Sven Giegold

Insurances/Solvency II: Commission and parliament put profits before prudence

Today the European Parliament voted down a motion, sponsored by the Greens, to object to insufficiently prudent rules proposed by the Commission concerning how much investment insurers require to ensure they can pay policyholders.

We are convinced that the problems of many insurers in the low interest rate environment may not be covered up by manipulating technical prudent rules. It must be tackled by reforms in the secotr, stronger supervision and regulation included limits to pay and dividends.

The risk that life insurers will not be able to meet their long-term promises to policyholders has been increased thanks to the Commission putting profits before prudence.

The rules in question were contained in a so-called delegated regulation: a form of legislative act that is meant to set out the techncial details for calculations etc, in line with what the co-legislators agreed in the main legislative act, in this case Solvency 2 which defines the minimum safety standards for runnign an insurance undertaking.

In this case, CEIOPS, the predecessor of the current European agency for Insurance supervision, provided detailed technical advice to the commission on a range of matters, including the minimum reserves required to absorb potential future losses and prudently cover expected payments.

In a number of key areas the Commission chose to ignore this advice and
• accept the industry’s own view of the riskiness of parts of their balance sheet

• spare the blushes of significant parts of insurance industry who, had the advice been heeded, would have been revealed to be financially weak

• or, in some important cases, to considerably weaken the recommended calibrations in order to stimulate other parts of the economy.

A particualrly flagrant example of deviation from the advice concerned “securitisations” (loans originated by banks and packaged up and sold to investors) – the uncontrolled proliferation of which was one of the key triggers of the crisis. For the “triple B” securitisations the Commission proposes a riskiness factor seven times lower than CEIOPS recommended. Given that the industry also successfully lobbied to be able to buy as much of these “just above junk” grade investments to back long term promises to policy holders, we fear that an unacceptable amount of risk will end up in their portfolios.

Many other examples of such weakening are detailed here (ref to paper attached)

The Greens did not accept that these politically motivated deviations from the original advice were introduced through the back door in what are supposed to be technical rules.
The EP effectively had until this week to object to the Commissions delegated regulation.

This is why we considered it our duty, in the absence of an objection from the Committee of Economic and Monetary Affairs, to put an objection to a vote of all MEPs in plenary.
We regret very much, on behalf of policy holders present and future, that this did not achieve a majority.

The names and voting behavoir can be found here:

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