Insurers criticise Eiopa’s SII review for failing to tackle proportionality

The European insurance industry has criticised advice published this week by the European Insurance and Occupational Pensions Authority (Eiopa) on the review of Solvency II, because it fails once again to insist that national supervisors properly apply the principle of proportionality. Insurance Europe, the Brussels-based group that represents the insurance sector, and the Association of Mutual Insurers and Insurance Cooperatives in Europe (Amice) have both said that Eiopa’s advice is too conservative and will place the European sector at an international disadvantage. The response of the two insurer bodies suggests that if the EU fully accepts Eiopa’s advice, there will be a further restriction on already limited capacity for Europe’s risk and insurance managers, and an unnecessary burden on captives. The Federation of European Risk Management Associations (Ferma) and the European Captive Insurance Owners Association (Eciroa) have fought long and hard for captives to be treated less onerously under the capital adequacy and reporting regime through the proportionality principle that was enshrined in the original directive. Insurance Europe and Amice are equally concerned that the principle is not being applied to smaller, nationally focused insurers, making it difficult for them to compete during this period of low interest rates. To make matters worse, Insurance Europe also pointed out earlier this month that Eiopa’s recent consultation on a draft supervisory statement on the use of reinsurance risk mitigation techniques (RMT) will limit the way in which smaller insurers can use reinsurance to help out at this difficult time. Insurance Europe said Eiopa has acknowledged reinsurance is an effective way to mitigate risks that an insurer either cannot bear on its own or does not have the appetite to do so, but is concerned that the draft supervisory statement could restrict the valid use of reinsurance RMT. “Eiopa has failed to provide evidence to justify an additional regulatory burden related to the use of reinsurance RMT. Unnecessary increases in regulatory burden might deter insurers from accessing reinsurance and thereby increase the riskiness and price of insurance, which would not be in the interest of policyholders,” stated Insurance Europe. Amice is clearly disappointed with the latest advice Eiopa has come up with for the Commission on the Solvency II review. It said the review “represents an increasingly conservative approach to insurance risk, which ultimately will negatively impact policyholders”. Amice is concerned that the principle of proportionality is “still not fully tackled” within the advice. “Proportionality is a key aspect of the regulatory infrastructure, which should reflect the nature, scale and complexity of the insurance entity when applying regulatory requirements,” stated the association. Amice’s secretary general Sarah Goddard commented: “The experience of the Covid-19 pandemic within the insurance sector has demonstrated the resilience of the industry, so it is counterintuitive that increases in solvency burdens would benefit policyholders. Indeed, we believe that these requirements would ultimately limit product choice and increase costs. “We are particularly concerned that we are still not seeing a clear and structured approach to proportionality. We believe that shortcomings in applying proportionality will be highly detrimental to the SME sector in particular, but will have a wider effect, ultimately reducing competition and choice for the consumer.” Insurance Europe said the review fails to offer any help to European consumers, the economy in general or the green transformation. “The review of Solvency II offers the opportunity to fix problems in the framework so that it properly reflects the real risks faced by insurers, and to reduce operational burdens. Doing so would enable insurers to invest more in the economy, provide more long-term savings products and protection to customers, and to be more competitive on the international stage,” said Olav Jones, deputy director general of Insurance Europe. “This is why it is disappointing that Eiopa has published an opinion to the European Commission that ignores this potential and would instead make Solvency II even more conservative, without proving that overall capital levels are currently too low. In fact, the advice would, in the long run, result in a less competitive European insurance industry that could invest less in the economy and provide fewer long-term savings products and offer lower returns to customers. Such an outcome is completely unnecessary and must be avoided by the co-legislators – the European Commission, the European Parliament and the Council of the EU – who will decide the changes that the review will introduce to the current framework,” continued Mr Jones. “Operational burdens can be reduced by making proportionality work and by streamlining reporting requirements. This will reduce costs for consumers and allow insurers and supervisors to focus on the material risks faced by the industry, while also supporting a diverse range of large and small insurers in the market. While Eiopa’s opinion in this respect is a helpful step in the right direction, it needs important improvements in order to get proportionality to fully work in practice and to avoid increasing the reporting burden,” he added. “Finally, it is important that the review only focuses on the parts of Solvency II that really need to be fixed, and not on an overhaul of the framework, which is what Eiopa’s very extensive list of potential changes seems to envisage. The industry therefore calls on the Commission to take an approach to the review that reduces the number of problems in Solvency II, instead of one that increases them,” concluded Mr Jones. Earlier this month, Insurance Europe also told the EC that it needs to tackle rising protectionism in global markets via its current trade policy review, which could have a significant impact on the sector’s ability to offer seamless global programmes for risk managers. “In a tough economic environment and fast-changing world, Europe’s (re)insurers need the right EU and international regulatory environments to be able to maintain their competitiveness on the world stage. They also need the right trade conditions to enable them to access international markets,” stated Insurance Europe. The body said the European insurance industry proposals are as follows: The EC should consider global competitiveness as a clear objective in EU policymaking The EC and European negotiators in international agreements should ensure that global standards do not create competitive disadvantages for the European industry The EC should engage in dialogues with third-country jurisdictions to ensure that market access and trade barriers to European market players are removed and the strength of the EU regulatory system is appropriately recognised Given the global nature of sustainability, policymakers should promote international coordination and a global approach.

Insurers criticise Eiopa’s SII review for failing to tackle proportionality

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