Bolder action needed to deliver CMU objectives


Insurance Europe has called on the European Commission to take bolder and quicker action to tackle several outstanding concerns on investment and other barriers to making a real difference and deliver on the objectives of the Capital Markets Union (CMU), in its response to a consultation on the CMU mid-term review.

Insurance Europe said that, while the industry welcomes the work launched so far by the Commission in the areas of infrastructure and simple, transparent securitisations, these assets represent a very small percentage of insurers’ asset portfolios (2%). While a prudential treatment better aligned to true risks creates scope for additional investments, the Commission should not focus solely on those assets and ignore the other 98% of investments, most of which are long-term and crucial to growth and stability in Europe.

Long-term investors, not traders
In its response, Insurance Europe warns that Solvency II remains a key regulatory challenge for insurers, because it wrongly assumes that insurers act like traders and are fully exposed to market volatility, therefore forcing them to hold unnecessarily high capital. As such, Insurance Europe calls on the Commission to address a set of straightforward and key questions, including:

  • To what extent does Solvency II recognise that insurers are often not exposed to short-term volatility in market movements?
  • Is the current Solvency II assumption that insurers would be forced to sell their entire portfolio at a huge loss in a time of stress reasonable and backed by evidence?

Answering such questions would make perfect sense in the context of assessing the barriers to and risks facing long-term investment in Europe.

More suitable assets needed
In addition to addressing Solvency II prudential barriers, the Commission should support the development of suitable assets in which to invest, such as infrastructure and private placements. For instance, private placement markets have been developing significantly in several member states. The Commission should identify best practices in this area and promote them more widely across the EU.

In the area of infrastructure, while significant improvements have been noted in recent years on the supply side, concerns remain on issues, such as the risk of public support crowding out private investment. This needs to be addressed by more focus on additionality in the use of public money.

Quality of information, not quantity
In the area of consumer protection, Insurance Europe urges the Commission to address the negative consequences of information overload and duplication for consumers and the mandatory default paper requirements for disclosures. Identifying a clear path and timeline to address these problems would be a decisive step towards making insurance regulation digital-friendly and future-proof.

Planning for the future
Lastly, Insurance Europe acknowledges that a pan-European personal pension product (PEPP) may help meet CMU objectives, provided it includes key product features that have proven instrumental in providing European citizens with tailored retirement solutions (eg a long-term horizon, a decumulation phase).