Further written evidence submitted by
Aviva
IMPACT OF
EUROPEAN LEGISLATION
1. Aviva is the UK's largest insurer, a leading
pan-European insurance group, operating within eleven European
countries with approaching 40 million customers, and an owner
of a substantial global asset management business.
2. Given our large constituency base we
have a unique insight into the impact of the regulatory regimes
of the EU and a number of its Member States in relation to UK
headquartered financial services companies.
3. Aviva's approach to the Single Market
is that we believe the goal should be a fair, open, competitive
market at national and EU level, with companies free to underwrite
on a commercial basis on a "level playing field".
4. We congratulate the Commission in its'
approach to better regulation and its process of carrying out
extensive consultations before proposing legislative initiatives.
We hope these efforts to achieve considered and balanced legislation
to continue.
OVERALL ENVIRONMENT
FOR INSURANCE
COMPANIES HEADQUARTERED
IN EUROPE
5. Eight out of the 10 largest insurance
groups in the world (as well as the world's leading wholesale
insurance market) are headquartered in Europe—Insurance
is a uniquely European success story, led by the UK insurance
industry which is the largest in Europe and the third largest
in the world.
6. For the UK, insurance is an integral
part of the UK economy: managing investments amounting to 24%
of the UK's total net worth (£1.6 trillion), contributing
the fourth highest corporation tax of any sector and employing
around 275,000 people in the UK alone.
7. EU and UK regulations must not competitively
disadvantage EU insurers internationally. One of the core foundations
the European Commission laid down for Solvency II was to ensure
the global competitiveness of EU insurance companies. We believe
this goal should stretch beyond Solvency II and be considered
in all EU legislation affecting EU headquartered insurance companies.
BETTER REGULATION
8. There has been a significant amount of
regulatory reform stemming from the Commission in recent years,
which while largely welcome, has been resource intensive for both
policymakers and industry.
9. The implementation of Solvency II alone
has been the biggest change to insurance regulation for a generation.
In the coming months the Commission's work on Undertakings for
Collective Investments in Transferable Securities (UCITS), Markets
in Financial Instruments Directive (MiFID), Pensions, Transparency,
Packaged Retail Investment Products (PRIPS) and the Insurance
Mediation Directive (IMD) are all likely to generate significant
costs for industry, which will ultimately impact customers.
10. There must be a greater focus by the
Commission on enforcement of Directives after they've been adopted
by Members States—it is felt that this will help iron out
many idiosyncrasies within the Single Market, lead to the establishment
of a common EU rule book and allow the formulation of better regulation
going forward.
11. We reassert the vital need for the EU
to maintain its approach to better regulation—ensuring that
there is no knee jerk or inappropriate legislation which could
result in unintended consequences. In addition the Commission
must allow adequate time periods for companies to reply to consultations.
UNINTENDED CONSEQUENCES
12. We understand and support the desire
for lessons to be learned from the crisis, and agree with the
need for regulations to operate at an international/EU level.
13. It is vital that the difference in the
role and business models between banks and insurers is recognised.
Insurance companies are participants in, and stabilisers of, the
financial system and not drivers of it. They provide a valuable
source of stability through their demand for long term assets
that match the duration of their long term liabilities.
14. Insurance companies were not the cause
of the economic crisis. As demonstrated earlier this year by the
Geneva Association,[29]
core insurance businesses do not pose a systemic risk.
15. There is a risk that measures designed
for the banking sector read across to the insurance and asset
management sector. For example measures around the definition
of capital if read across would have a significant detrimental
effect given the business model of insurance and regulatory regime
proposed by Solvency II—unnecessarily removing billions
of pounds of capital from the sector.
ASSET MANAGEMENT
16. The most significant area for possible unintended
and disproportionate read across between sectors is from the banking
to the asset management sector where many banking Directives also
apply to asset management firms (eg the continuing updating of
the Capital Requirements Directive).
17. However, the business model of banks
differs fundamentally from that of asset managers' where clients'
assets are kept separate from the assets of the managers. Therefore
a one-size fits all approach should be avoided.
18. The upcoming review of MiFID must carefully
balance both "buy side" and "sell side" issues.
The City of London Corporation and the City UK have already begun
to explore work in this area and have shown that "buy side"
and "sell side" interests can be constructively incorporated.
CUSTOMERS
19. With all financial services legislation,
it must be remembered who the ultimate customer is. Measures to
reform the wholesale markets have the potential to impact on the
management of pension funds, trusts and investment funds, which
in turn leads to a poorer return for the final retail customers
and weaker capacity to provide products they need to save for
their future.
20. Insurance is about protection—managing
risks within society, protecting customers, households and businesses
from unforeseen events and ensuring that citizens are able to
plan adequately for their retirements. We are, therefore, very
supportive of initiatives that promote consumer protection, but
they must not be disproportionate and add undue burden on the
end customer.
21. We are keen that policymakers within
the EU avoid any move towards product regulation rather than market
regulation which would be to the detriment of competition and
innovation and ultimately once again, customers.
SOLVENCY II
22. Aviva was and still remains highly supportive
of the Level 1 Directive, and the Implementing Measures should
remain faithful to its economic, risk-based approach.
23. It is essential that the Commission
robustly defends the economic principles enshrined at Level 1
and pushes back against pressure to move away from these economic
principles, particularly around the definition of capital available
to meet solvency requirements..
24. While we accept the economic approach
is appropriate to manage business. In terms of regulatory requirement
it is important to manage a transition in an orderly fashion for
existing business. Solvency II must not result in avoidable market
dislocation.
25. Given European insurers unique role
in the global economy, a appropriate solution must be found to
ensure that EU headquartered companies can compete competitively
around the globe. This is especially important in relation to
the US. We recognize the progress that the Commission has made
to propose a possible solution but encourage them to ensure that
it will appropriately address the issue.
CORPORATE GOVERNANCE
26. Many of the problems in relation to
corporate governance identified by the economic crisis related
to companies inadequately identifying and managing risks. Insurance
as an industry is about just that; managing risks.
27. As a company and a sector we pride ourselves
on leading best practice in these areas within the financial services
industry—our Chief Risk Officer (CRO) reports directly to
the CEO, we have a strong internal audit committee and our executive
remuneration packages are prudent, proportionate and based on
long term goals.
28. As a regulated financial services company
and long term institutional investor we have a unique perspective.
We use our influence to engage and encourage other companies to
raise their governance standard. We are also leading calls for
stock exchanges around the world to embed a provision for sustainability
reporting into listing rules and follow Aviva's lead—we
put our own Corporate Responsibility report to a separate investor
vote at our 2010 AGM, the first financial services group in the
world to take this step.
29. We have concerns, however, that the
direction of travel globally, while broadly encouraging and in
line with the UK's Walker review, also signals a potential danger
to the "comply or explain" approach which is so vital
in encouraging responsible governance.
6 December 2010
29 http://www.genevaassociation.org/PDF/BookandMonographs/Geneva_Association_Systemic_Risk_in_Insurance_Report_March2010.pdf Back
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