Karel Van Hulle, Head of the Insurance & Pensions Unit, European Commission Directorate-General for Internal Market & Services was one of the key speakers at the recent ICMIF Biennial Conference and spoke on the topic of solvency and capital requirements for cooperatives/mutuals. Karel has, for the last several years, overseen the Solvency II project on behalf of the European Commission’s insurance and pension unit.
In his opening remarks Karel commented that “the world is facing one of the most difficult financial crises and it’s not easy to see how we are going to resolve it but what we see every day when we open the newspapers is bad news but ladies and gentlemen I am an optimist and I think it’s time we look at the bright side of things”.
The European Union’s new Solvency II Directive will impose stronger obligations on insurers regarding risk management and capital adequacy and this should be welcomed, said Karel and he stressed that the time was right for financial mutuals. “What we will need more in the society of tomorrow is solidarity and co-operation,” he said.
When describing the three pillars of capital, risk management and disclosure he said as far as disclosure was concerned insurers "would need to stand naked in front of the regulator but when it comes to the public disclosure they would be allowed to wear a swimming costume," an analogy which amused and was greatly appreciated by the audience.
Karel confirmed in his comments that Solvency II applies to all types of insurers regardless of their legal form. He said, however, that the proportionality principle allows us to provide for specific rules that take account of the mutual structure such as requiring smaller organizations to disclose information annually rather than quarterly, as was required of the larger insurers, something that panelist Stephane Desert was delighted to hear from Karel. He also confirmed that the Commission is to undertake detailed research on the financial mutuals sector, in recognition of the fact that not all EU member states have specific or appropriate legal structures for co-operatives and mutuals. “We are going to do a study of cross-border structures for mutuals,” he said. “I want to do the research and then, if appropriate, come up with something specific for mutuals in Europe.”
Karel’s presentation was followed by a discussion panel during which mutuals and cooperatives were urged to work together to find ways to cooperate and help each other in the goal of meeting the Solvency II requirements and also thereby reducing compliance costs. David Simmons of Willis Re said that partnerships between mutual insurers could help with diversification and risk spreading, for example by engaging in insurance risk swaps (a common practice in Japan). Simmons also suggested that mutuals might reinsure through a common pooling of risks. Another suggestion came from panelist James McPherson of PricewaterhouseCoopers who suggested financial mutuals consider the sharing of knowledge management or pooling of operational risk. This might even mean sharing a chief risk officer and the sharing of learning regarding corporate governance.
Stephane Desert, Chair of the ROAM solvency II committee, warned that the increased regulatory burden and anticipated increased capital burden on mutuals could lead to mutuals demutualising and urged Karel to look urgently at the proportionality of Solvency II on SMEs during his response as a panelist.
In comments after the session, the CEO of NTUC Income, Tan Suee Chieh said “Solvency II is compelling and is theoretically attractive; if you are a realist then you should believe in it” and he went on to say “we need to have some move in the right direction to have similar standards of solvency regimes throughout the world….we cannot live in isolation we all have to get our tools together to respond to this”.
View the full presentation on the Conference web site.