The long-running process of agreeing reforms to the European Union’s Solvency II regime will move into a crucial new phase in September.
This is when the so-called trilogue process starts, involving discussions between the European Parliament, the Council of Ministers (representing member state governments) and the European Commission. These are usually a final stage before an agreed directive emerges.
The proposed reforms, driven by similar aims as the post-Brexit revision of the UK’s rules governing insurer solvency, are proving divisive, writes David Worsfold.
The latest stage for the proposals put forward by the pan-European regulator, the European Insurance and Occupational Authority (EIOPA) was a review by the European Parliament’s Economic and Monetary Affairs Committee, which concluded at the end of July.
The rapporteur for the committee, Markus Ferber, a German centre-right MEP, was diplomatic in his choice of words when publishing the committee’s report: "Solvency II is the world's gold standard for insurance regulation, but so far its calibration has been overly conservative.
"As a result, European insurance companies are forced to hold hundreds of billions in excess capital."
This hides some deep divisions over the reforms with many MEPs wanting to go further, especially on liberalising rules around green investments.
The compromise package approved will also mean that smaller insurers, judged to be less risky, will benefit from reduced requirements for reporting to regulators, another area reformers were hoping would go further than the compromise that eventually emerged, although Ferber still hailed it as progress, saying:
"We are moving from one-size-fits-all solutions to more risk-based supervision".
These compromises did not impress Insurance Europe, the trade association representing Europe’s insurance industry.
Olav Jones, its Deputy Director General, said:
“It is overall an improvement on the initial European Commission proposal and Council of the EU text in areas such as capital, volatility and proportionality.
“However, it is disappointing that some of the original ambitious proposals have been watered down. This is a missed opportunity to allow the insurance industry to deliver even more for consumers and invest even more in Europe. Private investment is vital for Europe to meet its green and digital transformation goals.
He made it clear that insurers would not be letting up the pressure for more radical reforms: “The trilogues between the three main EU institutions can now begin. A key objective of the review is for insurers to invest more in long-term capital for the economy. The European Commission has also recently committed to simplifying and reducing reporting obligations by 25%. We call for these ambitions to be reflected in the trilogue negotiations and the final text.”
Optimists hope that the final Solvency II reform package will be agreed by the end of this year.
- The UK reforms are currently being finalised by the Bank of England following the passage of the Financial Services & Markets Act through Parliament at the end of June.