The EESC (European Economic and Social Committee) published its opinion on the Solvency II review.
In a nutshell, the EESC:
• Agrees that the Solvency II rules have proved their worth. However, the experience of the sovereign debt crisis, the low interest rate policy, COVID-19 pandemic, mean that the regulatory framework should be adapted.
• Welcomes the fact that the EC is addressing the issue of systemic risks in the insurance sector.
• Points out that insurers also face higher risks in their role as investors. Material, liability and transition risks relating to climate change are not properly assessed.
• Supports the EC’s objective of creating a regulatory framework in which the insurance sector plays an even greater role as an investor in financing the transition to a sustainable economy and in tackling the impact of COVID-19 and climate change.
• Concludes that instability in the insurance sector would significantly set back efforts to tackle the climate crisis and overcome the pandemic.
Furthermore, the EESC response contained the following noteworthy elements:
• No Standard Formula reporting for Internal Models – the idea that internal models’ users have to submit reports also as if they were using the standard formula, should be rejected. Double reporting must be ruled out.
• Level 1 vs Level 2 – the EESC calls for important economic matters to be dealt with in an ordinary legislative procedure involving the Parliament and consulting civil society, rather than through delegated acts. Before the adoption of the Solvency II package, the EP, the EC and the EESC should have a clear picture of the content and impact of delegated acts.
• International competitiveness – a competition check might be useful to determine the impact of the amended rules on the competitiveness of the European insurance sector on a world market basis.
• Proportionality – the EESC welcomes EC’s intention to strengthen proportionality principle, but it is regrettable that it focuses only on the size of an undertaking and that no comparison is made between the scope of the prudential requirements and an insurer’s actual risks, based on its business model.
• LTG
o VA – support for VA proposals, but at the same time, EC is increasing volatility by switching to relative risk correction. It is not clear why the current risk correction should not be maintained.
o Proposals to modify the risk margin, the interest rate risk and the correlation between spread risk and interest rate risk are appropriate, however particular attention must be paid to the level 2 texts, as the proposals may also have detrimental effects on the investment portfolios of small and medium-sized insurers.
o Extrapolation – such far-reaching interventions should be decided in L1.
• Climate scenario analysis – recommendation to extend scenario analysis to all environmental risks and applying the concept of double materiality to these requirements. Insurers should also be required to assess and mitigate the impact of their activities on climate change and the wider environment.
• EIOPA’s mandate to propose possible adjustments to the capital requirements with regard to sustainability risks (2023) – the deadline for the report is not ambitious enough and it should be dealt with in L1.
• Climate Resilience Dialogue (2022) – strong support for EC to set up such a dialogue, bringing together insurers, reinsurers, public authorities, and other relevant stakeholders.
• IGS – EC should put forward a proposal for a minimum framework for IGSs to address the issue, with an appropriate transitional period, without overburdening the markets.
• IRRD – there is not a clear distinction between IRRD and the existing Solvency II supervisory measures. The proposed measures should be consistent with the rules of the intervention ladder. In addition, there is an urgent need to begin taking phased crisis intervention measures at company level even before a failure to meet the MCR, as long as there are clear signs the situation has worsened. When implementing the rules in practice, it will be very important to clearly define and set the limits of EIOPA’s and NSAs’ tasks.
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Insurance Europe