The Irish Insurance Federation (IIF) supports the European insurance industry’s call to address urgently the excessively conservative and prescriptive elements still contained in the draft implementing measures for the new EU regulatory regime, Solvency II.  In a joint letter to Michel Barnier, the European Commissioner for the Internal Market and Services, CEA (the European insurance and reinsurance federation), the Pan-European Insurance Forum (an alliance of large international insurance groups), and the European Insurance Chief Financial Officers’ and Chief Risk Officers’ Forums have urged changes to the overly conservative approach being recommended by EIOPA, the European financial regulators’ body.

The IIF has written to Matthew Elderfield, Head of Financial Regulation at the Central Bank, expressing the industry’s real and significant concerns about the appropriateness of the calibrations used in the recent quantitative impact study (QIS-5) and the cumulative effect of an excessively cautious approach in drafting the text of implementing measures.

“While the insurance industry in Ireland, as in Europe as a whole, remains fully supportive of the principles underlying Solvency II, as expressed in the Framework Directive there are key issues that need to be addressed”, said Mike Kemp, Chief Executive of IIF.

The market feels that the current approach threatens to undermine the economic risk basis of Solvency II. In particular:

•  the existing calibration of certain risk modules as tested in QIS-5 needs significant downward revision, particularly in the area of catastrophe risk.;
• the draft implementing measures could hamper insurers’ ability to offer policyholders appropriate long-term guarantee products; and
• not enough has been done to address risk of procyclicality (i.e., imposing capital requirements that would actually exacerbate – rather than ease – strains in the underwriting cycle).

Mr. Kemp said, “The market’s views are offered in a constructive spirit and in the hope that Solvency II will deliver on its objectives and underpin the future stability, diversification and dynamism of the European insurance industry in the interests of its customers and of the single market as a whole.  Solvency II is a major step forward in enhancing the capital adequacy regime for insurers in Europe. It is important that we get it right from the beginning.”