Solvency II ‘golden opportunity’ to unlock billions of capital for Europe

Written by Adam Cadle

24/07/2024

The European insurance industry has called on the EU to use the “golden opportunity” offered by the review of Solvency II to unlock additional capital.

In a statement published on its website, Insurance Europe said that by increasing insurers’ investment capacity, the industry could further contribute to the political guidelines laid out by the recently re-elected President of European Commission, namely increasing competitiveness, accelerating the green and digital transitions, and creating a more efficient capital market.

The EU is in discussions on the technical details needed to implement the review of Solvency II, which overhauls how the insurance industry is regulated. In its statement accompanied by several position papers, Insurance Europe said that the details must closely reflect the political agreement made last year.

This includes a proposal to reduce the risk margin - the buffer European insurance companies are expected to hold in the rare case of insolvency - which currently reduces insurers' available capital by €141bn. Insurance Europe is calling for further improvements, which would approximately halve the size and volatility of the risk margin, increasing the industry's risk bearing capacity by up to €70bn. In line with the EU’s commitment, this should be complemented by a reduction on reporting and operational burden for the industry, Insurance Europe stated.

Angus Scorgie, head of prudential regulation & international affairs and reinsurance at Insurance Europe, said: "The buffer European insurance companies are expected to hold in the rare case of insolvency is excessive and unnecessary. When you consider that the current risk margin in Europe is up to three times greater than in the UK, twice as large as it is in Japan and, in the US there is no risk margin at all, current European calibrations are holding back capital that Europe’s economy desperately needs. The Solvency II review is a golden opportunity for the newly re-elected President of the European Commission, Ursula von der Leyen, to deliver on her promises to unlock capital and increase competitiveness in the EU.’’

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