EIOPA’s advice to the Commission represents a missed opportunity to appropriately address the existing flaws in the framework in a way that also supports the EU’s overarching objectives set out in the Green Deal and the Capital Markets Union.

The shape the review takes will be decided upon by the three EU co-legislators – the Commission, the Council of the EU and the European Parliament. If they decide to implement EIOPA’s proposals, it could decrease the risk-taking capacity of EU insurers by around €60bn and would significantly reduce insurers’ ability to invest in the real economy. A €60bn capital impact would, for example, reduce the investment capacity of insurers by the equivalent of around €170bn in equity investments, or around €680bn of corporate bond investments.

If implemented, EIOPA’s advice would further amplify Solvency II’s conservativeness and measurement flaws, preventing the insurance industry from fully supporting the EU’s ambitious recovery, investment and sustainability goals.

None of these consequences are justified, as there is no evidence that the industry needs more capital, nor that the framework needs more layers of prudency, on top of the long list of those that already exist.

Instead, the EU insurance industry is calling for the review of Solvency II to:

• Address flaws for long-term business – Insurers’ capacity to invest over the long-term is based on their business model, including their ability to offer long-term products. Addressing related flaws would allow insurers to continue offering long-term savings and guarantee products that consumers value and need. It would also enable insurers to enhance their investments in the real economy, including those in equities and assets that support the sustainable transition. Overall, the impact of all the changes should lead to a justified and needed reduction in capital requirements and volatility.
• Address operational complexity and burden – This can be achieved by making sure proportionality works in practice and by simplifying and streamlining reporting requirements. This would lead to a more diversified and efficient insurance market, which is directly beneficial for European consumers.
• Avoid gold-plating international agreements on systemic risk measures – The implementation of the International Association of Insurance Supervisors’ holistic framework for addressing systemic risk should be done with proportionality in mind and should not be gold-plated, to avoid harming the global competitiveness of EU insurers operating in foreign markets.
• Focus on areas of proven need and avoid changing what works – The Solvency II review should focus any changes in areas where there is a proven issue and should avoid changes where there is no real need, and especially avoid changes to areas that have proven their value.