Insurance supervision is still the specialty of the Spanish lawyer. We spoke to him during a recent visit to Amsterdam.
“Banking, banking, banking.” When Carlos Montalvo took up his post at the newly established European supervisory authority for pension funds and insurers, banks were at the centre of financial supervision. “Insurers were the ugly duckling of the sector”, he says now. “ECB’s policy of quantitative easing, which brought interest rates down to 0%, was mainly aimed at banks. It helped them navigate the storm. However, the extremely low rates were killing for pension funds and insurers, but zero attention was paid to that.”
Because of the low interest rates, guarantees offered by insurers and pension funds – often based on 4% interest – became very expensive. “Insurers discovered that under Solvency I their liabilities had been undercalculated. Guarantees aren’t necessarily a bad thing, they were simply mispriced at the time. One of the primary reasons Solvency II was a good idea is that it compelled the insurance market to accurately price guarantees. That lesson has been learned, but the distrust of guarantees remains. Many customers, however, appreciate guarantees, particularly long-term ones, precisely the type of products that insurers are best placed to provide.”
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