What do high heels, tanks and balances have in common? All three were discussed during a live event of the German Association of Insurers. The GDV organised a discussion on supervision and Solvency II, in which the word 'balance' in particular came up remarkably often.
Allegra van Hövell-Patrizi (CEO Aegon) sat at the webinar of the Gesamtverband der Deutschen Versicherungswirtschaft (GDV) on behalf of the entire Dutch insurance sector. That webinar was tellingly titled Solvency II: review of the Insurance Prudential Framework – what is at stake? and had one important goal: to discuss the correct dosage of supervision.
Planning for the revision of Solvency II
The Solvency II supervisory framework (referred to as SII for short) was introduced six years ago and applies to all European insurers. At the moment, all eyes are on the revision of the structure. The European Parliament has indeed started the substantive examination of the SII proposal and is expected to be working on it until November.
The European Council, in which the Member States are represented, is likely to present a position on the SII review this spring. After that, the Council and the European Parliament will try to reach a compromise together. It is expected that there will be a compromise next year.
Want to know more about the revision of Solvency II? Read our longread with architect Karel van Hulle.
Car industry
In addition to Van Hövell-Patrizi, the European rapporteur and shadow rapporteur for SII, MEPs Markus Ferber and Eero Heinäluoma, also participated in the discussion led by Jörg Asmussen, CEO at the GDV. All three argued for a good balance in the revision of Solvency II.
Van Hövell-Patrizi drew the comparison with the regulations and safety regulations in the automotive industry. "Cars include safety features to protect passengers if a crash occurs. Mandatory safety requirements therefore apply in Europe, but these are not unlimited. For example, we could make the use of 30 cm thick reinforced steel mandatory. That would make cars very safe, but then the question arises whether the vehicles are still usable for the purpose for which they are made? Cars become very expensive in such a case, so that consumers can no longer afford to buy a car or manufacturers can no longer produce the cars. Let's make sure that insurance doesn't get that far and that safe, useful and affordable insurance remains available in Europe."
Ambitious
She therefore stressed that there must be a good balance between financial stability and the investments of insurers. "Let's not get bogged down in discussions about (technical) details, but keep the most important political objective for the SII evaluation in mind: unlocking the potential of insurers so that they can also invest in the economy in the long term."
According to Van Hövell-Patrizi, Europe can and should be quite ambitious in this. "There is plenty of space. The SII framework that we have had for six years is working well. The European policyholders are very well protected and European insurers are very well capitalized. The latter has become apparent during the bad economic times under COVID-19 in 2020."
"European insurers are very well capitalised"
Measurement errors
Her message was clear. "Of course, the European economy is now being challenged by the situation in the East. We all agree on that, but capital reduction should not become an end in itself. There are factual measurement errors in the SII framework and we need to correct them."
She cited the risk margin and the volatility adjustment as examples. "The long-term obligations of insurers are really overestimated. Of course I support the transition to a CO2-neutral economy. I even think that insurers have a natural role in this as long-term investors, but let me be clear. If I thought the current capital levels were just right, I would be firmly opposed to any reduction in requirements, even for a good cause like the green transition."
It is clear to Van Hövell-Patrizi that capital requirements must be lowered so that we can promote investment. "We can fix things, now! It's a really huge opportunity."
Proportionality
Finally, at the end of her argument, Van Hövell-Patrizi pointed out the importance of proportionality. "This does not so much apply to an insurer like Aegon, but to many other (smaller) players that are in the Dutch and German market, but also in the rest of the European market."
Proportionality for low-risk insurers is needed to ensure a more diversified insurance market. "Choices are important for the consumer," van Hövell-Patrizi emphasized. "We therefore support the automatic application of proportionality. It's not something a low-risk insurer should beg for."
"Choices are important for the consumer"
Level playing field
At the end of her story, she also saw her chance to ask a question to the two MEPs herself. "I still want to ask something about that level playing field. And not within the insurance sector, but between various sectors. What do you think about the application of banking regulation to insurance? Are there differences in the business models that need to be taken into account? Or is a one-size-fits-all approach appropriate?"
Curious about the answers? Then listen to the webinar . Then you can immediately hear what those high heels mean!
Wish list insurers
In addition to being CEO at Aegon, Allegra van Hövell-Patrizi is also represented on the board of the Dutch Association of Insurers. And she is vice-chair of the Committee on Economy & Finance at the European umbrella organisation Insurance Europe. In other words, she is well aware of the wishes of insurers both nationally and internationally. One of these wishes concerns improving proportionality and preventing rising costs and operational costs. Other wishes are in short:
• Correcting the treatment of long-term activities to address excessive capital and artificial volatility.
• Maintaining the SCR as a starting point for the supervisory ladder.
• Only change it if it is clear that the costs do not outweigh the potential benefits.
Extrapolation
In terms of extrapolation, the proposed changes to the risk-free curve will be one of the biggest drivers of impact. This is especially true for the Dutch and German markets, as they have many long-term obligations. In addition, insurers have expressed the wish that the convergence parameter should be at least fifteen percent, while the European Commission considers ten percent sufficient. Van Hövel-Patrizi also points out in the webinar that there is no technical justification for the parameter proposed by EIOPA/Commission. "This one, like any other suggested parameter, is random." In particular, she pointed out its impact. "This is important, because the parameter can increase both the cost of long-term products and volatility."
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