On Wednesday 22 September, the European Commission will unveil a legislative package consisting of two directives designed to reform and strengthen the ‘Solvency II’ prudential framework for the insurance sector.
In particular, this legislative initiative will introduce resolution rules for insurance companies inspired by those in place in the banking sector. In particular, Member States will have to designate specific resolution authorities (national central bank, ministry, public authority etc.) competent to undertake all relevant actions to prepare for defaults and to undertake resolution in the event of default.
These authorities will have to develop resolution plans setting out the steps to be taken when an insurance company is failing or likely to fail and no private buyer is able to step in to prevent a failure. Around 70% of insurance companies per member state should be subject to resolution planning, and low-risk companies will be exempted, according to the proposed directive, a copy of which has been made available to EUROPE.
Possible measures that can be taken in the event of an insurance company’s resolution include: - the impairment or conversion of equity instruments. A specific hierarchy of claims is created which complements or even replaces that established in each national insolvency law; - a company undergoing resolution will no longer be allowed to conclude new insurance or reinsurance contracts; - all or part of a company’s activities may be sold or transferred to a bridge undertaking controlled by the public authorities; - impaired or problematic assets and/or liabilities may be transferred to a management vehicle on terms that minimise competitive distortions.
See the draft directive: https://bit.ly/3hSYFtG
After 5 years of implementation (see EUROPE 10963/2), the ‘Solvency II’ framework will be revised to increase the proportionality of the rules. In particular, it will no longer apply to insurance companies whose annual gross written premium income remains below €15 million, compared to the current €5 million.
In line with the EU’s political priorities, the insurance sector will be called upon to play an important role in financing the post-Covid-19 economic recovery and in making the European Green Deal a reality. Insurers, other than those not posing systemic risk, will need to identify any significant exposure to climate change risks and, where appropriate, assess the impact of long-term climate change scenarios on their business.
The European authority EIOPA will be mandated to explore, by 2023, a prudential treatment for exposures related to assets associated with environmental and social objectives.
See the draft directive: https://bit.ly/3lOOffR (Original version in French by Mathieu Bion)