Things could be looking up for the Solvency II directive, now going through the Brussels legislative mill. For years it seemed as if the EU's plans for regulating insurance, especially provisions to cover capital adequacy, might never arrive.

How could it ever be that 27 proud national governments, each locked into their own ways of protecting investment interests, could replace their time-honoured codes with some kind of theoretical masterpiece from Brussels? Then, about a year ago, a ray of sunshine broke through when the European Commission came in with an optimistic forecast that it could produce a please-all proposal.

Last July saw the great unveiling. The Commission's draft setting out its first stage ideas gained immediate acclaim with governments, industry and press. The package was principles based. Under the directive, the tricky supervision element will establish group supervisors working under a group support regime. A cry-foul system is built in. This is a mechanism to combat lax interpretations that might encourage the more dubious investment practices to migrate to dark corners. At last there is reasonable hope that the former slow march to replace the 30-year-old Solvency I predecessor is now picking up momentum to meet its 2012 deadline.

Solvency II is already attracting a reputation among jurisdictions beyond the EU as a potential benchmark. Generally, international seekers of a cohesive model for insurance solvency could hardly look to the US. There, each of the different states has its own legislation for insurance. This fragmentation boosts costs of insurance business in the US.

In Brussels, the European Parliament now has the new EU directive much in focus. Rapporteur Peter Skinner, MEP for south-east England, has tabled 67 amendments. Obviously concerned that national supervisors work with, rather than against, each other, he seeks that all supervisors involved in the supervision of a company group must be supplied with the same information at the same time.

Frankfurt-based CEIOPS, a forum that brings together EU national insurance supervisors to advise the Commission, last year contributed its own guidelines on how information will be shared between the lead supervisor and the local supervisors.

Typical of Skinner's nuts-and-bolts proposals are those drawing attention to the Solvency capital requirement. This involves the calculation of minimum capital requirements and definitions of funds that can count as capital.

In addition, he is seeking steps to prevent insurance business from third countries, that is non-EU countries, from suffering discrimination.

Brussels processes include the European Parliament's economic and monetary affairs committee (ECON) refining its rapporteur's suggestions for clearance by the full Parliament. For financial services, the Parliament has had full legislative powers for some years. Assuming a probable agreement between the Commission, Parliament and the Council (which brings together national finance ministries), a ‘single reading' Parliamentary process should prevent unforeseen delay.

One consultative body involved, the insurance federation, the Comité Européen des Assurances (CEA), has taken on the task of preparing case studies of how the group support regime, which refines Solvency I standards of capital adequacy allocations through a group, will work in practice. 

A sample CEA case study demonstrates that Solvency II "will provide at least the same level of protection to policy holders … across [a] group" of companies. The CEA is seeking to avoid having risk-bearing capital within a group of companies being "trapped" in one part of the group. Solvency capital should be free to move at the time of a "stress event".

Addressing the CEA recently, Charlie McCreevy, the relevant European commissioner, emphasised the importance of avoiding further delays to adopting Solvency II. "Reform is long overdue … it is more or less 30 years since we elaborated the present solvency regime," he said.