While the European Commission has launched its wide-ranging review of the Solvency II Directive, which lays down prudential rules for the insurance sector, the Croatian Presidency of the EU Council has deemed it necessary to hold an orientation debate on this issue among EU Finance Ministers at their meeting on 17 March, if the Council is maintained (see other news).
The Directive (see EUROPE 11460/14) provides that the Commission must review certain areas by 1 January 2021. It has therefore asked the European Insurance and Occupational Pensions Authority (EIOPA) to provide it with a technical opinion by 30 June 2020.
In a note dated 6 March, of which EUROPE has a copy, the Presidency identifies several key issues, including how to ensure that the prudential framework takes account the context of low interest rates, which could, in the long term, have a significant impact on the profitability of insurance companies, the structure of their portfolios or even on capital requirements.
The current approach does not take into account the risk of negative interest rates and many stakeholders now recognise that this is a shortcoming of the Solvency II framework which leads to a regulatory underestimation of this risk for insurers, the Presidency explained. However, closing this gap could lead to an increase in overall capital requirements for insurers, she says.
Another question addressed to the ministers is whether the regime should be adapted to favour initiatives such as the Capital Markets Union (CMU) or the European Green Deal.
"The 'Solvency II' prudential framework is one of the drivers for European insurers’ investment decisions. It is therefore vital to strike the right balance, on the one hand ensuring that Solvency II continues to fulfil its central prudential objective, but on the other hand making sure that it does place unnecessary constraints on European insurers’ ability to contribute to the Capital Markets Union", writes the Croatian Presidency.
Furthermore, the insurance sector could make a major contribution to the European Green Deal if the prudential framework is adapted, she stresses. One option could be, according to the note, to lower the capital requirements for investments in 'green' financial products.
The review of the Directive will also be an opportunity to assess how to improve cooperation between supervisory authorities and to analyse whether the powers currently available to Member States' authorities are sufficient to deal with cross-border issues, says Croatia.
Finally, the Presidency asks Ministers how the review could improve the protection of policyholders. It notes that the Commission could take this opportunity to introduce, in line with the principle of proportionality, a "common set of early intervention tools", such as a harmonised resolution framework for insurers. There were also calls for a "harmonised minimum framework for national insurance guarantee schemes", she said. (Original version in French by Marion Fontana)