Out-Law News 2 min. read

More insurance regulators 'gold-plating' Solvency II requirements, survey says

European regulators are increasingly choosing to impose additional last-minute requirements on insurers as part of their preparations for the new Solvency II regulatory regime, according to an industry survey.

Over two thirds of firms responding to an Insurance Europe survey reported that their regulators had chosen to 'gold plate' the new requirements, which will come into force on 1 January 2016. Insurance Europe said that the response showed a substantial increase in the number of regulators choosing to impose additional requirements on their regulated firms, after its June 2015 survey found around 25% of member states were planning to do so.

However, the vast majority of surveyed firms said that they would be ready to operate under the new regime from January. Firms covered by the research accounted for 92% of European insurance premiums, Insurance Europe said.

Insurance law expert Rabbani Choudhury of Pinsent Masons, the law firm behind Out-Law.com, said that the survey results initially appeared to be surprising.

"The Solvency II directive is a 'maximum harmonisation' directive, which should mean there is limited scope for gold-plating of the legislation in member states' transposition into their national laws," he said.

"However, closer inspection of the text shows that in some clearly defined areas, member states have the opportunity to decide for themselves whether or how they implement Solvency II's requirements. For example, on regulatory reporting, the Solvency II directive provides member states with specific discretion to use any number of national specific templates that they consider necessary for the effective supervision of firms in that member state," he said.

Choudhury said that examples of this could be seen in the various Solvency II supervisory statements published by the UK regulator, the Prudential Regulation Authority (PRA).

"These statements of PRA guidance, whilst not binding on PRA-authorised firms, go much further than what the directive prescribes on specific regulatory issues," he said. "So perhaps Insurance Europe's survey results are not that surprising after all."

The Solvency II regime sets out broader risk management requirements for European insurers, and increases the amount of capital that firms must hold in relation to their liabilities. Respondents to the Insurance Europe survey said that preparations for the tougher new requirements were already resulting in practical improvements to governance, risk management and reporting processes: 79% of respondents said that governance had improved, while 74% reported improved risk monitoring and identification processes.

Igotz Aubin, head of prudential regulation at Insurance Europe, said that firms faced "significant challenges" as the deadline approached. The fact that the European Commission had only recently confirmed reporting requirements by adopting final quantitative reporting templates for firms had caused particular uncertainty, he said.

"It is great to see Europe's insurers making such good progress in implementing Solvency II, despite the challenging environment they face," he said.

"However, I would like to stress that Solvency II is already an extremely conservative and extensive regime. It is, therefore, important – especially at this late point – to limit additional requirements and conservative interpretations," he said.

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