Key among the issues is the need to ensure that the new regime for Europe’s insurers fully recognises that insurance is a long-term business. Otherwise the consequences could be severe for insurance customers and for Europe’s economic growth and stability.
Insurance Europe is calling for all the right alternative solutions for long-term guarantees to be tested in the impact assessment that EIOPA is due to begin shortly. It is of the utmost importance that appropriate alternative measures are tested if suitable solutions are to be found when the EU institutions restart their discussions on the Omnibus II Directive that will update the Solvency II Directive.
The insurance industry is pleased that the European Parliament, Council and Commission have agreed to the need for a package of measures to solve the problems related to long-term guarantees. The package is made up of a matching adjustment to address artificial volatility, a counter-cyclical premium to cope with distressed market conditions and avoid counterproductive and pro-cyclical behaviour, and an extrapolation methodology to extend the interest curve beyond the point at which the market is deep and liquid without creating volatility in the valuation of long-term liabilities.
If appropriately designed, this package would ensure that Solvency II correctly measures risks, including the crucial characteristics arising from the long-term nature of insurance.
Balbinot reiterated the European insurance industry’s support for the Solvency II project, provided the outstanding issues are satisfactorily resolved. “Getting the details right will enable Solvency II to fulfil its potential”, he said. Solvency II will then ensure high levels of customer protection and encourage good risk management. It will also allow the insurance industry to provide its important economic and social benefits to Europe’s citizens, to play a stabilising role in the economy through its long-term investments and to support national governments in stimulating the “real” economy.
Press release
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