The European Economic and Financial Affairs Council (ECOFIN) has adopted the Draft Framework Directive text of Solvency II. The ECOFIN comprises the economic and finance ministers of the EU Member States.
The text adopted by ECOFIN removes the innovative group support structure and includes the duration approach to the treatment of equity risk.
The French government which currently holds the presidency of the European Union proposed a compromise that the group support regime should be removed from the Framework Directive in response to a number of concerns voiced by Member States that group support would leave smaller Member States with little supervisory power over large cross-border insurance groups.
The adoption of the compromise text is strongly opposed by the Commission, headed by Charlie McCreevy, who stated in the Council meeting that the Commission will not be able to support the presidency compromise. The UK, represented by Chancellor Alistair Darling, warned of the risks of removing group support and setting capital requirements for insurers well below the current UK requirements.
The Solvency II Framework Directive was proposed by the European Commission, but, according to the Lamfalussy procedure, both the Council and Parliament must adopt the Directive under the co-decision procedure.
The result of ECOFIN’s vote will be that further deliberations on the Draft Framework Directive will be considered by the European Parliament which is largely in favour of group support and against the duration approach to equity risk. With the Council and Parliament at loggerheads over the Framework Directive we can expect a significant delay beyond the anticipated 2012 implementation timetable, much to the Commission’s disappointment.