Barnier launches defence of insurance reform

Europe’s top financial services policymaker has hit back at criticism from insurance companies that new capital rules are too conservative, claiming that the changes are necessary to protect policyholders and improve an outdated regime.

In a letter seen by the Financial Times, Michel Barnier, EU internal market commissioner, has told four leading insurance industry bodies that “criticisms levied against Solvency II, particularly that calibrations are too high, have not been confirmed by evidence”.

The new rules are due to come into force in 2013 and are supposed to better match insurers’ capital with the risks they take.

Mr Barnier points out that tests have shown that the industry overall has a buffer of €360bn ($527bn) more than the new regime’s capital targets and €676bn more than the required minimum capital – a level which, he says, exceeds the margin under the current regime.

However, about 15 per cent of individual insurance enterprises were found to be short of the necessary capital in the same tests. Some of these may be subsidiaries of larger groups that would ultimately hold enough capital, but others will have to raise fresh capital or significantly reduce risks.

Mr Barnier’s riposte follows months of complaints from insurers who say the new rules will restrict their ability to operate. Four trade associations wrote to the commissioner two months ago warning that the new regime risked driving insurers out of long-term business and introducing “procyclicality” – a sensitivity to the economic cycle – which could affect the availability and affordability of products in tougher times.

But Mr Barnier does acknowledge that some, although not all, of the more technical matters raised by the industry warrant attention. He says officials “take very seriously the issue of the ongoing viability of insurance products with long-term guarantees”. Working groups are also looking at the calculations for health and non-life catastrophe risk premiums and reserve risk. In addition, commission staff have proposed “a long list of suggestions” to simplify the regime.

But he adds: “The industry’s position on some of the other issues raised ... is not shared by those who will be making the final decisions” on how to implement the new regime.

Mr Barnier’s letter was addressed to Henri de Castries, head of the Pan European Insurance Forum and chief executive of Axa; Axel Lehmann, head of the Chief Risk Officer Forum and chief risk officer for Zurich Financial Services; Dieter Wemmer, head of the Chief Financial Officer Forum; and Tommy Persson, head of the CEA, the main European insurance association.

Copyright The Financial Times Limited 2011. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.