In “Economy and Society” Max Weber wrote, “bureaucracy naturally welcomes a poorly informed and hence a powerless parliament–at least in so far as ignorance somehow agrees with the bureaucracy’s interests” – write Dick Roche. For the best part of a year, the actions of the EU Commission and EIOPA demonstrate that one hundred years after they appeared in print Weber’s views remain as true today as they were when they were written.
An Offer You Cannot Refuse
In 2019 Romania’s largest provider of motor third-party liability insurance City Insurance was in financial trouble. The Romanian Financial Supervisory Authority, ASF asked Euroins Romania, part of the Euroins Insurance Group (EIG), one of the largest independent insurance groups in Central and Eastern Europe to buy the company. Viewing City Insurance as essentially bankrupt Euroins said No!
That refusal was followed by a years-long campaign by ASF. The regulator pored over Euroins books, put the company into temporary administration over the ‘quality’ of people on its board, issued a series of sanctions with fines running over €3.2 million, and raised concerns about reinsurance contracts not previously seen as problematic.
On 2nd February 2023, ASF hit Euroins with a ‘nuclear blast’. The Romanian Regulator issued a report alleging that the company had a “shortfall of € 400 million in relation to the solvency capital requirement, and of € 320 million in relation to the minimum capital requirement”. These findings were a complete departure from the position taken by ASF in previous reports on Euroins.
The Euroins Insurance Group (EIG) contacted EIOPA flagged its concerns about ASF, requested an extraordinary EIOPA supervisory college meeting, and proposed an independent external review by a leading international team of actuarial and accounting experts operating under the supervision of EIOPA, the Romanian and Bulgarian regulators of Euroins Romania’s economic balance sheet.
The Bulgarian Financial Supervision Commission (FSC) the appropriate supervisory authority for the Euroins Insurance Group, also contacted EIOPA. FSC highlighted concerns about the action of the Romanian Regulator and vouched for the positive financial position of EIG. EIOPA brushed these concerns aside on the basis that the Romanian Regulator alone could make the determination on a Romanian-based insurance entity.
In its response to the approach from EIG, EIOPA indicated it would perform its own assessment of the findings by ASF ignoring the call for independent external involvement..
EIOPA excluded Euroins Romania and EIG from its “assessment process”. The Romanian Regulator, in contrast, was fully involved.
Eurohold Bulgaria AD, a company listed on the Warsaw and Sophia stock exchanges, the owners of EIG responded vigorously. It accused “senior and middle management employees” from the Regulator and “persons who caused the crisis with the Romanian insurance company City Insurance” of making an “organized attack against Euroins Romania” characterizing their actions as a “hostile takeover bid” for Euroins Romania.
European Bank for Reconstruction and Development Involvement
The European Bank for Reconstruction and Development (EBRD) also became involved in the developing row. The bank became a shareholder in Euroins Insurance Group (EIG) following the collapse of City Insurance. Its €30 million investment in the group investment was aimed at “stabilising the insurance sector while providing comfort to customers, regulators, and suppliers.”
EBRD questioned the ASF assertions about Euroins Romania. It pointed out that the previous ASF reports had confirmed the Euroins capital position, contested ASF’s position on Euroins Romania reinsurance, and pointed out that if any liquidity problem existed or had additional capital been required remedial actions could have been taken to resolve both issues.
On 14th March, the Bulgarian Regulator re-entered the fray endorsing Euroins Romania’s reinsurance contract. That confirmation was also brushed aside by ASF and by EIOPA. EIOPA again took the narrow bureaucratic position that the only supervisory body with standing on the issue was ASF – irrespective of the evidence questioning that agency’s position.
In an attempt to bring some objectivity into the case, EBRD appointed a leading global actuarial accounting firm to conduct an independent assessment of Euroins Romania. EBRD requested ASF and the Romanian Ministry for Finance to hold off on any action until after 31st March when the expert actuarial assessment was to be finalised. That request was ignored.
ASF Acts Then Changes its Tune.
On 17March 2023, ASF announced that it had decided “to withdraw the operating authorisation of Euroins Romania” and started bankruptcy proceedings.
Quite remarkably, on the following day, ASF shifted its position. A spokesman for ASF explained that the regulator was not acting ‘on the basis’ of a company that goes bankrupt due to economic reasons, rather Euroins was losing its licence “as a measure designed to penalize behaviour.”
The altered ASF justification for acting against Euroins Romania was a calculated move with significant impact. Had ASF proceeded on an allegation of capital inadequacy – the core of its original case, Euroins would have had 30 days to come up with a remedial plan and 60 days to implement it. By altering the basis of its actions ASF – with the tacit support of EIOPA – denied Euroins and EIG that opportunity.
