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Solvency II

The European Commission called representatives of the European pensions and insurance industry and member state officials to a public hearing in May to thrash out a harmonisation of solvency rules for cross-border company pension schemes (IORPs). But most attendees were not receptive.

Solvency II-type rules in our occupational retirement provisions? Thanks, but no thanks, said one after another of 15 or so industry speakers. We will accept rules designed for pensions but not for insurance.

As a result, the all-day meeting held in Brussels closed leaving the burning question of "what next?" unanswered. Winding up, Elemér Terták, director of financial institutions in the EC's internal market division, said: "We are still far from having found a fully-fledged solution."

Terták did not (at that stage) amplify on a solution to what. It could be to satisfy the world of insurance, which is driving the Solvency II principles issue into the field of cross-border pensions. This would be to achieve a level playing field across Europe that does not put insurance at a disadvantage compared with pensions, when both can supply similar services. Without common rules, the cross-border selling of pensions services could have a competitive lead over some insurance equivalents.  

Sibylle Reichert from the European Association of Paritarian Institutions of Social Protection felt that the discussions "did not advance things much".  However, she agreed that some kind of rules to ensure prudential management of pension funds was needed. "But they have to be tailored to suit the circumstances."

During her formal presentation, Reichert suggested that the EC's eventual "impact assessment" exercise could be a way forward to resolving the differences between Europe's insurance and pensions industries.

Reichert underlined the feeling that pension investments differed in risk values from those of commercial insurance undertakings, for which Solvency II was intended. Risks for pensions were often shared between pension funds, employers and employees. Therefore, the concept of ‘same risks, same rules' could not "be blindly applied to IORPs, said Reichert.  

Industry opinion reflected similar opnions. Bernard Wiesner, senior vice-president for corporate pensions at Germany's Bosch group, noted that the group had a 100-year history of providing occupational pensions. "Occupational pensions provided by employers are, thanks to their collective structure, far superior to individualised forms of private pension concepts," he said. "Employers put not-for-profit concepts in place for their employees. They carry the administration costs and bear the ultimate liability of additional contributions in case of under funding." Policy makers should protect these efficient pension concepts and Solvency II burdens should not apply to national or cross-border IORPs, he added.

Peter De Proft, director general of the Brussels based European Funds & Asset Managers Association (EFAMA) agreed. "As long as the IORPs operating DC schemes do not guarantee a given investment performance they should be exempt from solvency rules," he said. 

The Commission's position was laid out in an IORPs report published on its website in May.

This report has been criticised for missing an opportunity to look further into cross-border operations. It could have taken "a more in-depth analysis of what does not yet work in cross-border operations," according to Leonardo Sforza, head of research and EU affairs at Hewitt Associates.

Sforza said that this is notably because of resistance to change at national level. He added that the new flavour of the European Parliament could play a role in solving the capital adequacy issue.

Sforza added that another factor that could be fundamental to the directive's future development involves the possible reshaping of the European supervisory committees in financial services — including the Committee of European Insurance and Occupational Pensions Supervisors, CEIOPS.

Recent discussions in the EU Council of Ministers' Ecofin committee, which includes the finance ministers of the 27 member states, have since backed the idea of a new two-tier supervisory system for financial markets.
 

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