British insurers want Solvency II equivalency higher on the agenda

The Association of British Insurers (ABI) wants to see the issue of non-EU countries’ equivalence with the proposed Solvency II capital regime to be bumped higher up the agenda.

“The industry is investing hundreds of millions of pounds to implement Solvency II, but as yet, there is still no clarity on how large global businesses headquartered in Europe will be dealt with once the new rules are transposed from 1 January 2013,” Otto Thoresen, director general of the ABI, said in a Mar. 1 speech at The Economist Insurance Summit.

“The EU insurance sector is a global market leader. If this is to continue, EU companies must not be placed at a competitive disadvantage against local players in international markets.”

Solvency II is a fundamental review of the capital adequacy regime of the European insurance industry. Equivalency is when insurers operating inside the European Union, but domiciled outside the EU, are not subject to the Solvency II regime because the regulations of their domicile country are deemed to be equivalent to the Solvency II regulations.

The concern, as expressed in BestWeek in November 2011, is that global (re)insurers might choose to relocate their business operations to jurisdictions deemed to be equivalent so as to avoid higher regulatory costs associated with doing business inside the EU.

“We cannot have a situation where it becomes virtually impossible to write any third country business from an EU headquartered group, as companies would be unable to compete with the prices offered domestically in those markets,” Thoresen said in his speech. “Many of these countries represent the world’s fastest growing markets, with GDP growth far outstripping Europe’s.

“So it is vital that insurers, whether they are from the U.K. or other European countries, can do business across the globe on a broadly level playing field.”