European and Irish insurers have called for intensive efforts to refine and finalise new capital requirements rules for insurers across Europe in the wake of publication of the latest study of the effects of the EU’s proposed new “Solvency II” regime.

The European Insurance and Occupational Pensions Authority (EIOPA) – the EU body which brings together national insurance supervisors including the Irish Central Bank – published the results of the fifth of its Quantitative Impact Studies (QIS) on Monday.  

“The results of QIS-5 demonstrate that, despite the worldwide financial crisis, the European insurance industry is in good health and has maintained a strong capital base,” said Mike Kemp, CEO of the Irish Insurance Federation (IIF).  “Nevertheless, there are a number of outstanding issues that must be addressed before Solvency II is implemented in 2013 if it is to deliver on its promise of aligning capital requirements more accurately with real economic risk.”

Both EIOPA and the European Commission have recognised that despite the insurance industry’s successful performance in QIS-5 adjustments need to be made to some measures, including the sensitivity of the Solvency II framework to market volatility and the complexity of certain calculations and requirements, especially for smaller companies. 

“As also identified by EIOPA,” said Mr. Kemp, “further work needs to be done to rework the calibration of the non-life and catastrophe risk modules, which currently result in excessively high capital requirements.  We also remain concerned about the treatment of long-term business and guarantees which, as currently structured could damage insurers’ ability to continue offering long-term savings and pension products, resulting in unintended negative social and economic consequences.”

The industry is also adamant that expected profits in future premiums must be treated as Tier 1 capital, a key feature of a risk-based economic regime.  If this change is not made there would be a disincentive to offering regular premium products.

European Insurance Federation (CEA) President Tommy Persson commented: “A lot is at stake here. Solvency II is an innovative and ground-breaking regulatory regime that should enhance the position of the European insurance industry through its combination of capital requirements complemented by qualitative supervision. We must nevertheless be vigilant that it does not inadvertently have adverse effects on the market.  It is therefore imperative that we get the framework right.”