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The Solvency II Directive (Directive 2009/138/EC) requires the European Commission to carry out a review of EU rules on insurance and reinsurance (i.e. insurance for insurance companies). But beyond this legal obligation, the review is an opportunity to reflect more broadly on the lessons learned from the first years of application of these rules, including during the COVID-19 crisis. As the (re)insurance sector (insurance and reinsurance) holds large volumes of investments, it could potentially make a significant contribution to Europe's recovery from COVID-19, the completion of the Capital Markets Union, and the European Green Deal.
Overall, the financial position of insurers was not significantly affected by the COVID-19 crisis and, despite operational challenges, no major disruptions in the sector were observed. Notably, the sector remained well capitalised with an average solvency ratio of 235% at the end of 2020 according to data from the European Insurance and Occupational Pensions Authority. While that ratio is 7 percentage points lower than at the end of 2019, it remains well above the regulatory minimum of 100%.
The aim of today's review is to strengthen European insurers' contribution to the financing of the recovery, progressing on the Capital Markets Union and the channelling of funds towards the European Green Deal.
Recent experience has shown that insurers improved their risk management during the first years of applying Solvency II rules. However, the COVID-19 crisis has also underlined that the risk of protracted low interest rates needs to be taken seriously. Addressing this risk was one of the objectives pursued by the Commission during the review.
Solvency II is a highly sophisticated set of rules that must be applied in a proportionate manner for smaller and less complex (re)insurers. The current high-level proportionality principle embedded in Solvency II did not produce the desired outcome and so more concrete rules are warranted to ensure that proportionality plays a greater role in the application of the rules.
The COVID-19 crisis has also highlighted the opportunity to enhance the supervisory and crisis management tools that are available in the context of economic distress, which may represent a source of risk for the stability of the financial system.
The European Parliament and the Council will now discuss the Commission's proposals.
In parallel, the Commission will launch the work on Delegated Acts supplementing the amendments to the Solvency II Directive. Today's Communication already sets out the Commission's intentions in this regard.
more at Commission Solvency II Q and A