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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