After many months of discussions, the MEPs on the European Parliament’s Committee on Economic and Monetary Affairs adopted, on Tuesday 18 July, their position (55 votes in favour, 3 against, one abstention) for the forthcoming interinstitutional negotiations (‘trilogues) on amending the ‘Solvency II’ Directive and establishing a framework for the recovery and resolution of insurance and reinsurance undertakings (IRRD) (44 votes in favour, 7 against, 8 abstentions) (see EUROPE 13088/16). The mandates for negotiations with the EU Council have also been adopted.
“’Solvency II’ is the global standard for insurance regulation, but so far its calibration has been too conservative. As a result, European insurance companies are obliged to hold hundreds of billions of euros of surplus capital. Today, we are going to enable European insurers to channel the freed-up capital into productive investments such as green infrastructure and digitisation”, commented Markus Ferber (EPP, German) after the vote.
Parliament’s position provides for a reduction in the capital requirements that insurance companies must hold according to their risk profile. This reduction in the budget - intended to ensure that they have sufficient resources to cope with financial difficulties - should, according to the text’s ambition, encourage insurers to make long-term investments.
“Because of their long-term horizon, insurance companies are perfect investors for this timeframe. The revision of ‘Solvency II’ allows them to make longer-term investments, which will ultimately benefit policyholders”, added Mr Ferber.
The capital thresholds available to insurance companies have been reviewed in the European Parliament’s position. However, some, such as the NGO Finance Watch, have already raised concerns that the relief goes beyond what the European Insurance and Occupational Pensions Authority (EIOPA) recommended to ensure financial stability and policyholder protection.
“This moves away from the fundamental logic of risk-based prudential regulation to properly assess and manage risk, particularly in a situation where climate-related risks are not yet taken into account in insurers’ capital requirements”, added the NGO.
Better consideration of ESG factors
In addition, the position adopted includes a series of provisions geared towards the green transition. In particular, new rules have been introduced to take greater account of environmental, social and governance (ESG) risks.
In particular, the adopted text specifies that Member States will have to ensure that insurance and reinsurance undertakings develop “specific plans, quantifiable targets and processes for monitoring and addressing ESG-related risks in the short, medium and long term” in order to help achieve “the objective of climate neutrality by 2050”.
These measures should take account of the latest reports and measures recommended by the European Scientific Advisory Board on Climate Change, say the MEPs.
According to the European Parliament’s position, the revised version of the Solvency II Directive should also make insurance supervision “more proportionate” and “better adapted to real risks” in order to reduce the burden on SMEs representing a “low level of risk”.
“Small insurance companies with a simple and secure business model will benefit from reduced administrative burdens. We are moving from a single solution to more risk-based monitoring”, explained the rapporteur, Mr Ferber.
It should also be noted that, in the area of governance, an amendment tabled by the Irish MEP, Chris MacManus (The Left), has been included to require insurers to set quantitative targets for improving the gender balance within their governance structures.
Another amendment tabled by the S&D group was also approved by MEPs in committee, to clarify that the professional secrecy requirements in the Solvency II Directive do not prevent supervisors from publishing the results of stress tests.
A stronger role for EIOPA in Solvency II and IRRD
EIOPA’s role has also been reviewed. The European Parliament’s position includes giving it a mandate to adopt a precautionary approach to adjusting capital requirements for crypto-asset exposures. On this subject, an amendment by the German MEP, Henrike Hahn (Greens/EFA,) has been included to insert a definition of crypto-assets under the Solvency II Directive aligned with that of the EU Markets in Crypto-Assets Regulation (MiCA) (see EUROPE 13221/32).
MEPs also approved the establishment of a framework for the recovery and resolution of insurance and reinsurance undertakings (IRRD). On this issue, the rules stipulate that Member States may “adopt or maintain stricter or additional rules than those laid down”. In this case, they should inform EIOPA.
Member States should designate one - or exceptionally several - resolution authorities empowered to apply resolution tools and exercise resolution powers. These should operate “independently, within national central banks, relevant ministries, public administrative authorities or authorities vested with public administrative powers. Member States shall refrain from creating separate entities”, states the text.
The ‘IRRD’ also defines a set of practices, such as significant cross-border activities. On this point, the text stipulates, for example, that an entity’s activities would be considered in this way if insurance and reinsurance carried on under the right of establishment and the freedom to provide services in a host Member State exceed 12.5% of the gross premiums written annually by the undertaking.
The trilogues are due to start in September. The aim is to reach an agreement before the end of 2024.
To see the documents : https://aeur.eu/f/85f (Original version in French by Thomas Mangin)