BRUSSELS - The European Commission has welcomed the European Parliament's approval of Solvency II - the proposed directive for future capital requirements and risk management of the insurance industry in the European Union (EU).
National government representatives in the European Council of Ministers backed the legislation last month. Finance ministers plan to formally sign off next month. The parliamentary stage of the legislative process is now completed.
National divisions - especially in central and eastern Europe - necessitated a scaled-back version of the directive. The group support regime dictating capital allocations within cross-border insurance groups was scrapped and will not be reviewed again until 2015.
"We will not be able to modernise as much as we wanted the supervisory arrangements," said Charlie McCreevy, the European commissioner for the internal market, who led efforts at drafting Solvency II through the legislative process.
The European Commission also commented that despite the group support failure, EU insurance groups "would have a dedicated 'group supervisor' to enable better monitoring of the group as a whole".
The EU directive is expected to be adopted by jurisdictions across the world as a benchmark for future insurance regulation - the equivalent for the insurance industry of the Basel II capital accord for banks.
"It's a template for the world," said Peter Skinner, Solvency II's parliamentary rapporteur in the European Parliament. "That's not a boast. It's recognition of where international standards are going, and hopefully others will build on that."
The Solvency II Directive will replace 14 existing directives dating from the 1970s and is intended to be in operation in Europe in 2012.