Insurance Europe: EU must stay on course to deliver Solvency II

24 April 2024 —
Insurance Europe has called on the European Commission to ensure that the forthcoming technical work on Solvency II - the EU's prudential regime that regulates the industry – fully reflects the political agreement made in December 2023.

The federation of insurance associations welcomed the changes agreed by the EU co-legislators that reduce current excessive solvency requirements and unlock capital. This increases the capacity for the industry to provide more protection for citizens and businesses and investment into the European economy.

In its position paper ''Delivering on the agreed ambitions for the Solvency II review'', published just before the European Parliament’s plenary vote on the topic led by rapporteur Markus Ferber MEP, Insurance Europe outlines the key outcomes needed and their benefits.

Angus SCORGIE, Head of Prudential Regulation and International Affairs highlighted that the changes can, ''help insurers better serve customers, unlock more investment for the green and digital transitions, and support progress towards completing the EU’s Capital Markets Union, while maintaining the very high level of policyholder protection of the framework’’.

However, to realize the potential benefits, the industry warns of the importance of ensuring that the additional technical work closely reflects the high ambition of the political agreement and upholds the EU's commitment to reduce reporting burden.

The document explains the industry arguments and expectations on key points such as:

  • Treatment of long-term business: The industry continually raised concerns about the excessive capital requirements and volatility associated with long-term products. The EU's co-legislators recognized these concerns and agreed to address them primarily through amendments to the risk margin and the volatility adjustment. The technical details underlying these mechanisms and the extrapolation of risk-free rates should be chosen to avoid additional volatility in the framework.
  • Equity investment: The industry welcomes the inclusion of workable and simplified criteria for long-term equities. These should be complemented with Level 2 provisions that mirror the co-legislators’ ambition and ensure a smooth and extensive usage of the classification.
  • Proportionality: Improving proportionality was one of the primary aims of the review. It has been partially achieved for very small insurers by raising the thresholds for the application of Solvency II and allowing small insurers – fulfilling a set of predefined criteria – to automatically benefit from simplifications and proportionality measures.
  • Reporting and disclosure: Unfortunately, despite the European Commission’s broad initiative to reduce reporting burdens by 25%, for most insurers there will be a net increase in operational and reporting requirements. Therefore, Level 2 needs to minimize additional reporting and other regulatory burdens.
  • Sustainability: European insurers strongly support the drive towards sustainability and are ready to build on their current actions to contribute further to the transition to a more sustainable society and to play their role in achieving the targets of the EU Green Deal. However, as Solvency II and other cross-sectoral regulations already cover many aspects of sustainability, it is important to avoid creating overlaps and inconsistencies that can create confusion and unnecessary costs and operational burdens.
Note: On 23rd April the European Parliament approved the revision of the Solvency II Directive and the introduction of the Directive on the recovery and resolution of insurance and reinsurance undertakings (IRRD) into the EU legal order. These legal changes were informally agreed in December. The revision of Solvency II was approved by 549 votes to 56, with 9 abstentions. On the other hand, 475 MEPs voted in favour of the IRRD, 37 were against and 99 abstained.