Parliament backs Solvency II compromise that looks set to benefit captives
Reforms could release billions of excess capital but Insurance Europe says ‘missed opportunity’
The European Parliament’s economic affairs committee has backed a compromise on reforms to Solvency II that rapporteur Markus Ferber, the German center-right committee member, said would release billions of euros in trapped excess capital if adopted.
The compromise agreed by MEPs would also bolster the proportionality principle enshrined within Solvency II that would open the door to lighter touch regulation from national insurance supervisors, according to a report from news agency Reuters.
Europe’s risk and insurance managers have become increasingly frustrated since Solvency II, the EU’s capital adequacy and reporting regime, was introduced in 2016. They complain that national supervisors have not consistently applied the principle of proportionality to captives.
Risk managers taking part in Commercial Risk’s annual European Risk Frontiers survey have consistently said that the complexity and cost involved in running a captive remains a deterrent.
If the new Solvency II package forces national supervisors to properly apply proportionality to captives, it would be a significant win for the risk management community during a still-tough insurance market when captives are high on the agenda.
Ferber is confident that the MEPs have delivered a good result for the insurance sector and, it seems, the risk and insurance management community.
“Solvency II is the world’s gold standard for insurance regulation, but so far its calibration has been overly conservative… as a result, European insurance companies are forced to hold hundreds of billions in excess capital,” he reportedly told Reuters.
“We are moving from one-size-fits-all solutions to more risk-based supervision,” he added, in a move that would benefit captives.
But while Ferber thinks that he and his committee have delivered a good deal for the European insurance industry, its representative body, Insurance Europe, is not so sure.
“Europe’s insurance industry has expressed some disappointment at the position adopted by the European Parliament’s Committee of Economic and Monetary Affairs on the Solvency II review today,” it said in a statement.
Olav Jones, deputy director general from Insurance Europe, said: “It is overall an improvement on the initial European Commission proposal and Council of the EU text in areas such as capital, volatility and proportionality. However, it is disappointing that some of the original ambitious proposals have been watered down.”
Jones said this is a “missed opportunity” to allow the insurance industry to deliver more for consumers and invest even more in Europe.
“Private investment is vital for Europe to meet its green and digital transformation goals. The trilogues between the three main EU institutions can now begin. A key objective of the review is for insurers to invest more in long-term capital for the economy. The European Commission has also recently committed to simplifying and reducing reporting obligations by 25%. We call for these ambitions to be reflected in the trilogue negotiations and the final text,” he added.
Insurance Europe said that a key element of the Solvency II review was addressing concerns about measurement flaws that it says result in “excessive” capital requirements and high volatility.
“These create unnecessary barriers for insurers to offer the long-term products, guarantees and investments that customers need. They also limit insurers’ capacity to invest and undermine European insurers’ global competitiveness. The insurance industry further highlighted the need for the review to get the key principle of proportionality working in practice and to avoid disproportionate costs that ultimately fall on customers,” added the federation.
