REGULATIONS covering the insurance business will be radically altered in forthcoming years in response to recent transformational changes undergone by this particular part of the financial sector. Solvency II, an initiative of the European Commission, is the biggest regulatory challenge currently facing European insurers. As the EC writes on its website, Solvency II will introduce economic risk-based solvency requirements across all EU member states for the first time. These new solvency requirements will be more risk-sensitive and more sophisticated than in the past, thus enabling a better assessment of the real risks faced by any particular insurer.
The Slovak Spectator spoke to Jozefína Žáková, the general director of the Slovak Insurance Association (SLASPO), about transposition of the EC’s Solvency II directive into Slovakia’s legislation.
The Slovak Spectator (TSS): Member states of the European Union are obliged to transpose Solvency II into their legal systems by October 31, 2012. What changes will this implementation mean for Slovak insurance companies?
Jozefína Žáková (JŽ): Deadlines are not yet final but they will not differ significantly from what we know now. It is certain that Solvency II will change regulations on capital requirements and this pertains not only to their amount but also to their measurement. Neither the European nor the Slovak insurance sectors have problems with the Solvency II framework directive. The situation is worse with implementation measures by the European Commission which are being prepared in cooperation with the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS). The problem is that while the framework directive was actually prepared before the crisis and is based on principles which force insurance companies when showing their capital adequacy to take into consideration their specific risk profiles and business models, the implementation measures under pressure from CEIOPS started to also orient toward additional capital requirements.
The argument is that the financial crisis has proven insufficient capital adequacy by banks and thus it is necessary to remedy the financial sector by applying additional capital requirements to ‘treat’ the whole financial sector.
However, the insurance sector keeps reiterating that doing business in insurance differs absolutely from the banking sector. Simply said, an insurance company deals with risk and a bank deals with money.
The insurance sector has accepted the Solvency II directive in its original form by being aware that the concept of this directive is based on much more sophisticated and stricter rules than was required for regulation of the banking sector (Basel II).
Thus, we are watching tendencies for further tightening of rules for insurance companies with great concern.
We are voicing a concern that if European regulators insist on additional capital requirements, then it is possible to expect a partial withdrawal of insurance companies from selling some products, especially in life insurance, to increase premiums, and in the worst scenarios for the withdrawal of insurance companies from the market or their change into branch offices.
On March 11, the CEA, which is the European insurance and reinsurance federation, published an important document. It pointed out potential serious consequences which transposition of requirements of CEIOPS and the European Commission into implementation norms of the Solvency II directive would mean for the economy and consumers.
There is a certain space for further negotiations and we believe that a sensible solution will be reached.
TSS: How are insurance companies in Slovakia progressing in preparation for implementation of Solvency II?
JŽ: Insurance companies are aware of the demanding nature of the work which they face with regards to Solvency II, as well as the time pressure.
Almost all insurance companies in Slovakia are daughters or branches of large foreign insurance corporations, thus a lot of the methodological work is being done at that level.
Within SLASPO there is a working group for implementation of Solvency II, which in cooperation with the Slovak Finance Ministry and the National Bank of Slovakia, discusses all important aspects of the implementation.
5. Apr 2010 at 0:00 | Jana Liptáková