Negotiators from the European Parliament and the Spanish Presidency of the Council of the European Union reached agreement in Strasbourg on Wednesday 13 December on an amendment to the ‘Solvency II’ Directive, which lays down solvency rules for insurance undertakings in the EU. On Thursday 14 December, they also agreed on a regulatory framework for the recovery and resolution of insurance and reinsurance undertakings (IRRD).
The ‘Solvency II’ Directive has been implemented since January 2016 to protect insurance companies from systemic macro-financial risks, by setting capital requirements, risk management and prudential disclosure requirements.
The legislative revision aims to free up funds that insurers have previously had to hold in reserve. The cost of capital rate, which determines the level of reserves, will therefore be reduced to 4.75%, compared with 6% previously. The objective is to enable the sector to devote more funds to economic recovery, and in particular to the European Green Deal.
“European insurance companies have been forced to hold hundreds of billions of euros of excess capital above minimum reserves. With today’s agreement, we are freeing up a significant amount of capital that can be invested in productive investments such as green infrastructure and digitalisation”, commented the European Parliament rapporteur Markus Ferber (EPP, German) after the negotiations.
Speaking on behalf of the industry, Olav Jones, Deputy Chief Executive of Insurance Europe, said, in a statement, that “these changes can reduce unnecessary regulatory barriers to offering the long-term products, guarantees and investments that customers want and need”.
Updating the directive is expected to simplify supervision of the insurance sector, while giving the supervisory authorities the means to act on systemic risks.
A new harmonised insolvency recovery framework
Together with the ‘IRRD’ directive, the provisional agreement also introduces a new framework, harmonised at European level, for the resolution of insurance company insolvencies (see EUROPE 13088/16).
“Member States will have to set up national insurance resolution authorities, either within existing authorities or as new autonomous legal entities, ensure effective cross-border cooperation and entrust a coordinating role to the European Insurance and Occupational Pensions Authority (EIOPA)”, said the EU Council on Thursday 14 December.
“We have two new managers here to ensure the stability of our markets. Firstly, a resolution framework for insurers and reinsurers (IRRD), which will protect policyholders in the event of bankruptcy. On the other hand, the new European framework for insurance, ‘Solvency II’, will ensure that each insurer has sufficient capital available to ensure the continuity of its business”, also commented Stéphanie Yon-Courtin (Renew Europe, French).
The texts of the provisional agreements still need to be formally approved by the Member States and MEPs. (Original version in French by Bernard Denuit)