The agreement was reached between member states, represented by the Spanish EU Presidency and MEP negotiators, led by Markus Ferber (EPP, DE).

More money into the real economy

The changes to the Solvency II rules will free up large sums of money which insurance firms had to keep in reserve, allowing the sector to channel more funds into the economic recovery and the European Green Deal more particularly. Currently the cost-of-capital rate, which determines reserve levels, is assumed to be equal to 6%, whereas the agreement reached will take this rate down to 4,75%.

Better and more tailored supervision

They will also simplify supervision while on the other hand empowering supervisors on systemic risks. At the initiative of the Parliament, supervisors will also be required to better cooperate with each other where insurers operate in other Member States.

Factoring in and communicating sustainability related risks

Finally, the update includes new provisions which will require insurance firms to better take into account sustainability-related risks and to report more about these risks so that policyholders can understand a firm’s green credentials.

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After Wednesday’s deal on the update to the Solvency II rules, the rapporteur Markus Ferber (EPP, DE) said, “Due to the existing rules. European insurance companies have been forced to hold hundreds of billions of Euros in excess capital above the minimum reserves. With today’s agreement, we release a meaningful amount of capital that can flow into productive investments such as green infrastructure and digitalisation. For the Green Deal to succeed private investment is needed. The review we agreed allows insurance undertakings to play their part without putting policy-holders at risk.

“The review also enables insurers to make more long-term investments, which will ultimately benefit policy-holders.

“Finally, the review will also make insurance supervision more proportionate and better tailored to the actual risks. Small insurance companies with a simple and safe business model will benefit from reduced administrative burdens.”

Second chapter of regulatory reform

On Thursday, negotiators will continue talks on the second chapter of the reform of the insurance sector’s regulatory architecture, in a bid to strike a deal on new rules for the recovery and resolution of insurance firms.