An EU proposal known as Solvency II aims to make sure insurers put aside enough capital to cover their liabilities efficiently and that people's policies are properly protected. If adopted as proposed, the new rules would allow the supervisor of a multinational insurer's home state to play the leading role over all the company's EU operations.
Watchdogs in smaller states fear having to take a back seat to regulators in London, Paris and Frankfurt, where many multinationals are based. "We feel there is a way through the issues and the concern people have expressed, and which we can well understand," Michael Folger, director of wholesale and prudential policy at the Financial Services Authority, told Reuters.
Britain is home to cross-border insurers such as Aviva as well as hosting subsidiaries of French and German insurers. "We can see both sides of the question, both the home and the host," Folger said.
Supervision of the overall group would allow a cross-border firm to save on the amount of capital they need to set aside to cover risk. It would be considered as one entity and not several firms having to put aside many pots of risk capital to comply with an array of national watchdogs.
"We are aware that quite a lot of countries feel there are questions unanswered, but we are very encouraged by the shape of the text," Folger said. "The Treasury will be bringing forward a discussion paper designed to allay some of the fears that have been expressed and give everyone a good opportunity to move on in the discussions this autumn," Folger said.
There is obviously a need for a good dialogue between group supervisors and subsidiaries' supervisors, he said. "It's a non-zero sum game," he added. EU President Portugal wants a political agreement among the bloc's states by the end of the year - an ambitious and probably unrealistic target, according to industry officials.
"This debate has quite a way to go," Folger said. The Association of British Insurers said this week the industry had begun a campaign to prevent the watering down of the group super.