SII review 'should not lead to increased capital requirements' - Banque de France governor

Written by Michael Griffiths

28/10/2019

The upcoming Solvency II (SII) review "should not lead, all other things being equal, to increased capital requirements on the European insurance sector", Banque de France governor and chairman of the French Prudential Supervisory and Resolution Authority (ACPR) Villeroy de Galhau has said.

In a speech delivered at the 11th International Insurance Conference in Paris last week, de Galhau called for the weight of the risk margin – which represents on average 30% of the capital requirements at European level – to be reduced.

The governor did however acknowledge that Solvency II has indeed strengthened the European insurance market.

Furthermore, de Galhau stated the importance of not losing sight of the long-term perspective – outlining that low interest rates are not just about monetary policy, but primarily the result of long-term structural trends.

These include finding the balance between a high level of savings and lower investment – a change, de Galhau claimed, that is linked to an ageing population and a slowdown in productivity.

“Low interest rates are thus a reflection of the historically low level of what economists call the real natural interest rate, which has fallen by around 2% over the last 15 years, in both the euro zone and the United States.

“In addition, we have been experiencing economic cooling for several months, the causes of which are largely external to the euro zone. According to the IMF, the intensification of trade tensions would cut world GDP by up to 0.8% in 2020, mainly due to rising political uncertainty and the consequent decline in business confidence.

“Global growth in 2019 is at 3% – its lowest level since 2008/2009. Overall, the euro area (has been) hit hard, mainly because of the weight of Germany, whose growth would reach at best, 0.5% this year. Our country is faring much better with growth expected at 1.3% for this year and next.”

The Banque de France governor’s speech also included comments on the potential implications of Brexit.

He added: “Even if there is a withdrawal agreement, everything will be negotiated in 2020 on a possible commercial agreement and its financial services component – the Brexit uncertainty will therefore last.

“Monitoring the implementation of contingency plans, however, allows us to be confident for the French insurance. On our side, we are ready for all scenarios.”

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