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The 2020 review of Solvency II — the regulatory framework that governs insurers — presents an opportunity for the Commission to make important improvements that would enable insurers to further underpin many of the Commission’s policy objectives.
Solvency II is the most sophisticated insurance regulatory regime in the world. Europe’s insurers appreciate its risk-based nature, high standards of governance, risk management, reporting and the consumer protection it ensures. However, as with any large piece of regulation, there are some important issues that must be addressed through focussed changes as a result of the 2020 review.
For example, Solvency II does not currently appropriately measure the benefits created by insurers’ long-term business model. This leads to an over-estimation of liabilities, investment risk and volatility that, in turn, result in already excessive overall capital requirements.
However, the European Insurance and Occupational Pensions Authority (EIOPA) has, in the consultation on its draft advice on the 2020 review, included a very large number of ideas and proposals, some of which would, in fact, work against the Commission’s objectives.
For example, EIOPA’s consultation includes suggestions that would increase, rather than decrease, capital requirements for long-term business, making it even more expensive and difficult for the insurance industry — which is the EU’s largest institutional investor — to make long-term investments.
This would adversely impact guaranteed pensions and savings products for customers. It would also needlessly constrain insurers’ ability to help finance the sustainable transformation and growth that Europe needs and make it more difficult for Europe to remain competitive in a global market place.
Therefore, instead of making a huge range of changes — including some that would, in reality, restrict insurers’ ability to help the Commission to achieve its policy objectives — focussed improvements should be made to Solvency II to reduce unnecessary burdens and barriers. This would enable insurers to maintain and grow their role in protecting customers, and in contributing to stability and growth in Europe’s economy.
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