The review is an opportunity to reflect more broadly on the lessons learned from the first years of application of these rules, including during the COVID-19 crisis. The (re)insurance sector (insurance and reinsurance) holds large volumes of investments...
Why was there a need to review EU rules on insurance and reinsurance?
The Solvency II Directive (Directive 2009/138/EC) requires the
European Commission to carry out a review of EU rules on insurance and
reinsurance (i.e. insurance for insurance companies). But beyond this
legal obligation, the review is an opportunity to reflect more broadly
on the lessons learned from the first years of application of these
rules, including during the COVID-19 crisis. As the (re)insurance sector
(insurance and reinsurance) holds large volumes of investments, it
could potentially make a significant contribution to Europe's recovery
from COVID-19, the completion of the Capital Markets Union, and the
European Green Deal.
Has the COVID-19 crisis impacted the insurance sector?
Overall, the financial position of insurers was not significantly
affected by the COVID-19 crisis and, despite operational challenges, no
major disruptions in the sector were observed. Notably, the sector
remained well capitalised with an average solvency ratio of 235% at the
end of 2020 according to data from the European Insurance and
Occupational Pensions Authority. While that ratio is 7 percentage points
lower than at the end of 2019, it remains well above the regulatory
minimum of 100%.
Why are we reviewing Solvency II?
The aim of today's review is to strengthen European insurers'
contribution to the financing of the recovery, progressing on the
Capital Markets Union and the channelling of funds towards the European
Green Deal.
Recent experience has shown that insurers improved their risk
management during the first years of applying Solvency II rules.
However, the COVID-19 crisis has also underlined that the risk of
protracted low interest rates needs to be taken seriously. Addressing
this risk was one of the objectives pursued by the Commission during the
review.
Solvency II is a highly sophisticated set of rules that must be
applied in a proportionate manner for smaller and less complex
(re)insurers. The current high-level proportionality principle embedded
in Solvency II did not produce the desired outcome and so more concrete
rules are warranted to ensure that proportionality plays a greater role
in the application of the rules.
The COVID-19 crisis has also highlighted the opportunity to enhance
the supervisory and crisis management tools that are available in the
context of economic distress, which may represent a source of risk for
the stability of the financial system.
What are the next steps?
The European Parliament and the Council will now discuss the Commission's proposals.
In parallel, the Commission will launch the work on Delegated Acts
supplementing the amendments to the Solvency II Directive. Today's
Communication already sets out the Commission's intentions in this
regard.
1. Proposal for amendments to the Solvency II Directive
What are some of the features of this review?
- Today's changes will better protect consumers and ensure that
insurance companies remain solid, including in difficult economic times;
- Consumers (“policyholders”) will be better informed about the financial situation of their insurer;
- Consumers will be better protected when buying insurance products in
other Member States thanks to improved co-operation between
supervisors;
- Insurers will be incentivised to invest more in long-term capital for the economy;
- Insurers' financial strength will take better account of certain
risks, including those related to climate, and be less sensitive to
short-term market fluctuations;
- The whole sector will be better scrutinised to avoid that its stability is put at risk....
more at Commission Solvency II Q and A
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