European insurers are calling for key omissions and refinements to be redressed as part of a review of the Solvency II regulatory framework.
In its response to the European Commission’s inception impact assessment (bit.ly/2YRcejB), Insurance Europe said long-term liabilities must not be exaggerated, while capital requirements for investment should be appropriate.
Even if an insurer can “afford” a capital increase, higher capital requirements for interest rate risk shocks can have a significant negative impact on insurers’ ability to offer products with long-term guarantees and push them to shift risk to policy-holders.
Although the group supports the European Commission’s objective of achieving a level playing field and strong policy-holder protection, it said there is no need to harmonise insurance guarantee schemes as Solvency II, already offers very high and sufficient levels of protection. The focus should be on ensuring Solvency II is applied appropriately across all member states and on supervisory coordination of cross border activity, it said.
Given that systemic risk is limited for the insurance sector and that Solvency II is already very comprehensive, any new measures should be limited to applying the International Association of Insurance Supervisors holistic framework, Insurance Europe added.
Europe’s insurers do not support non risk-based reductions in capital requirements as incentives to tackle climate change. They argue that addressing the measurement flaws and other barriers in Solvency II will create strong enough incentives when combined with insurers’ own natural interest and business model, together with the European Commission’s regulatory initiatives such as the Sustainable Finance Disclosure Regulation, Taxonomy and the Non-Financial Reporting Directive and the wider EU Green Deal.
Europe’s insurers noted that other jurisdictions appear to take account of the special characteristics of insurers’ long-term business model, as well as their economic and social goals in their regulatory frameworks and this should be reflected in the European Commission’s review of the framework.