Solvency II

Solvency II review must remove barriers against insurers protecting and investing for customers, the economy and the EU green agenda


Insurance Europe has published its key messages on the EC’s proposals for the review of the Solvency II prudential framework and the proposed Insurance Recovery & Resolution Directive (IRRD).

Solvency II has provided many of its intended benefits, including risk-based capital requirements, very high standards for risk management and governance, and extensive supervisory and public reporting. The framework does, however, require a number of improvements as it does not correctly reflect insurers’ long-term business model. This results in excessive capital burdens and solvency volatility. It has also created a very significant, and in some cases unnecessary, operational burden for insurers.

These deficiencies have negative impacts for policyholders and constrain the insurance sector’s ability to contribute to the EU’s political priorities. They also undermine insurers’ international competitiveness, their natural ability to take a long-term approach to products and investment and their ability to avoid procyclical behaviour during a crisis. The right changes will, in aggregate, lead to a justified and needed reduction in capital requirements and volatility.

The EC’s proposals for the Solvency II review include some helpful elements which can be used as a basis for improvements. However, they also include other elements which would undermine these improvements and some which would significantly increase the regulatory burden. These either should not be taken forward or require significant changes. The EC’s proposals for a new IRRD also go beyond what is needed and as such also require significant changes.

The key messages are grouped into the following four areas:

  • Correcting the treatment of long-term business to address excessive capital and artificial volatility.
  • Improving proportionality and avoid increasing costs and operational burdens.
  • Maintaining the SCR as the starting point for the supervisory ladder of intervention.
  • Other issues where changes should only be made where it is clear that costs do not outweigh potential benefits.

The insurance industry’s key messages can be found here.