Insurance Europe welcomes today’s launch by the European Insurance and Occupational Pensions Authority (EIOPA) of a technical assessment to find the most appropriate treatment of long-term guarantees under the forthcoming Solvency II regulations.
“The decision to carry out the assessment shows that legislators recognise that changes are needed to ensure that Solvency II measures the real risks in insurers’ long-term business,” said Olav Jones, deputy director general of Insurance Europe.
Insurers are able to take a long-term approach to investment because of the long-term protection, savings and pension products they provide to policyholders. This long-term approach allows the insurance industry to provide better returns to policyholders and can have an important impact on the nature of the risks faced by an insurance company. It also helps the insurance companies to fund growth and stability in Europe. Without such long-term investors the recent financial crisis would have been far worse.
It is crucial that Solvency II does not jeopardise insurers’ ability to maintain this function. Solvency II should recognise the impact different business models have on risk and take this into account in measuring insurers’ balance sheets and capital requirements. Achieving this will avoid Solvency II unnecessarily forcing the industry away from providing long-term guarantees and becoming more short-term in its investments.
EIOPA will test a package of measures (see “Background” below) to address the long-term issue. It is of the utmost importance that alternatives are tested to enable the European Parliament, Council and Commission discussions to come to suitable solutions when they resume after the impact assessment. The final Solvency II measures must be designed and calibrated in a way that allows them to work in all European markets and not to be artificially limited or unnecessarily conservative.
“If these seemingly technical details of the new regime are not correct, the impact on the European insurance industry, its clients and the economy would be severe,” warned Jones. “Solvency II must not create unnecessary barriers to insurers providing guarantees for customers and investing long-term, not least because the insurance industry is by far the largest institutional investor in Europe, with over €7.7trn in assets.”
The timetable for the technical assessment will be challenging, since it runs for just nine weeks and coincides with companies’ busy reporting period. Insurance Europe and its member associations will encourage as many companies as possible to take part.