Jozefína Žáková (source: Courtesy of SLASPO)
THE SLOVAK insurance market is carefully watching the unfolding of a new European regulatory framework known as Solvency II. Though its aim is to ensure that insurance and reinsurance policies underwritten by insurance companies are financially sound and can withstand adverse events so that policyholders are protected, some industry experts are concerned that the additional capital requirements may push some popular insurance products out of the market. Since the process of preparing the Solvency II rules is not complete, insurance firms in Slovakia and other EU countries must still wait until final documents are adopted and then implemented to assess what impacts the new regulatory framework, which now has a target implementation date of January 1, 2013, rather than October 31, 2012, might have on the insurance industry.
The Slovak Spectator spoke to Jozefína Žáková, the director general of the Slovak Insurance Association (SLASPO), about why the European Commission is preparing Solvency II and what its potential impacts could be in Slovakia.
The Slovak Spectator (TSS): What impact on the Slovak insurance market do you expect from the new Solvency II regulatory framework? Could its implementation affect the number of insurance companies doing business in Slovakia?
Jozefína Žáková (JŽ): Solvency II is a new legal and regulatory framework for the European Union’s insurance market that introduces more sophisticated and stricter rules in insurance, even when compared with the banking sector. It changes requisites for the capital requirements of insurance companies, not only in terms of their amounts but also in terms of their calculation and setting. Capital has to correspond with the risks that an insurance company is undertaking on the basis of an insurance policy but also to other risks to which it is exposed. Solvency II introduces fair market rules in insurance, which regulators and supervisory authorities acting in the insurance market would pursue. This means creation of a fair competitive environment in which under-capitalised firms with insufficient know-how, unfair practices that harm a client, and deformations of competition which disadvantage other insurance companies in the market, and which in the end harm the whole insurance market, do not have a place in Europe.
With regards to its impact, Solvency II could affect the number of insurance companies operating in Slovakia, especially if planned implementing measures require inappropriately large capital from insurance companies. This might lead, for example, to the transformation of some insurance companies into branches.
TSS: What influence do you expect Solvency II might have on insurance products and their prices? Which products might the new regulatory framework impact the most?
JŽ: It is too early to precisely quantify additional costs that insurance companies will have in relation to Solvency II because the final form of the EU’s legal norms, which will affect these costs, will be known only in the autumn of this year. But already it is possible to say that if European regulators, within the preparation of implementing measures, further increase capital requirements of insurance companies at odds with the original objective of Solvency II, we can expect a partial withdrawal of insurance companies from selling some products or a hike in insurance premiums.
TSS: What advantages will Solvency II bring to insurance companies’ clients?
JŽ: The principle based in the EU directive called Solvency II aims to tighten regulation of insurance companies in order to protect the client (the consumer) from troubles that an insolvent insurance company might cause. Thus, it is necessary on one hand to stress that the new regulatory framework would bring comfort to clients of insurance companies by making the insurance market more transparent, and this will probably pertain to insurance products too.
On the other hand, it may happen that some popular insurance products could disappear from the market because they would become uneconomic for the insurance companies.
TSS: How are Slovak insurance companies advancing in their preparations for eventual implementation of Solvency II?
JŽ: Slovak insurance companies, with few exceptions, are daughter companies of large insurance and financial houses. Such firms have qualified teams of experts, including staff from Slovak companies, dealing with Solvency II. These teams are preparing for implementation of Solvency II for all units of a company.
SLASPO is intensively participating in preparations, too. We launched a working group of experts from SLASPO’s member insurance companies that deals with methodology of application, foreseeing various effects, evaluation of implementation proposals and so on. It elaborates remarks and comments which are then sent to the CEA, the European insurance and reinsurance federation made up of national associations of insurance companies, in Brussels which then tries to affect the creation of norms in the European bodies.
TSS: Last year you voiced a concern about some of the EC’s planned implementation measures and its tendency to further tighten rules for insurers and require additional capital requirements because of the economic crisis. Were your concerns warranted?
JŽ: Our concerns have been partly confirmed because the implementing measures have really tightened the original objectives of the directive. On the other hand, it is necessary to say that some sharp edges have been smoothened and compromises have been reached in many areas.
But the legislative process is still going on while the definitive approval of the large amendment to the directive called Omnibus II is expected in a short period of time.
The implementing measures, which will bear the name ‘delegated acts’ are also in the completion phase.
Thus, the insurance companies are now under great pressure because the changes they will have to carry out are huge in themselves and the degree of uncertainty stemming from the unfinished legal norms does not add any peace.
The fact that it was necessary to amend the Solvency II directive even before its transposition into the legislation of individual member countries shows how complicated this process is.
