Anyone sceptical of the concept of a united Europe won't have found it hard to pick holes in Solvency II. As it seeks to impose the same standards on Member States with wildly contrasting insurance practices and structures tensions over its implementation were inevitable. With the already-revised official implementation date of January 1 2014 looming large, dissatisfaction with key proposals has been voiced in a number of European countries, and further delays seem likely. Indeed, there are even fears the project could be scrapped.
The Directive is primarily concerned with the amount of capital that EU insurance companies must hold to reduce the risk of insolvency. It reflects new risk management practices to define capital and manage risk that have been introduced since the initial EU solvency regulation was established in 1973.
Many insurance experts feel the requirements have been unduly onerous from the outset, causing more problems than they solve. Alastair Speare-Cole, chief executive of JLT Re, says: "A number of companies are saying that, as there was a systemic failure of the banks in 2008 and not of insurance companies, why do we need regulation that could actually cause a solvency crisis? As the deadline approaches, suddenly the unstoppable momentum has met hard reality regarding what it could do to the insurance industry.
"Solvency II is not a bad thing in its general architecture but if you look at some of the detail it seems a bit extreme. You can have a risk-based capital solvency regime without going to such extremes. For example, Australia and the UK have more moderate regimes and AM Best is effectively a quasi-regulator in the US."
Unsurprisingly, different Member States have very different appetites for the Solvency II proposals to become a reality. Countries like the UK, which have already invested heavily in implementation, would welcome the Directive but in some other countries, where companies and regulators are less prepared, there would be few tears shed if the project was abandoned.
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