While Solvency II has provided many of its intended benefits, the framework requires improvements as it does not correctly reflect insurers' long-term business model. This results in excessive capital burdens and solvency volatility for European insurers. It has also created a very significant, and in some cases unnecessary, operational burden for insurers.
These deficiencies result in negative impacts for consumers, both directly through increased costs and less optimal investments and indirectly due to reduced product availability and guarantees. They also constrain the insurance sector's ability to contribute to the EU's political priorities.
The Solvency II review should not lead to a fundamental overhaul of the system. Instead, a limited number of focused changes are required that will, in aggregate, lead to a justified and needed reduction in capital requirements and volatility.
The right changes will make the system more risk-based by better aligning it to the real risks faced by insurers. This will allow the European insurance sector to maintain its long-term business and product offering for the benefit of customers and financial stability, to play its full role in the transition to a sustainable economy and other EU political objectives, and to compete internationally.
The Solvency II review should:
- Correct the excessive capital requirements and artificial volatility for long-term business by aligning the measurements with the real risks faced by insurers, while keeping customers very well protected.
- Improve proportionality and avoid increasing costs and operational burden.
- Maintain the existing, well-designed supervisory ladder of intervention.