European insurers at odds with EC over capital requirements for investments

Written by Adam Cadle

01/09/2020

European insurers disagree with the European Commission’s (EC) belief that the “strong capitalisation of the insurance industry means that increasing capital requirements would not have an adverse impact”.

In its response to a consultation conducted by the EC on its inception impact assessment regarding the review of Solvency II, Insurance Europe said the statement is “wrong”, because “even if it appears an insurer can afford a capital increase, higher capital requirements for interest rate risk shocks can, for example, have a significant negative impact on insurers’ ability to offer products with long-term guarantees and push them to shift risk to policyholders”.

Insurance Europe said it supports the Commission’s objective of facilitating insurers’ ability to continue to offer long-term life and pension products with guarantees, and to enable them to continue to contribute towards the long-term financing of the economy. However, while mitigating artificial volatility is key, it said insurers’ liabilities should not be exaggerated, especially long-term liabilities.

It also offered its support for the Commission’s objective of expanding and improving the application of proportionality in Solvency II and backs the Commission’s objective of achieving a level playing field and strong policyholder protection across Europe.

"However, there is no need to harmonise insurance guarantee schemes as Solvency II, when implemented appropriately, already offers very high and sufficient levels of protection," Insurance Europe argued.

"The focus should be on ensuring Solvency II is applied appropriately across all member states and on supervisory coordination of cross border activity."

Furthermore, Insurance Europe argued: "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 the application of the IAIS holistic framework, avoid procyclicality and should not go beyond the Commission’s call for advice."

Europe’s insurers take the view that two additional objectives should be added, including ensuring the international competitiveness of the European insurance industry and simplifying and streamlining Solvency II reporting requirements.

"Other jurisdictions appear to take account of the special characteristics of insurers’ long-term business model, as well as their economic and social goals, to a greater extent in the design and calibration of their regulatory frameworks. This is something that should be reflected in the review of the framework."

Related Articles