It was no doubt a blessed relief for UK Prime Minister David Cameron to put his political woes behind him and show some love to the British insurance industry. On the day it emerged that he had signed off texts to the then News International CEO Rebekah Brooks LOL, thinking it meant “Lots of Love” not “Laugh Out Loud” (embarrassing on more than one level) David Cameron visited Lloyd’s of London. There he promised backing to Lloyd’s syndicates and other UK insurers in the continuing negotiations around Solvency II saying, “I do understand the dangers in Europe of Solvency II if we don’t get that right. We will listen to that and make sure the regulation is right.”
This political support is both welcome and necessary.
As I mentioned in my previous Eurovision themed blog, Solvency II is now getting overtly political. Discussions on the revised directive, Omnibus II are at the “trialogue” stage, a three-way wrangle between the Commission, the Parliament and the Council of Ministers (essentially the national governments).
Of course debates are not just ranging around the revised directive, but also around the draft implementing measures and binding technical standards that should flow from it. In practice, discussions are happening in parallel, an issue if the necessary detail is found to be inconsistent with the broad principles of the directive.
Lloyd’s, the ABI and others in the UK insurance industry have been increasingly vocal in their concerns. It is interesting that the Chief Executive of Prudential, Tidjane Thiam, repeated last week that they would relocate to Asia if concessions were not made. Of course, all of this is happening against the backdrop of the continuing European Sovereign debt crisis. As I write, stock markets are plummeting again over concerns over political instability in Greece and the weakness of the Spanish banking sector
Preparation and Procrastination
The amount of definition work still to do, the political and economic uncertainty and the recent announcement that the transposition date of Omnibus II (i.e. the date by which member states have to ensure all local laws and regulations are compliant with Solvency II provisions) has slipped by six months to 30th June 2013, all cast doubt on the official 1st January 2014 go-live date being achieved. It is also becoming increasingly clear that even if the 2014 deadline is met, there is likely to be a raft of transition measures to sweeten the pill.
But as I have said before, likely delays in implementation do not make it any less important to get the detail right or for insurers to prepare for Solvency II’s ultimate coming. The Finance Director of Old Mutual, Philip Broadley, recently said that European insurers should stop complaining about Solvency II because they have had plenty of time to prepare for it. Many will feel that this is harsh, but it is true the underlying idea of Solvency II (which has been clear for years) is good, even if much of the detail is currently flawed. By concentrating on what Solvency II aims to achieve—better managed, better capitalized, more risk aware insurers—rather than just on compliance, real business benefit can be gained now, getting value for all that expense.
Delays in Solvency II are not welcome; they lead to more uncertainty and with uncertainty comes higher costs. But on the positive side, delays do create a job for life for Solvency II commentators like me, LOL.
(Click here for the ICMIF Solvency II Solutions one-day seminar agenda, to be held on May 24. This event is hosted by the supporting members of the International Cooperative and Mutual Insurance Federation)