The European Commission adopted new rules to help insurers to invest in equity and private debt and to provide long-term capital financing.
As a result of the new rules, insurers will have to hold less capital for such investments and will therefore find it more attractive to invest in the economy. The rules, which take the form of a Delegated Regulation, amend the EU prudential rules for the insurance sector, known as Solvency II, and follow up from the Mid-term review of the CMU Action Plan.
Commission vice president Valdis Dombrovskis, responsible for the euro and social dialogue, also in charge of financial stability, financial services and capital markets union (CMU), said, “One of the main objectives of the CMU is to foster economic growth in Europe by removing barriers to investment. Insurers were highlighting that some of the Solvency II rules were preventing them from investing more in equity and private debt. We have listened to their concerns. The amendments adopted today will make it easier and more attractive for them to invest in SMEs and to provide long-term funding to the economy”.
Based on expert advice from the European Insurance and Occupational Pensions Authority (EIOPA) and in-depth analyses by the Commission, today’s Delegated Act lowers the capital requirements for insurers’ investments in equity and private debt, also aligning the rules applicable to banks and insurers.
Today’s amendments also change various other aspects of the Solvency II implementing rules, such as:
- new simplifications in the calculation of capital requirements
- improved alignment between the insurance and banking prudential legislations,
- updated principles and standard parameters to better reflect developments in risk management and the most recent data (including a better treatment of financial hedging strategies)
This will improve the balance between burden and risk and ensure that Solvency II remains up-to-date.
However, Insurance Europe described the changes as a ‘missed opportunity’, highlighting how Solvency II’s risk margin still adds an unnecessary €200bn (£172bn) to capital requirements.
The federation also pointed to evidence that the volatility adjustment – designed to reduce artificial volatility for long-term business – does not work as intended.
Deputy director general Olav Jones, acknowledged that some important improvements had been made, but said these are outweighed by a lack of progress on other issues.
“The next review, to be completed by the end of 2020, needs to be much more ambitious in terms of identifying and prioritising improvements to Solvency II,” he said.
“It will have a direct impact on what the insurance industry can provide for customers, as well as its ability to support the Commission’s long-term goals of growth and investment for Europe.” A