Well intended it may be, but the
European Union’s Solvency II regulatory regime for insurers could
reek havoc among small and medium-sized insurers, warns the
Association of Mutual Insurers and Insurance Cooperatives in Europe
(AMICE).
“Although the new Solvency II
regulatory regime is not intended to restructure the European
insurance market it currently risks doing just that,” stressed
AMICE president Asmo Kalpala.
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AMICE has 120 direct and 1,800
indirect members, representing a third of Europe’s insurers and 20%
of total premium income.
“If the principle of
proportionality introduced by Solvency II does not work in
practice, we are likely to see aggressive market consolidation.
Disproportionate governance and reporting requirements pose real
challenges for smaller insurers,” Kalpala said.
Explaining proportionality, legal
firm Dewey & LeBoeuf notes that it is linked to the need to
avoid excessive strain on small and medium-sized insurers. However,
size is not the only relevant factor when the principle is
considered. Solvency II links proportionality requirement to the
nature, scale and complexity of risks inherent in the business.
Kalpala added that higher capital
requirements under Solvency II will also hit mutual and
co-operative insurers especially hard.
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By GlobalDataA major concern of AMICE is that it
is more difficult for mutuals and co-operatives to raise capital
than listed insurers. AMICE believes some small and medium
insurers’ need for capital could force them to consolidate and give
up one of their key business advantages: proximity to their
customers. In more extreme cases some could be forced to
demutualise or close their business.
As it finalises Solvency II
requirements, AMICE is urging the European Commission to protect
“much-needed diversity in the insurance sector.” AMICE warns that
in addition to employment loss associated with mergers, loss of
diversity has wider consequences.
Specifically, AMICE emphasises that the mutual and co-operative
sector is an important driver of financial literacy and inclusion.
Market consolidation, it stresses, will diminish the often
innovative products offered by its members, lead to product
uniformity and distance the insurance industry from its
customers.
