|
|
From an insurance perspective, the interim assessment does not look too rosy.
Looking at the prudential treatment of insurance industry: the Solvency II regime brings a welcome shift to risk-based supervision but is generally too onerous and has a key flaw: it assumes insurers invest like traders. This is wrong and leads to over-estimation of liabilities, excessive capital and artificial volatility. These unintended consequences are damaging, particularly for customers who need long-term products and for insurers’ capacity for long-term investment.
The bold announcement of the Investment Plan for Europe, including a Capital Markets Union (CMU), was warmly backed by insurers because key objectives included removing unnecessary barriers to investment and addressing the shortage of suitable long-term assets available for investment. However, it proved to be somewhat less than bold in practice.
On the positive side, the problems Solvency II can cause for infrastructure investments were recognised by the Commission and the improvements made have helped reduce, at least in part, the barriers to insurers investing more in this asset class.
However, the changes made so far affect less than 2% of insurers’ portfolio, while the treatment of most of insurance long-term portfolio remains excessively high and continues to discourage investment. The Commission plans to address these concerns in the Solvency II review, which must be completed by 2020, so Insurance Europe is encouraging the Commission to work now to ensure suitable solutions can be developed and agreed.