CMU offers major opportunity for EU insurers to enhance long-term investor role, if EC fixes regulatory obstacles in Solvency II


Following today’s publication of the European Commission’s action plan for the Capital Markets Union (CMU), Insurance Europe’s director general, Michaela Koller, said:

“The CMU offers a significant opportunity for Europe’s insurers to play an even bigger role in providing much needed long-term investment to underpin recovery and growth in Europe, if problems with our regulatory framework, Solvency II, are fixed. We are keen to contribute further and therefore very much welcome the Commission’s plan to assess, as part of the Solvency II review, how the framework could be amended to further enable long-term investment by insurance companies.

“The review of Solvency II must include targeted but ambitious improvements in how it treats insurers’ long-term business that in turn generates long-term investments. Improvements are required to address measurement flaws on liabilities and capital charges for assets, as both determine insurers’ investment capacity and behaviour.

“On the liabilities side, the Risk Margin and the Volatility Adjustment must be fixed to avoid exaggerating the valuation of long-term liabilities and artificial volatility in solvency ratios. On the assets side, improvements are required to the risk-based capital treatment of both equity and debt assets to correctly recognise the real risks faced by insurers: ie long-term under-performance rather than short-term market movements. The right improvements will enable insurers to not only maintain, but significantly enhance their role as Europe’s largest institutional long-term investors, and to play a central role in delivering of the benefits of the CMU.

“Our industry also welcomes the Commission’s recognition of the role that supplementary private pensions can play in meeting the challenges posed by ageing populations. Similarly, the industry welcomes the recognition of the importance of financial literacy and skills, and the proposed measures to further encourage member states to support financial education.

“With respect to disclosures, the industry welcomes the Commission’s intention to examine ways to improve consumer engagement, digital delivery and interaction. It is, however, vital that the Commission takes a holistic approach to reviewing existing disclosure requirements to address the current overloading of consumers.

“At the same time, with respect to distribution, the insurance industry reiterates the need to recognise the benefits of tailored conduct of business rules. Consumer participation in the CMU will only be enhanced through regulation that accommodates the specific features of insurance products and existing insurance distribution systems. For example, rules on advice and commissions must be workable for smaller, local distributors who provide access to the CMU to retail customers who may otherwise be excluded.

“Finally, regarding supervision, the European Insurance and Occupational Pensions Authority (EIOPA) does not need any further significant changes to its powers to fulfil its mandate. The Board of Supervisors (BoS) should remain the main decision-making body, so that the ultimate responsibility for supervision remains with NCAs and the principles of subsidiarity and proportionality are not undermined.

“NCAs are vital elements of the supervisory system given their local expertise, direct contact with entities and, crucially, local accountability. Therefore, the current separation between indirect supervision by EIOPA and direct supervision by national authorities is a cornerstone of the European supervisory system. Moreover, Solvency II is already a common rulebook at European level and EIOPA has enough powers to achieve supervisory convergence.”