Insurance Europe welcomes the HLF’s recommendation that, to encourage investment – particularly in SMEs – improvements to Solvency II are needed. While Solvency II is strongly supported by the industry, it currently creates unnecessary barriers to the provision of long-term investments and products.
The current review of Solvency II provides an opportunity to make
focused improvements that would help insurers to continue playing a key
role in supporting Europe’s investment needs, in line with the
objectives of the CMU. These include:
- Enhancements to the risk margin (RM) and VA are needed to
further increase insurers’ investment capacity. As highlighted by the
HLF, the RM reduces available capital for the industry by 189bn EUR.
Improvements to the VA are needed to better mitigate artificial
volatility and to reflect the returns insurers can and do earn above the
- The criteria for new long-term equity investment should be reviewed
to remove unnecessary barriers to investing in equities and support
increased equity allocations within portfolios.
- A dynamic VA mechanism should be included in the standard formula to
align debt capital charges with the true risks that insurers face when
holding corporate bond and loans over the long term.
The HLF’s acknowledgement of the deficiencies with the current
disclosure regime for insurance-based investment products are welcome.
Any legislative reform in the field of disclosures must be adequately
tested and evidence-based to ensure better outcomes for retail
investors. On the contrary, rushed, interim changes to the information
provided – such as the mini-review currently considered for the Key
Information Document (KID) for Packaged Retail and Insurance-based
Investment Products (PRIIPS) - would only confuse consumers and
undermine their trust in financial services.
Insurance Europe also generally welcomes the HLF report’s focus on
pensions. Member states should encourage participation in supplementary
occupational and personal pension schemes. However, while the EU has a
role to play, its actions should not disrupt well-functioning pension
systems. For example, national rather than EU level action is
appropriate in areas such as auto-enrolment or reporting.
It is unfortunate that the report calls for strict alignment between
the Insurance Distribution Directive (IDD) and MiFID, as well as for a
ban on commission for sales, even where independent advice is offered.
This does not reflect the diversity of national insurance markets and
blanket bans on commission are not universally accepted to be beneficial
to consumers. The report also fails to note the significant
improvements in consumer protection brought about by the IDD. These have
been achieved because the carefully designed IDD rules are workable
within the diverse distribution system for insurance products.
Finally, Insurance Europe remains of the view that EIOPA does not
need any further significant changes to its powers to fulfil its
mandate. The Board of Supervisors (BoS) should remain the main
decision-making body, so that the ultimate responsibility for
supervision remains with NCAs and the principles of subsidiarity and
proportionality are not undermined.
NCAs are vital elements of the supervisory system given their local
expertise, direct contact with entities and, crucially, local
accountability. Therefore, the current separation between indirect
supervision by EIOPA and direct supervision by national authorities is
an indispensable cornerstone of the European supervisory system.
© Insurance Europe
Hover over the blue highlighted
text to view the acronym meaning
over these icons for more information
No Comments for this Article