According to Reuters UK, the Solvency II proposals, which have been heavily critisised by Britain’s leading annuity providers in particular, are now attracting criticism in continental Europe, increasing the probability they will be changed.
Next month, regulators from all 27 EU countries will meet in Berlin to agree on recommendations for final Solvency II legislation, which will be submitted to the European Commission early next year.
Further alterations are possible before final legislation is agreed in June 2011, but Reuters says British insurers are hopeful their concerns will be reflected in the regulators’ advice.
The article quotes Legal & General director of annuities John Pollock as saying: “The industry is working together to get a sensible outcome. I think that is much more likely now than it was before the debate started.”
The CEA – the European insurance federation – issued a strong letter to the body consulting on the rules earlier in the month to complain that it had “abandoned the principle-based and economic approach it has adopted in favour of crude ratcheting up of financial requirements”, confirming fears over their impact are spreading.
Germany’s insurance industry association, GDV, is also pushing for the proposals to be altered claiming they would force insurance premiums up for customers.
FSA managing director of retail markets Jon Pain recently labelled Solvency II a “potential timebomb” for the pensions market.
He said: “The directive poses a significant risk for the pensions market. The nub of the issue arises from the question of whether the legislation will allow firms to continue to take into account a liquidity premium in capital provisions for annuity business.
“In simple terms, if the implementing legislation does not allow for it annuity providers are likely to have to significantly increase the capital they hold and as a result increase the cost to consumers.”
The Association of British Insurers has written to Chancellor Alistair Darling warning that the amount of capital annuity providers would have to hold if the proposals were passed could be equivalent to the current market capital of the whole industry.