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While Solvency II in general works well, it has also created unnecessary costs and barriers, in particular in relation to insurers’ ability to offer long-term products and to invest in long-term assets that can help drive the EU’s goals in terms of economic recovery, sustainable growth and the climate transition. This includes a detrimental impact on all types of investments in equities, including private equity and venture capital.
For these reasons, it is important that the review of Solvency II brings about much needed improvements to enable insurers, who are key institutional investors, to make long-term investments in the European economy and to contribute fully to the EU’s objectives set out in the Green Deal and the Capital Markets Union.
To achieve this, the review of Solvency II must achieve three things:
The joint position focuses on how the treatment of equities under Solvency II can be improved by changing the criteria for the long-term equity (LTE) sub-module so that it works in practice. The proposed changes would not alter the intended scope of the LTE category, would remain risk-based and would maintain the necessary level of customer protection. However, they would also account better for the way insurers prudently arrange and manage their long-term portfolios.
Introducing these improvements to the LTE module, along with the other improvements to Solvency II noted earlier, would increase insurers’ capacity and appetite to increase their investments in all types of equity including private equity, venture capital and infrastructure.