The Insurance Insider
XL Catlin CEO Mike McGavick has criticised the complexity of the Solvency II regime, which came into effect almost six months ago.
“The most complex and most burdensome regulatory system in the world is Solvency II,” McGavick told delegates at the International Insurance Conference hosted by Insurance Europe in Dublin last week (25 May).
Speaking during a panel session, McGavick said that the regime could impede the competitiveness of carriers globally.
“If you are under that regime you have the possibility of being at a global disadvantage. I’ve long viewed the International Capital Standard (ICS) process as an attempt to cure that disadvantage, but I don’t think it will happen that way,” he said. “I think we’re really going to have to rethink.”
The ICS is a proposed risk-based capital requirement being developed by the International Association of Insurance Supervisors that aims to create a globally consistent capital measure.
The ICS proposal is not the same as any existing practice in any jurisdiction, but is recognised to be closer to the European Solvency II approach than to the current US practice.
A consultation on the ICS is underway. The proposals are expected to be finalised by December 2016, with application of the standard to all internationally active insurance groups set to take place from 2019.
Later during the panel discussion, McGavick spoke of the need for harmonisation around the application of Solvency II across Europe.
“This is terribly important because perhaps standardisation can end the gold plating that is already starting to work its way into the system through the regulators in individual member states,” he said.
“That is not in the spirit of Solvency II. It is obstructive to the capital regime,” he added.
He also explained to delegates that the level of regulatory capital was vitally important as it had a direct bearing on the industry’s ability to satisfy global insurance demand.
“The frustration that I think many of us feel in terms of the insurance gap, is partly due to capital,” the executive said.
“I can tell you precise examples of regulators stopping innovation in companies by demanding more capital,” he said.
Members of the audience disagreed, but McGavick insisted it was true. He continued: “If you really want what society says it wants, which is a broader more resilient society, we are going to have to go on a different journey than we have been on, and capital will be at the centre of that conversation.
“The level of capital is a hugely important question… We have possibly gone too far.”