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Hoban: Solvency II talks have ‘long way to go’

Treasury financial secretary Mark Hoban says Solvency II negotiations have “a long way to go” as the Government attempts to iron-out issues over capital, the standard formula for generating solvency capital requirements and the ‘illiquidity premium’.

In a speech at the Association of British Insurers this morning, Hoban (pictured) said any changes to the current rules should be “proportionate” and avoid placing “undue burdens” on the insurance sector.

He said: “We still have a long way to go if we’re to get level two to where it needs to be. In this game at least, there’s still a lot to play for.

“It’s important to keep lines of communication with EU officials open because as you well know there remain some outstanding issues.”

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

He said calibrations for the standard formula should be consistent with the risks of the “average firm”. He also 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.

Finally, Hoban said the Government is pressing for a “predictable, automatic and objective” method of discounting annuities, known as the ‘illiquidity premium’.

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