Select Committee on European Union Sixth Report


CHAPTER 3: SUMMARY OF CONCLUSIONS

36.  We welcome the work that has been undertaken by CEIOPS to model different approaches to calculating the SCR, MCR and the rules regarding admissible capital. We note that this issue remains unresolved and ask the Government to keep the Committee informed of progress. (paragraph 12)

37.  We note witnesses' concerns regarding the quality of the supervisory authorities in newer Member States (QQ 26-27, 127) although this is expected to improve before Solvency II is implemented. We are also reassured by the amount of joint work that is undertaken through bodies such as CEIOPS. (paragraph 13)

38.  We note concerns that small Member States' regulators may have about a loss of influence to the authorities in the larger Member States from where groups will be supervised (QQ 91, 101) and are concerned that this may lead to pressure for changes to this proposal. The Committee welcomes the group supervision proposals as currently drafted and dilution should be resisted. (paragraph 15)

39.  We particularly welcome the improvements in transparency and accountability imposed upon supervisory authorities. (paragraph 20)

40.  The Committee welcomes the focus on firms' internal risk management processes and the use of internal models. The Committee supports a principles-based approach to supervision. However, the Committee remains concerned that measures introduced at later stages of the implementation process could move from the current balanced approach and become too detailed, inflexible and prescriptive. Legislators and regulators must focus on the goals they would like regulation to achieve and allow industry the flexibility to meet their targets in the most efficient manner. We look to the Government and the FSA to ensure that the implementing measures adopt the current approach. (paragraph 21)

41.  The Committee does not accept that the regulatory burden of the Pillar 3 requirements is excessive. But in the light of the strains on banks' balance sheets in 2007 we invite the Government, in their response to this report, to clarify how the disclosure requirements introduced by Solvency II will mesh with those which listed companies must meet. (paragraph 23)

42.  The Committee notes the likely burden on business but recognises that there is likely to be benefit to consumers and shareholders. The Committee would welcome further details of the likely costs to UK-based firms of measures under Pillars 2 and 3 when they are available, and estimates of the amount of capital that would be freed up (or additionally required) by UK firms to meet the proposed SCR compared with the current UK regime. (paragraph 25)

43.  The Committee expect the pace of consolidation to increase, but as EU-wide competition will also increase, doubt this will reduce consumer choice. The calibration of the Capital Requirements should take into account the impacts upon smaller insurance firms, although this is a separate issue to consumer protection. (paragraph 29)

44.  The Committee welcomes the alignment of the proposed Directive with the Basel II approach and its reflection of proposed International Accounting standards (Q 2). The Committee is also pleased to note that other Member States agree with the fundamental principles of Solvency II (QQ 54, 62, 65, 81-83). We are impressed by the way in which industry, regulators and legislators appear to have worked together to advance this legislation. (paragraph 31)

45.  The Committee supports the approach adopted by the FSA, who have worked to engage UK stakeholders (p 31) and promote their regulatory approach across the EU. (paragraph 32)

46.  We note the FSA's concerns that "the Level II provisions could in some areas emerge as over-prescriptive and 'maximum harmonising'" (p 32); we similarly oppose "gold-plating" and call on the FSA and the Government to continue in their efforts to ensure that there are no setbacks during the negotiations. We also welcome the attention that the UK authorities are already dedicating to Level II of the Lamfalussy process and hope that they will maintain pressure through the Council and CEIOPS to ensure that there is a consistent and prompt implementation date—with no derogations—across Europe, which is met by all Member States (Q 65). (paragraph 33)

47.  This Directive will have a major impact on the insurance and reinsurance industry and marks a paradigm shift in the regulation of the business. It is therefore crucial that the measures it introduces are proportionate, accurately reflect market needs, and have no inadvertent negative effects. (paragraph 34)

48.  The Committee supports both the principles of Solvency II and the Government's approach to this dossier. There are, however, a number of issues where the final outcome of the negotiations remains unclear and the Committee has therefore decided to continue to hold this document under scrutiny until further information is available. (paragraph 35)


 
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