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European insurer failures poised to slow as new regime beds in, regulator says

Insurance company failures in Europe should now start to slow down as the Solvency II capital regime beds in, according to Gibraltar Financial Services Commission CEO Samantha Barrass.

Speaking to S&P Global Market Intelligence in the wake of two insurance collapses in December 2018, one of which was Gibraltar's Horizon Insurance Co., Barrass noted that the shift from Solvency II from the old Solvency I regime was "a significant step change" and had given regulators greater powers to act proactively.

"You would therefore expect that in the opening years of Solvency II you would perhaps see a chunk of failures," she said.

There have been five high-profile insurer collapses since Solvency II came into force at the start of 2016 — Gibraltar's Horizon and Enterprise Insurance Co., Denmark's Alpha Insurance A/S and Qudos Insurance A/S, and Liechtenstein's Gable Insurance AG, affecting policyholders in several European countries. Even before Horizon and Qudos went under in December, the EU's European Insurance and Occupational Pensions Authority, or EIOPA, was calling for greater powers to tackle cross-border insurance failures.

Barrass said the market was "not necessarily going to see another five in the next two years" because of regulators' new powers under Solvency II, which mean that spotting problems at insurers and working with them to solve those problems "happens a bit faster."

'Really helpful development'

Barrass said Solvency II has been "a really helpful development" for regulators because "it gives you a much greater suite of opportunities to step in proactively." She added: "We are able to get in much earlier and require changes than we were able to before."

She also said Gibraltar had "significantly increased the degree of resources in the Commission for insurance regulation, and proactive insurance regulation in particular" over the past four to five years. There are 60 insurance companies registered in Gibraltar, of which 45 are actively writing business.

In addition to asking for greater powers, EIOPA has urged local supervisors to focus more on conduct regulation following the focus that implementing Solvency II placed on capital adequacy. This is something that was already on the radar for the Financial Services Commission (FSC), Barrass said.

"I see [governance] as much as a conduct issue as a prudential issue and that has been a constant theme for us pre-Solvency II coming in," she said, adding that the regulator was "investing more on the conduct side," including in recruitment.

The FSC has also set up an intensive supervision team within its insurance regulation division, run by Joe Perdoni, head of prudential supervision. This setup has been "very productive," Barrass said, adding: "There are all sorts of insurance companies that I can't name ... that aren't all over the newspapers because we have been able to get in early."

Building relationships

Barrass also stressed that Solvency II wasn't intended to be a guarantee against failures, and that European regulators were not looking to run a zero-failure regime. But she added: "I think what they are saying though is that they are looking for is a reduction in the number of failures ... [and] that those failures are managed well."

While acknowledging that Solvency II has been helpful in supervising insurance companies, Barrass noted that the regime alone is not enough. Cooperation between national regulators is also needed to deliver good outcomes for policyholders, she said, noting that the ability to collaborate with other regulators in Europe through EIOPA and more globally through memoranda of understanding with the International Association of Insurance Supervisors had been valuable.

She said: "That is where you can get some really strong regulatory outcomes and no directive can hardwire that. That is about people putting effort into building relationships."