Sunday

29th Mar 2020

Insurance lobby waters down EU bill on safer pensions

  • Insurance companies say stricter rules will cost consumers more (Photo: ansik)

A vote in the European Parliament's economics committee earlier this week, on Wednesday (21 March), made last-minute concessions sought by insurance companies on a bill aimed to limit risk in pension- and life-insurance-related investments.

The so-called Omnibus/Solvency II dossier - designed to strengthen capital requirements and oversight on insurance companies in Europe - is to come into force next year, pending a final agreement between member states, the EU commission and MEPs.

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But the Wednesday vote indicates deputies came under pressure from the industry lobby and national governments to water down some of the more demanding provisions.

One key concession - on the so-called "matching premium" - would allow insurance companies to calculate their capital requirements based on the assumption that long-term bonds issued by governments or corporations will be paid back with interest in 20 or 50 years' time, even though the countries or firms could go bust in the meantime.

The matching premium softener runs against the essence of efforts to prevent banks and insurance firms from gambling with people's savings in the wake of the 2008 crisis, German Green MEP Sven Giegold said.

"In the end it's all about holding less capital in order to make more available for bonuses and dividends. But they are defying risks against academic advice," he told this website.

He said heavy lobbying from industry and a handful of governments - particularly the UK, Spain and France oes - got the desired result. "Instead of having legislation setting standards all across the EU, we are back to a patchwork of national interests," he noted.

EUobserver understands the three big political groups - the centre-right EPP, the Social-Democrats and the Liberals - agreed to the last-minute compromise because the EU commission and member states already had inserted the matching premium clause into the complex legal architecture which accompanies any political decision.

In return, they agreed to ask a new EU supervisory authority - the European Insurance and Occupational Pensions Authority (Eiopa) - to draft a report after three or maximum five years potentially recommending phasing out matching premium if it turns out to be "harmful for the financial stability."

The Association of British Insurers (ABI) welcomed the compromise and said if the matching premium provision had been rejected, it would have forced insurers to hold an additional €60 billion in capital, causing 10-20 percent higher costs for customers.

"It must remain possible for insurers to continue to deliver products with long term guarantees that are attractive to consumers. These are products that people rely on for their income in retirement," ABI director Otto Thoreson said in a statement.

The umbrella organisation for European insurers - Insurance Europe - backed him up. "Such a situation could lead to unnecessary increases in the costs of complementary pensions and other retirement savings products for consumers," its director, Michaela Koller, said.

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