08 March 2017

Insurance Europe: Response provided to EIOPA Solvency II review discussion paper

Insurance Europe has responded to a European Insurance and Occupational Pensions Authority (EIOPA) discussion paper on the upcoming review of Solvency II, where it raised a range of concerns on current Solvency II provisions and proposed ways to address them.

Insurance Europe expects that in the coming months more detailed discussions on the various issues are needed, including in the following areas:

• Loss absorbing capacity of deferred taxes – Insurance Europe does not support a default approach whereby the loss absorbing capacity of deferred tax would be capped at the level of net deferred tax pre-shock. Insurance Europe notes that this would go against the economic approach underpinning Solvency II and contradict the framework directive.
• Risk margin – Insurance Europe believes that the current method and assumptions for the risk margin are not appropriate as they lead to excessive levels of risk margin and volatility, particularly for long-term insurance business. This is a pertinent issue, especially in the current low interest rate environment.
• Look-through approach – Insurance Europe supports the extension of the application of the look through approach to investment-related undertakings that are used as investment vehicles by insurers. This would ensure a more tailored capital requirement for these vehicles ensuring better alignment with underlying risks.
• Treatment of guarantees, exposures guaranteed by a third party and exposures to regional governments and local authorities – Insurance Europe strongly supports a better recognition of the risk-mitigating effect of guarantees in Solvency II. This is consistent with the risk-based nature of the framework and will improve the reflection of economic reality for insurers‘ risk exposures.

Insurance Europe further proposes in its response that the interest rate risk sub-module should not be examined as part of the 2018 review, but rather as part of the 2020 review, as it is closely linked to both the overall political agreement underpinning Solvency II and to the long-term guarantee package, which is under the scope of the 2020 review.

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