NU Online News Service, March 27, 11:36 a.m.EDT

A unit of European Union reached informal agreement yesterday onSolvency II, a broad framework to enhance insurer capitalrequirements and supervision. The action drew a positive responsewith some reservations from some insurance segments.

Preliminary approval for the revision of solvency standards camefrom the EU's Committee of Permanent Representatives and isexpected to receive formal endorsement next week. The 27-membercommittee met yesterday in Brussels

The European Parliament is scheduled to put the Directive to aplenary vote April 22. A formal adoption of the Framework Directivecould then take place during the May 5 Economic and FinancialAffairs Council, according to CEA Insurers of Europe, the Europeaninsurance and reinsurance federation.

CEA Director General Michaela Koller in a statement calledyesterday's move "a decisive step towards the new enhancedregulatory regime that we have been seeking for Europe's insurers.We are happy that the timetable for implementing the Directive ison track."

However, she said that the removal of text in the Frameworkwhich would apply its requirements to parent groups for globalinsurers rather than individual companies "missed the opportunityto introduce a tool that would have met the need for the effectivesupervision of multinational groups."

Janina Clark, spokesperson for Brussels-based CEA, said with aFramework for groups in place it would reflect economic reality.She said there was still hope that further along the provisionmight be reinstated.

International Underwriting Association of London (IUA) said itwas happy the framework had received timely political approvalbecaus, "the insurance industry needs an efficient and transparentmodern regulatory regime. With its emphasis on principles, riskmanagement and models, Solvency II meets the necessaryrequirements."

However, Dave Matcham, IUA chief executive said in the group'sstatement that it regrets "removal of group support from theFramework. That would have ensured a truly effective correlationbetween the overall financial strength and competitiveness of agroup and its solvency requirements."

Raj Singh, Swiss Re's chief risk officer in Zurich said in astatement that, "Against the background of the current financialcrisis, the expected passing of the new Solvency II frameworkdirective by the European Parliament and the Council will send astrong signal that an economic and risk-based view on insurancebusiness is of utmost importance."

He said Solvency II "provides incentives for sound risk andcapital management and provides policyholders with betterprotection" and the informal agreement comes at the right time forthe meeting of the G-20 countries in London in April. It willclearly strengthen the position of the European insuranceindustry."

Philippe B. Brahin, head of group regulatory affairs at Swiss Resaid it was regrettable that language concerning the ability of asupervisor to rely on group support to its subsidiaries wasexcised, but he noted that other language providing for groupsupervision was considered.

Mr. Brahin said the new proposals move call for moving fromstatutory accounting to economic valuation, which is the way thatSwiss Re appraises its business operations internally. The newSolvency regime would also allow companies to use their internalmodels to assess capital needs.

He noted that the EU framework is geared to a moreprinciple-based system for insurance company operations.

In 2002, limited Solvency I reforms were approved by theEuropean Parliament and the Council. A fundamental wide-rangingreview of solvency requirements was first proposed in 2007 andamended in February of last year.

A four-level approach is being used to develop the new solvencyregime with primary legislation to define broad 'framework'principles as the first step followed by Commission adoption oftechnical implementing measures, assisted by a regulatory committeeand taking account of advice from the Committee of EuropeanInsurance and Occupational Pensions Supervisors.

The third step will involve cooperation between nationalregulators to ensure consistent interpretation of rules that areadopted and finally enforcement to ensure that implementation ofthe EU legislation is consistent.