Examination of Witnesses (Questions 60
TUESDAY 20 NOVEMBER 2007
Mr Peter Vipond and Mr Philip Long
Q60 Lord Woolmer of Leeds:
Can I turn then to the effect of this on London's standing as
a financial centre? What do you think the impact of this over
a period of years will be on London as a financial centre?
Mr Vipond: London is doing extremely well for
insurance; it is the global leader for insurance. Even as we sit
here today we find firms coming in from places like Bermuda to
sign up to do international business in London. We are in a position
of some strength and it is undoubtedly the caseI was speaking
to regulators from the other side of the Atlantic recently about
thisthat they are interested in Solvency II and interested
in having a modern risk management system because they believe
that underpins quality business. I think it is the same for banking.
At the moment there are domestic problems and issues and we British
often tend to criticise ourselves in those circumstances. However,
having a robust, top quality system of regulation which is proportionate
to retail and wholesale markets is something that has served London
and the UK extraordinarily well for finance in general. I believe
that Solvency II can only reinforce that.
Q61 Lord Woolmer of Leeds:
If this group supervision does come aboutyou said there
is resistance to this in some Member Statescould that result
in some companies moving their headquarters and group activities
to London so they come under the FSA?
Mr Vipond: It could do that. They may choose
to base their businesses in London to get the benefits of FSA
group supervision, as of course a number of firmsincluding
Philip'salready do benefit from that. More realistically
I think what we are looking for in the future is, for example,
for the French to work very closely with the British in the supervision
of AXA, for the Italians to work very closely with the British
and the Germans in the supervision of Generali so that you get
a college of supervisors working under a lead supervisor in the
appropriate member state.
Mr Long: I think that is the case and I agree.
Having companies relocate to London is something that is very
hard to think about because I think there are many other considerations
of course, not just the regulation side. I think London has a
good system; it has a lot to be commended for. It is a manifestation
early on of Solvency II. It is the right thing to do; it is what
the FSA has introduced. British companies "suffered"
a little leading up to today but it has turned out very well.
We have "suffered" (let me put it in quotation marks);
we have had to up our game but increasing your knowledge, your
expertise and your understanding of the risks that you are writing
must be a good thing for industry. I think it is testimony really
to a lot of what the FSA has introduced over the last few years.
Chairman: Lord Renton, I believe you
wanted to ask something further.
Q62 Lord Renton of Mount Harry:
I just wanted to pick up something that Mr Vipond just mentioned.
You have mentioned two major companies in France and Germany,
but are there any EU countries that are seriously opposed to this
that you know of and, if so, why? Or are there none?
Mr Vipond: Opposing the directive, no; I genuinely
believe there are no countries that are fundamentally opposed
to the directive. Concerned about it to a point where they want
chunks of it watered down, yes, particularly around the groups
area. One or two undoubtedly, and more with reservations because
it is such a radical move and it is such a big issue for European
public policy. We are moving to a point where you can have retail
products sold maybe in the UK and the headquarters supervisor
is in Italy or Germany. Let us not pretend that that is just an
arbitrary or marginal change; it is a very significant development
of the European single market; it requires a degree of cooperation
and trust between supervisors if it is to work, and it also requires
answers to some very awkward questions about what happens if it
Q63 Lord Kerr of Kinlochard:
I do find this an extremely encouraging presentation; I am very
grateful. Going back to the days when we used to legislate in
areas like this very prescriptively and with the numbers being
decided in a sort of political horse-trade at midnight in the
Council, this sounds a much better process. I think the product
will be something that approximates more closely to a single market
in insurance in Europe. I think that small companies will therefore
suffer from improved competition, and that consumers will gain
on the whole. My question is about the wider world outside. If
political horse-trading still goes onalthough it will not
be about specific numbers any morewill it not be skewed
a bit, because in the EU there are not many Prus, there are not
many AXAs and Prudentials, the genuine global insurers who are
out there in China, big in China, big in Vietnam? Will it not
be slightly skewed in favour of the many smaller insurance companies
whose horizons are national or European at maximum, and is there
any risk in that for the great international companies like the
Mr Long: I think there are competitive issues
if the Prudential operates in a market where the capital requirements
for the local players are much less. Especially as currently there
are issues about whether geographical diversification benefits
are actually something that Europe will allow when we consider
non-EU countries. There is a lack of clarity there; that is one
of the technical details for implementing measures that we need
to sort out.
Q64 Lord Kerr of Kinlochard:
Mr Long: Very important. So we have issues about
competitiveness against local operations and also the non-EU groups
who are also big in the emerging markets. I guess it is going
back to the directive and trying to make sure that if they want
the Directive to be an economic, rational, risk based system they
cannot put arbitrary limits whenever they feel like it. So the
battle is over here. I think there is a realisation around the
world, there are certain countriesin Asia, for examplewhere
they have guarantees that the local players cannot afford and
so there is a drip feeding of losses in those local companies.
I think there is a realisation that the old system of opaque conservatism,
which hopefully you think you are conservative enough in order
to make sure that things will work out well, is too hit and miss
and people are moving very much into an objective, rational system
that is based on market prices, for example. A lot of the big
players like AXA, PrudentialPrudential is in Vietnam, for
example, one of the countries you talked about; we are in China
with licences in a number of citiesare in those countries
and we can have influence over how the market develops. We help
our local players talk to the regulators. For example the Singapore
regulator is a very progressive regulator and monitors the workings
of the FSA and Solvency II in great detail, and to the extent
that we can help them understand, we do so through our local operations.
I think we are in enough places around the world to try to influence
things for the better, otherwise we can price rationally, but
if other people are not pricing rationally we just lose market
Chairman: There is no better place to
end the session than with that sentiment. Thank you both very
much indeed for coming; it has been enormously illuminating. Have
I suppressed a colleague who had something they wanted to ask
urgently? No. I would like to say thank you both very much for
coming and to end the session.