A panel of European Union lawmakers adopted an overhaul of the bloc's 7 trillion euro ($9.5 trillion) insurance sector on Tuesday but diluted measures to streamline how the big insurers are supervised. The reform is seen as the first test of the commitment of member states to shake up a nation-state-based system seen as flawed during the current financial crisis.
EU states and the bloc's assembly have the final say on the Solvency II measure authored by the European Commission that will change how cross-border insurers such as Generali, Aviva, Allianz and Axa put aside capital to cover risks and protect policyholders. Parliament's economic affairs committee voted 22 in favour and seven against, with four abstentions in a first-reading vote.
Meanwhile the bloc's finance ministers met in Luxembourg on Tuesday and failed to reach a broad agreement on the reform due to national divergences over supervision. The reform introduces colleges of supervisors for big cross-border insurers to give the home regulator the last word on how much capital the insurer must set aside to cover risk, including for offshoots in other EU states.
A similar reform has been proposed for cross-border banks. However, 12 states represented at the finance ministers meeting fear their regulators, which oversee many of these insurance offshoots, will become powerless if they want a subsidiary to increase its capital to safeguard local policyholders in troubled markets.