II as soon as possible – it is good even if not perfect – but once in force we can improve it without putting the whole project at risk,” says Montalvo.
Eiopa, he says, is examining the proposals on currency risk. “However, the legal process is still ongoing, therefore we prefer not to make any speculations prior to the finalisation of the Omnibus II Directive,” he adds.
This article was first published on Risk