Is there a hidden agenda to Solvency II...?
Solvency II is designed to make EU-based insurers hold capital reserves in proportion to the risks they underwrite, and is expected to lead to an increase in capital requirements for many insurers.
This risk-based approach to solvency, on the face of it, makes sense especially when compared to the current Solvency I premium/claims models. Solvency II, if correctly implemented, should create a level playing field for all insurers - with capital requirements directly linked to the underlying risks - and provide a more robust consumer protection framework for all policyholders.
However, Solvency II, now due to come into force in 2014, could force European insurers to hold extra cash reserves against subsidiaries operating in countries that have less exacting capital standards. This extra capital requirement would be waived for countries whose insurance regulations are deemed by European regulators to be equivalent to Solvency II which introduces the concept of subjectivity and with it a possible hidden agenda.
The recent announcements by the UK's Prudential plc, that it may relocate its HQ to Hong Kong to escape the new capital rules, only serves to highlight what could be a deliberate move by EU regulators to restrict the growth of EU-based insurers into overseas markets such that these global players can never become "too big to fail".
The fact that no decision has yet been taken on whether U.S. capital rules for insurers are compatible is telling and would seem to support the view that the EU regulators are playing more of a political game when it comes to Solvency II and its impact on global insurance in the years ahead.