In a corporate life previous to Willis, I used to broke the cancellation cover of a certain quadrennial international sporting event committee. A visit to Beijing for test events prior to the 2008 competition gave me my first and last experience of living like a plutocrat, e.g. chauffeur-driven car with police outriders, roads closed for us, the full VIP treatment all week. Frankly life’s been a bit of a disappointment after that.
As I write, the quadrennial international sporting event is about to hit London. This very evening the torch passes the end of my road (co-incidence not the last vestiges of influence). I bumped into the torch relay earlier this month in Cambridge. It was all frankly all rather disappointing; loads of build-up, multiple policemen on motorbikes, sponsors’ trucks promoting their product, more policemen on motorbikes, still more policemen on motorbikes, an empty coach then, finally, the flame carried by someone you think you should recognise but don’t, running past in 3 seconds flat. Now I’m sure the games themselves will be wonderful but the damp squib of the build-up, the torch relay will linger in my memory, as will memories of being treated the way I clearly deserved in Beijing five years ago.
Speaking of International Spectacles…
So, you are no doubt wondering, where is the tortuous (torchuous?) insurance link here? It’s our old friend Solvency II. We should now be in the final stages of preparation, the torch relay if you like, but the torch keeps going out. Although the direction is pretty well set, there is still squabbling over the route the torch should take. The date of the main event has been set although many doubt the flame will get there in time. As it is, the rules of the main event are still being argued over should we ever get there.
One big difference is that the sporting event organizers have insurance cover against cancellation and postponement of the London event. Insurers in Europe, who have spent billions of euros getting ready for Solvency II, will have to take the cost of any postponement (we won’t talk of cancellation) of Solvency II on the chin.
Tight Timetable for Solvency II
I’m no betting man, but the probability of a full, hard implementation on 1st January 2014 now looks as likely as me easing past Usain Bolt on the line to win the hundred-metre sprint gold. The infamous trialogue of the European Parliament, the European Commission and the Council of Ministers failed to agree on the revised Solvency II directive, Omnibus II, before European Members of Parliament went on their extended six-week summer break last week. The legislative timetable, already said to be tight, must now be tighter than a beach volleyball costume. Some European governments, led by the Czechs, are openly agitating for a formal year’s delay. The smart money must be on this happening or a “soft launch” in 2014, itself further softened by a raft of transition measures.
But Solvency II is but a sideshow to the continuing debt crisis enveloping Europe. Regional governments in Spain and cities in Italy are calling on the state to underwrite their debts at the same time as banks see their value of their help sovereign debt decrease as yield rates go through the roof, ruining the summer holidays of many MEPs. There is talk of schools not reopening in Italy and regional government leaders in Spain being unable to replace their three-year-old luxury Mercedes, even having to downsize to a SEAT. They, like me after my Beijing experience, may have to get used to a rather different, reduced lifestyle in future.
What This All Means for Re/insurers
Insurers too will find themselves in interesting times, low interest rates forcing a focus on underwriting return in a flat or contracting market. Fortunately most re/insurers are in pretty good shape, if they are not over-exposed to sovereign debt (which has turned out to be not quite as risk-free as regulators hoped). But the long run-up to Solvency II has meant that many insurers are better prepared; they have a deeper understanding of their risks, better analytical systems and are well placed to ride the coming financial storms.
So the flame may flicker, but the light of Solvency II has already provided some benefit ahead of the main event, whenever that should come.