Risk & Insurance - April 2012

ROGER’S SOAPBOX

; Roger Crombie

Solvency II Where are You?

( 1) Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry and an attempt to harmonize insurance regulation across Europe. (Let’s ignore the fact that Europe isn’t a jurisdiction, or a coherent political unit, or anything other than a byword for red tape and a hollow joke.)

( 2) No one knows when SII will be introduced. It was supposed to happen a couple of years ago, then a couple of months ago, now it’s maybe next year or the year after that.

( 3) The senior executives of every major company I’ve spoken to say that SII is a good thing in that it has forced a good look at companies’ capital. In that it has become a sideshow with ever-changing rules and never-arriving deadlines, it has distracted management, and, like all catastrophes, cost the insurance industry plenty.

( 4) EIOPA is the European Insurance and Occupational Pensions Authority. It was called CEIOPS until quite recently. Don’t ask. EIOPA is the regulator making such a dog’s breakfast of SII.

( 5) Why is this happening? What is hard about devising suitable tests to assess an insurance company’s financial condition and capital adequacy? It’s something we all do, all the time, for our own finances.

Every insurance company files several telephone books’ worth of financial data every year with the authorities. A half-way decent accountant with a couple of hours to spare could make up the test. You pass or you fail. If you fail, you raise more capital or you enter into run-off.

So EIOPA must be staffed by idiots. That’s a given. The European Parliament is an annuity scheme for politicians who aren’t wanted at home. Also a given. The adjectives pointless, sclerotic and insane come to mind when one thinks of the European Parliament, but I digress.

The Occupy Publicity brigade
might argue that the big, bad
insurance companies have lobbied
SII into oblivion. The insurance
companies wish they had one-
thousandth of one percent of
the clout it would take to get the
European Parliament to do anything.
Or to mean anything. Other
conspiracy head cases might suggest
that the regulator lacks the courage to
introduce SII because the insurance
companies will fail the tests. This
is only partly true. Some European
insurance companies will fail the tests
A pop quiz. ( 1) What is Solvency II (SII)? ( 2) When will it
come into force? ( 3) Does anyone other than EIOPA think
it’s a good idea? ( 4) What is EIOPA? ( 5) Essay question: Why
is regulation, in this case, so apparently impossible to create
and enforce? Answers:
for capital adequacy. They will stop
writing business. That is as it should
be. Most of the major companies
already meet the requirements of SII;
end of discussion. Because Europe is
an amorphous concept, and because
insurance regulators are pig-headed,
often by nature, it is possible that a
pan-European regime to which the
rest of the world must bow down if it
wishes to write insurance in Europe
will never come into force. Face it
kids, SII is like a boil. It hurts. It’s
unsightly. And eventually it’ll go away.

ROGER CROMBIE is a London-based columnist for Risk & Insurance®. He can be reached at riskletters@lrp.com

4 OUT OF THE TOP 100 BROKERS GET LUCKY

THE OTHER 96 ATTEND CRM PROGRAMS According to the July 18, 2011 issue of Business Insurance, 96 of the top 100 U.S. Brokers attend the CERTIFIED RISK MANAGERS PROGRAM from The National Alliance for Insurance Education & Research. We are proud to be part of their professional development and now offer CRM courses online. We have something of lasting value for brokers and risk managers especially those on the way to the top. 100% is still our goal!