The actions of ASF on 18th March which ran counter to Solvency II requirements were ignored by EIOPA.
EIOPA Double Standards and Secrecy
Having rejected an independent external review of Euroins position EIOPA decided to carry out its own examination of the allegations made by ASF on 2 February. EIG and Euroins Romania were not invited to submit material or to make any input into the EIOPA examination or to the report that followed.
In contrast, ASF was involved throughout the report’s preparation. The approach EIOPA adopted meant that ASF if not the sole judge in its own case was an active member of the jury. This bias did not end when EIOPA’s report was completed.
EIOPA signed off on its report on Euroins on 5th April, Euroins requested access to the report. EIOPA refused access on the basis that its contents were confidential.
ASF as a full participant in the 5th April meeting had full access to the report and was not slow to abuse that access. Within minutes of the 5th April meeting concluding details of the report supporting the ASF standpoint appeared in Romanian media. The leaks, attributed to ASF, were followed by a public briefing in which an ASF director commented on details in the report. EIG complained about this confidentiality breach to EIOPA. The complaint got nowhere.
While withholding its report from Euroins, EIOPA permitted ASF to use the report in the Bucharest Court of Appeal blindsiding EIG during important court proceedings, tilting the scales in favour of ASF. EIG did not get access to the report in mid-June 2023 after the bankruptcy proceedings were well underway.
The EU Commission has also been extraordinarily evasive about the EUROINS case.
Parliamentary Questions (PQs) on the case have received responses that are dismissive and incomplete. Links provided in responses to PQs lead to material that is either heavily redacted or “access denied”.
Concerns flagged to the Commission about EIOPA and ASF by the Bulgarian regulator and by the European Bank for Reconstruction and Development have been brushed aside.
Most bizarrely, the Commission while referencing the EIOPA report in PQ replies has admitted that the report “ nor has it been shared with the Commission”.
The default position adopted by the Commission has been that it is the sole responsibility of ASF “to assess whether Euroins Romania is solvent” ignoring the possibility that the ASF analysis could be wrong, biased, or both.
Until recently the only details of EIOPA report’s findings publicly available have been from leaks believed to come from ASF. In December, however, a link to a non-redacted version of a report by the Board of Appeal of the European Supervisory Authorities [BoA-D-2023-01] was released, apparently accidentally, in a footnote to a PQ reply. Paragraph 12 of that report reads “ According to the EIOPA Report, Euroins Romania had a deficiency of the net best estimate for the MTPL business at the reference date of 30 September 2022. In EIOPA’s view, the deficiency was in the range between EUR 550 million and EUR 581 million”.
This ‘finding’ differs dramatically from the conclusions by ASF in three reports issued prior to February 2023 and even from the figures in the ASF report of 2nd February 2023. It clashes with the views of the Bulgarian Financial Supervision Commission on Euroins and differs completely from the findings of the report commissioned by EBRD from one of the most respected insurance auditors in the world which concluded that EUROINS Romania was solvent with no capital gap and that from a qualitative perspective the EIG/EUROINS Romania reinsurance contracts met the requirements of EU Solvency II for risk transfer.
It is not possible to reconcile these different views. Because of the secrecy surrounding the EIOPA report, neither the Commission nor EIOPA have had to do so.
Inaction Has Consequences.
When attempting to mediate a solution as the Euroins case developed the EBRD warned of the potential consequences of the actions planned by the Romanian regulator. Those warnings were ignored and the inaction that resulted had consequences. Millions of Romanians have lost their insurance coverage, the Romanian Government has been forced to enact Emergency Ordinances extending the life of policies issued by a company whose license it revoked, the Romanian insurance guarantee fund is likely to require a taxpayer ‘bail it out’, and Romania is facing a lawsuit for more than €500 million for the destruction of Euroins Romania.
The failures of EIOPA to mediate a solution as the Euroins case evolved and its abject bias as the case developed raises troubling questions about an EU agency.
The position of the Commission in the Euroins case defies logic. It ignored warnings about what was happening in Romania and spent months ‘covering’ for EIOPA. The revelation that the Commission has not seen the EIOPA report is bizarre.
When President von der Leyen came to office she promised that transparency would be a characteristic principle of her Commission: transparency is significantly missing from the approach of EIOPA and of the EU Commission in the Euroins case.
Dick Roche is a former Irish Minister for European Affairs and a former Minister for the Environment.
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