The Economic and Financial Affairs Council (ECOFIN) recently agreed on the key issues of the Solvency II framework directive; however, without including the provisions covering international insurance groups.
As a result, insurance groups that operate within different jurisdictions in Europe can potentially no longer benefit from efficiency gains through group diversification.
Ultimately, Europe can choose between two methods of regulating international insurance groups:
Ernst & Young believes that the answers to the current financial crisis do not lie in retrenchment and recurrence to domestic policies but rather in the further development of fair treatment of all policyholders. This includes the free flow of capital across jurisdictions and the recognition of group-level diversification as appropriate and as intended under Solvency II.
Therefore, we support Solvency II and its envisaged principles and risk-based approach of regulation extending great benefits to policyholders, the industry and further supporting financial stability. It is our expectation that the key principles will be implemented in a timely manner and issues regarding group supervision resolved in a way that addresses the concerns of those involved.
The current financial crisis should also give further impetus for insurers to implement appropriate enterprise-wide risk management frameworks and to improve their management of capital and liquidity. In particular, the experience of the current crisis has demonstrated the need for contingency planning and scenario analysis to also prepare firms for extreme and adverse events as we experience them now.
