Solvency II provides strong consumer protection and financial stability safeguards
Insurers have remained strong despite the effects of the COVID-19 pandemic and they generally weathered the earlier financial crisis well. Indeed, insurance failures are rare and — unlike bank failures — do not happen suddenly, which allows for a managed wind-down that avoids systemic risk or losses for taxpayers.
The EU’s prudential framework for insurers, Solvency II, is also strong. It provides extensive safeguards against the risk of a failing insurer which mitigate the need for far-reaching recovery and resolution tools including a ladder of supervisory intervention, so supervisors can already intervene should an insurer breach its solvency capital requirement (SCR), which is significantly higher than its actual minimum capital requirement (MCR) and recovery planning requirements when an insurer’s capital position deteriorates.
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