Insurance Europe calls for improvements to SII encouraging investment in SMEs

Written by Adam Cadle

06/07/2020

Improvements to Solvency II are needed if investment is to be encouraged, particularly in SMEs, Insurance Europe has said.

In its response to a consultation by the European Commission on the Capital Markets Union (CMU) High Level Forum’s (HLF) final report, Insurance Europe said while "Solvency II is strongly supported by the industry, it currently creates unnecessary barriers to the provision of long-term investments and products".

"The current review of Solvency II provides an opportunity to make focused improvements that would help insurers to continue playing a key role in supporting Europe’s investment needs, in line with the objectives of the CMU, Insurance Europe added.

These include enhancements to the risk margin (RM) and VA being needed to further increase insurers’ investment capacity.

"As highlighted by the HLF, the RM reduces available capital for the industry by €189bn. Improvements to the VA are needed to better mitigate artificial volatility and to reflect the returns insurers can and do earn above the risk-free rate."

Insurance Europe said the criteria for new long-term equity investment should be reviewed to remove unnecessary barriers to investing in equities and support increased equity allocations within portfolios. A dynamic VA mechanism should be included in the standard formula to align debt capital charges with the true risks that insurers face when holding corporate bond and loans over the long term, it stated.

"The HLF’s acknowledgement of the deficiencies with the current disclosure regime for insurance-based investment products are welcome," Insurance Europe added..

Finally, Insurance Europe remains of the view that EIOPA does not need any further significant changes to its powers to fulfil its mandate.

"The Board of Supervisors (BoS) should remain the main decision-making body, so that the ultimate responsibility for supervision remains with NCAs and the principles of subsidiarity and proportionality are not undermined."

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