EU insurance regulator calls for harmonised plan for failing firms

Wednesday, 12 July 2017 09:45 - - {{hitsCtrl.values.hits}}

Frankfurt (Reuters): The European Union’s insurance industry regulator called last week for a harmonised scheme to deal with failing insurers, saying it would enhance financial stability and protect policyholders.

The European Insurance and Occupational Pensions Authority (EIOPA) said the fragmented patchwork of national strategies across the bloc could hinder the orderly closure of any troubled cross-border insurers and result in “suboptimal outcomes”.

In an 88-page opinion addressed to the European Parliament, European Commission and European Council, the regulator said capital requirements for insurers, known as Solvency II, had reduced but not eliminated the risk that insurers could fail.

Insurance companies have been reeling from years of ultra-low interest rates that have been eating away at the investment returns they use to help pay policyholders.

“A comprehensive recovery and resolution framework is essential for effectively dealing with distressed undertakings, particularly in the current macroeconomic environment,” Gabriel Bernardino, chairman of the Frankurt-based EIOPA, said.

Policymakers in Brussels, national regulators and individual companies will now debate EIOPA’s opinion, in a process that could take years for any laws to change.

An EU-wide plan for failing banks already exists and regulators ruled last month that Italian lenders Veneto Banca and Banca Popolare di Vicenza were failing, or likely to fail, and had to be wound down.

There were mixed views within the insurance industry as to whether an EU scheme akin to the banking plan was necessary.

Industry group Insurance Sweden wrote in a letter to EIOPA that it saw no case for a recovery and resolution framework because insurance activities played no part in the financial crisis and, “insurance failures are very rare”.

“The insurance business model is distinctly different from that of banking,” it wrote. “If a crisis does occur, insurers as opposed to banks can typically be wound up in an orderly manner.”

The Czech Insurance Association also said in a response to EIOPA there was no real need for harmonisation, saying new rules would only be needed if it were clearly established the Solvency II regime “contains loopholes and is insufficient.”

By contrast, Allianz, Europe’s largest insurer by market value, signalled broad agreement with an EU-wide scheme.

In an emailed response to Reuters, Allianz said it, “shares EIOPA’s view that recovery and resolution planning is important” though it had a “slight divergence of opinion” on a few points in EIOPA’s opinion published on Wednesday.

German insurer Talanx welcomed EIOPA’s push for EU-wide harmonisation.

“Internationally active groups must consider the requirements of a large number of regulators, which we do not consider optimal,” Talanx said in an email to Reuters.