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Hoban calls for sense on Solvency II

Treasury financial secretary Mark Hoban says Solvency II negotiations have “a long way to go” as the Government attempts to iron out issues ahead of the December 2012 deadline.

In a speech to the Association of British Insurers last week, Hoban said any changes to the rules should be “proportionate” and avoid placing “undue burdens” on the insurance sector.

Government officials are in talks with their counterparts in Brussels on the capital requirement, the standard formula for generating solvency capital requirements and the method used to discount annuities.

Hoban called for a “sensible” definition of liabilities and contract boundaries in the directive, with profits from future premiums counting towards the calculation of capital.

He said calibrations for the standard formula for generating solvency capital requirements should be consistent with the risks of the average firm.

He welcomed the FSA’s commitment that the internal model for risk management, which will be used for the analysis of the overall risk of an insurance situation, will not be benchmarked against the standard formula.

Hoban said Government is pressing for a “predictable, automatic and objective” method of discounting annuities.

He said: “We still have a long way to go if we are to get Solvency II to where it needs to be. There is still a lot to play for.”

An ABI spokesman says: “There must be acknowledgment of the long-term nature of insurance contracts so future risks and cashflows are properly recognised.”

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