Preface

Putting together the Solvency II at Ten project has been as much about my personal journey as it is an attempt to capture the spirit and mood of the time in the run-up to the implementation of Solvency II.

Given that I created a publication called Solvency II Wire, doing something on the tenth anniversary of Solvency II was a requisite inevitability, I suppose. But rather than a run-of-the-mill retrospective I wanted to do something different. Something that would really convey to the readers today what it was like then. How something that is now part of the DNA of the industry (warts and all) had come to be – and at times almost did not.

Today it is easy to forget all those impassioned, at times almost desperate, debates and pleas that dominated the discourse both publicly and behind closed doors.

Picture the battleground. Two great forces lined up facing each other, banging swords against shields, shouting and cheering. But rather than charging down an open plain to bash the life out of each other, the battleground was how to manage the impact of market volatility on long-term insurance business in a regulatory framework of market-consistent valuation of assets and liabilities.

On the one side you had the regulators, sorely conscious of the failure of the existing regulation. And although the insurance industry as a whole remained stable, let us not forget that the insurer AIG received USD 182 billion in support from the US government; not to mention the role of the monoline bond insurers in the story.

On the other stood the industry. Arguing (not entirely unjustifiably) that the insurance industry remained resilient and policyholders were mostly unaffected (and that anyway it was a hedge fund inside of AIG that caused all the mess). It was now terrified that short-term market volatility, which would be fully recorded on their balance sheet under the original Solvency II proposal, would ransack the long-term insurance protection business.

All this took place in the shadow of the biggest financial crisis in living memory and a looming debt crisis that threatened to tear the Union apart.

I recall attending a roundtable event on the Long Term Guarantees Measures (LTG) at the CEPS think tank in Brussels in the summer of 2012. The measures were being considered as a way of dampening market impacts on the balance sheet. It was led by a group of academics and attended by the Commission, the ESRB, EIOPA and various industry bodies including Insurance Europe. There were technical presentations, explanations, impassioned pleading and even shouting at times. Such were the passions about the matter at stake.

For me the CEPS roundtable was one of those career-defining events. It had come to my attention only a day or so before, money was tight (Solvency II Wire was less than two years old) and every trip had to be budgeted carefully. It was there that I got a proper grasp of the LTG debate, which I later tried to convey to readers in a series of articles under the banner of the LTG Symposium. In the Symposium each party presented its view in a comment article and then responded to the others in a follow-up article. It became a go-to online resource for many trying to understand what all the shouting in the insurance industry was about. I believe it remains relevant today.

The symposia format proved very successful and led to explorations of other contentious topics such as the use of LTG in the Nordic countries and asset look-through reporting. It also helped cement Solvency II Wire’s standing as an authoritative and measured voice in the debate.

This last point has always been important to me. When I set up the site I wanted it to have a strong public interest voice. The market was dominated by publications and papers from various industry participants including consultancies, lobbyists and industry magazines, peppered with the occasional output from regulatory agencies. (Perhaps naively) I felt there was a need to examine insurance regulation from a wider public interest perspective. It is in part why Solvency II Wire is free to access.

What I soon discovered, however, was that the “wider public” had little interest in Solvency II. But what has emerged is the need for reasoned and balanced debate: especially when fear and passion were driving so much of the discussion.

This was not always easy to do, and remains more of an art than a science – Solvency II Wire is entirely funded from its own commercial activities (sale of advertising and data products). That the publication carries such a wide range of voices is, I hope, a testament to this being borne out.

My “big break” came the summer prior to the CEPS event, at the ABI Annual Conference. I applied for a job at the ABI press office and having made it to the final two, was not selected. They agreed to give me feedback and on the call I asked if I could get a press pass to their upcoming conference in June.

Solvency II Wire was less than a year old then, I had set it up to showcase my writing skills in the hope of getting a job in a press office. Most of the articles were secondary reporting from other publications and press releases, dotted with a few commentaries about what I thought was going on.

Back then the conference was a very large affair, with table seating and lots of speakers and breakout sessions – I felt like a fish out of water ridden with imposter syndrome.

Delays to Solvency II were, again, the order of the day. In the final plenary I put an anonymous question to the then CEO of the then FSA, Hector Sants: “What will happen to firms if they were not Solvency II ready by 2013, and what if this was the case for a large number of firms?” He gave a pragmatic regulator-ish answer – the FSA expects, but also understands.

The answer, without my name, was picked up by a few media outlets. What mattered to me was that I asked the question and then got the answer confirmed by the FSA press office. It was the first of a number of original quotes and comments I got from that conference.

But my first big “scoop” was getting a comment article from Chris Leslie MP, Shadow Financial Secretary for Labour. He had given a speech questioning whether the new Tory-led government was fully aware of the potential impacts of Solvency II on policyholders. I figured he wouldn’t miss a chance to have a go at those who kicked him out, and he duly obliged.

Having an exclusive article from a sitting member of the UK Parliament lent the site the credibility it needed. And I believe it opened the door for contributions from other key figures. One of the most important of these in those early days was an interview granted to me by Mr Peter Praet, Member of the Executive Board of the ECB. He had recently started the role and also chaired a working group of the Financial Stability Board (FSB), which published a report on the impacts of upcoming regulation including Solvency II. I again spotted the opportunity, especially, to my mind, for the FSB to promote its views to the insurance industry. I remain grateful that I was seen as a suitable platform.

In many ways, this strategy served me well during my trips to Brussels and Frankfurt – finding those who have something to say, frustrated perhaps that their voices are not sufficiently heard around the official tables, and listening to them.

My first trip to Brussels was funded by a programme of the European Journalism Centre, which offered really great support, not just in funding but also assistance in navigating the tangled web of EU bureaucracy and buildings around Schuman Station and beyond. Through their programme I managed to get access to various press attachés and ultimately some of the key decision makers – or as often was the case, coffee at the Mickey Mouse Bar with one of their helpful parliamentary assistants.

In the introduction to the project I note that it is hard to grasp quite how tumultuous that whole period was. For those who encounter it today and take Solvency II as a given, there is little in its DNA to evidence the traces of the victories and defeats on the road to implementation.

Contacting the participants for the project evoked more than a dash of nostalgia. Many expressed pleasant surprise to hear from me and were equally surprised to have to recall the events of days gone by. Several had moved on from Solvency II, or the industry altogether. Some had respectfully declined the offer. I am grateful to those who have contributed. Many, like me, had to rummage around in their memory to recall what had gone on. I felt we had a shared sense of memory, as if we had all been through “something” and that experience had left its mark on us.

Looking back at those times and putting the Solvency II at Ten project together, I somehow see myself as Peter from Peter and the Wolf: happily strolling into the woods with no real idea of what lies within. I expected to find technical discussion and an equal amount of lobbying from industry and vested interests. But I did not expect to find myself rambling in the midst of a world in shambles, an industry in panic and together with (or against) policy makers grappling for solutions in a world of shattered assumptions.

A world whose basic tenet – that markets are always right, that market-consistent valuation (of assets and liabilities) is the best way to manage the solvency of insurers – had been ripped to shreds by the events of the Great Financial Crisis.

It’s not that the building got a knock, the very ground on which it was built had shifted.

I wish to leave you with a profound thought, but I will leave that to the other contributors to the project who are wiser and more knowledgeable than me in the matters of insurance, regulation and the like.