Friday, 29 June 2018

Survey shows Solvency II brings benefits but deters long-term business



2018 and 2020 reviews should address regulation’s overly conservative nature

A survey of insurers from across Europe has shown that over three quarters of the respondents have seen a positive effect from the EU’s 2016 Solvency II regulation on their risk management and governance practices and on their management of assets and liabilities.
However, 58% of the respondents offering long-term savings products with guarantees said that Solvency II has had a negative effect on those products. And 48% said that Solvency II has led them to invest less than optimum amounts in equities, long-term bonds, private placements or unrated debt.
The findings provide further evidence that insurers are under pressure to shift risk to customers and to withdraw from long-term guaranteed savings products and that Solvency II is affecting the ability of insurers to invest long-term in the economy at a time when the European Commission is seeking to boost sustainable EU growth.
At a conference in Brussels today, Insurance Europe president Andreas Brandstetter, CEO and chairman of UNIQA Insurance Group, said the results of the federation’s survey backed up insurers’ calls for improvements to be made to Solvency II.
“The European Commission’s 2020 review of Solvency II must address the regulation’s overly conservative nature and the fact that it treats insurers as if they were short-term traders when they are, in fact, mostly long-term investors,” Brandstetter said.
Expressing the insurance industry’s firm support for the sophisticated, risk-based Solvency II regime, Brandstetter welcomed the improvements the European Commission has already made to the framework by recognising infrastructure investment as a separate asset class and by removing barriers to standardised transparent securitisations.
He called for further issues to be addressed in the current, 2018 Solvency II review. These include reducing the cost of capital in the risk margin, which requires all insurers to set aside extra capital that in practice may only be needed in the very rare cases when there is a failure. Brandstetter said that the Solvency II risk margin currently removes over €200bn of capital from insurers’ balance sheets, which could instead be put to productive use.
He also called for a reduction in the calibration of long-term equity investments, which are currently based on trading risk and create a barrier to greater investment.
Further information and background
• Insurance Europe’s survey was carried out in May 2018 and covered 87 insurers from 17 EU markets.
• Its key messages on the 2018 Solvency II review are available here.
• Its Solvency II Conference, “Two years on and two reviews”, is taking place today in Brussels. Click here for the full programme.
• The EU’s (re)insurers have been governed by the Solvency II regulatory regime since January 2016. Two major reviews were built into the Directive: one due by the end of 2018 focusing on simplifications and fixing technical issues and one due by the end of 2020 allowing for broader, more fundamental changes.

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