Following the collapse of several eurozone economies and growing doubt on the prospect of a unified European state, getting so many culturally and economically different nations to agree on a set of proposals was never going to be easy.
This was certainly one of the main talking points at the ABI’s conference, which provided delegates with a perfect opportunity to voice last-minute anxieties before the ship finally sets sail.
Kicking off proceedings, Andy Briggs, group chief executive at Friends Life, urged the insurance industry to forget past hiccups and prepare for a potentially lucrative end to the decade. Mr Briggs said the insurance sector had a great opportunity to drive growth, and markets could triple in size providing a suitable agreement is reached on equivalence.
He said for the new directive to be a success it was fundamental that Solvency II did not alienate prosperous multinationals. He said: “The UK insurance industry will be a much poorer place if we drive the large global insurers from our shores.”
This concern was shared by Sajid Javid, financial secretary to the Treasury, who followed Mr Briggs on stage to reassure those present that the government has done its utmost to protect UK interests. Mr Javid said third-country equivalence, together with matching adjustment, was an issue where the government “really had to fight the UK’s corner” against a “hostile” reception from EU nations.
He added: “Taking action to improve the sector here at home is futile if Solvency II is designed in a way that prevents European insurers from competing overseas, and that’s why it’s been so important to achieve a sensible solution to third-country equivalence. Getting the right outcome on this issue remains a top issue for the government.”
Mr Javid, who was upbeat on the progress made and compromises met so far, said the latest proposals would encourage long-term investment and were a significant and “more exciting” development to the previous directive.
He likened Solvency II to the film Godfather II because it is a sequel that shows more promise than the original work.
This sense of positivity was not on the agenda, however, for Liberal Democrat Sharon Bowles, a member of the European Parliament. Ms Bowles said the “sticking problem” for EU policymakers remained the US, and warned that equivalence is not possible when not everyone is in agreement.
She said: “Parliament is keen that we have an arrangement that doesn’t put the European insurance industry at risk, so they want to have these temporary equivalence arrangements.
“The Commission is less keen on these and doesn’t want to have something open-ended; they want an end date in place. You can’t just say, ‘This is the standard and everyone else has to fit to it’ because not everyone wants equivalence. When Canada said it wasn’t seeking equivalence that was a wake-up call.”
After heated discussion from the opening speakers, the topic of debate moved to how Solvency II would affect annuities, which was discussed by a group of three panellists, led by the ABI’s assistant director of prudential regulation, Jon de Beer.
Mr de Beer began by warning that numerous issues still stand in the way of making Solvency II work for the UK market and that there was little time left to iron out the remaining potholes.
He said: “Level 2 will be very tricky. There is no appetite from institutions to reopen discussions and the timeline doesn’t leave a lot of space in trying to influence the process. Parliament’s power at level 2 is only to accept or reject. It does not get to amend it.”
Mr de Beer said it was “fundamental” to prioritise and focus on what could be realistically changed at this late point.
Fellow panel member Jim Rasque, policy adviser for prudential regulation at Insurance Europe, acknowledged the difficulties faced in finding a EU-wide compromise and the latest proposals’ lack of perfection, but eased concerns by emphasising the presence of a review clause.
He said: “There is a review clause in the text so we wouldn’t expect it to be forever. We can potentially do some refinements and it is a work that will not stop. It is a delicate balance.”
Both Mr Rasque and the final panellist, Carl Dowthwaite, struck another blow when warning that Solvency II, for all its improvements, may still stifle product innovation.
Mr Dowthwaite, group commercial actuary for Legal & General, responded: “I fear it may affect the scope for innovative products and could make it hard for firms to deviate from the standard patterns.”
After lunch, and the opportunity to digest a barrage of mixed opinion, play resumed with a five-man panel dedicated to addressing interim measures.
Most vocal in this group of delegates was David Innes, the head of economic capital at RSA, who openly-criticised the ambiguity of the proposals before adding that “one recipe” was never likely to function harmoniously across the Continent.
Among his biggest concerns was the lack of clarity on compliance levels, excessive paperwork and the presence of too many regulators. These factors, he said, had made it increasingly difficult to get a concrete and consistent understanding of an inaccessible Solvency II.
ABI director general Otto Thoresen chose his words carefully when delivering his closing speech. Opting to focus on the positives of what has been a very long journey, he stressed that the end result was close and congratulated the government and all parties involved for fighting to deliver a good outcome.
Mr Thoresen had clearly been mulling over Mr Javid’s Godfather II speech and put forward his own submission, The Day after Tomorrow, to summarise the Solvency story.
Characterising it as a father-and-son sci-fi film, he went on to define it as an adventure of massive destruction and climate change that eventually ended with the clearing of the storm, sunshine and hope.
Whether Solvency II will end in such a Hollywood fashion, however, is yet to be determined.
The overall message from the conference was of massive improvements on previous proposals, but with plenty of work still to do to protect the future of the UK insurance sector in a very limited time-frame.
Daniel Liberto is a reporter at Financial Adviser
