Insurance Europe is disappointed because, while some much-needed improvements and simplifications have been achieved, these are outweighed by the lack of progress on key issues impacting the industry’s ability to maintain and develop their long-term products and investments.”
Specifically, the industry has the following concerns:
• Risk margin: Despite the fact that the industry provided extensive evidence that the risk margin could be safely reduced, the Commission took no action. According to EIOPA, the risk margin adds €200bn in addition to the amount of capital the industry needs to hold to meet all customer claims and high levels of solvency capital. Unfortunately, this especially impacts long-term products.
• Volatility adjustment: There is evidence that this adjustment, designed to reduce artificial volatility for long-term business, does not work as intended. Under this review, a first step regarding the country-specific component was discussed; unfortunately, nothing has been included in the Commission’s text.
In addition, the industry has concerns about the unnecessary restrictions on the loss absorbing capacity of deferred taxes.
On the calibration of long-term investments in equity, Insurance Europe welcomes the Commission’s recognition that equity capital charges are currently too high where insurers can take a long-term approach to investment. It now remains to be seen how the
Commission’s proposal works in practice.
Jones continued: “Overall, this is a missed opportunity. The next review, to be completed by the end of 2020, needs to be much more ambitious in terms of identifying and prioritizing areas where — long-overdue — improvements to Solvency II can be made. It will have a direct impact on what the insurance industry can provide for customers, as well as its ability to support the Commission’s long-term goals of growth and investment for Europe.”
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