FRANKFURT Two senior European insurance watchdogs warned insurers and national supervisors on Tuesday against over-complicating new risk capital rules for the sector that take effect in just four months' time.
The Solvency II rules, which completely overhaul the way insurers set aside capital to cover risks on their books, are due to come into force on Jan. 1, but concerns are evident among financial market participants, analysts and some supervisors, the watchdogs said.
"There's a lack of understanding of how the regime works," Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA) told a press briefing.
A drop in capital buffers reported by Dutch insurers last month raised concerns over how well prepared the broader European industry is for the rules governing the amount of money insurers must hold in case of market shocks.
Insurers and supervisors are trying to vaunt capital strength - as measured by their Solvency II ratios - well above the target requirement, said Karel Van Hulle, a former European Commission official often called the 'father' of Solvency II.
"Some (national) supervisors expect some companies not (only) to be in conformity with the solvency capital requirement but have an SCR that is 100 percent higher, which is ridiculous," Van Hulle told the briefing on the margins of an international meeting of 150 insurance supervisors and industry officials.
"I hear stories from the market that supervisors are trying to behave like that, which I do not like,” he added.
Analysts said disappointing Solvency II capital ratios played a role in steep share price declines at Dutch insurers Aegon and Delta Lloyd.
Meanwhile, Germany's Allianz and Hannover Re indicate ratios of more than 200 percent.
Bernardino said he expected insurers to publish Solvency II ratios and risk sensitivities that will allow analysts to make comparisons among companies, which will help enforce market discipline and which will become more consistent over time.
"But companies should not be penalized from a capital perspective and from a cost of capital perspective because they are more transparent and they are publishing numbers that are more risk-based," he said.
"That would be definitely an unintended consequence," Bernardino added.
(Reporting by Jonathan Gould; Editing by Ruth Pitchford)