Showing posts with label Solvency II. Show all posts

Thursday, 13 December 2018

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2018 Solvency II review: EC proposal lacks serious ambition to unlock investment the economy needs


Insurance Europe has raised serious concerns in its response to a consultation by the European Commission on its draft proposals for the 2018 review of the Solvency II Delegated Regulation.
While the industry welcomes the Commission’s aim of simplifying Solvency II and increasing proportionality in its application, the proposals lack ambition in several important areas. Unless the final text is improved, the Commission will miss a key opportunity to remove barriers to long-term investment and to unlock insurers’ capacity to support the growth that Europe’s economy so desperately needs.
The Commission’s proposals for the recalibration of long-term equity and the review of the risk margin – both of which have a significant impact on insurers’ capacity for long-term investments and to support the objectives of the Commission’s Capital Markets Union project – must be more ambitious. While acknowledging the Commission’s recognition that action is needed on long-term equity investments, Insurance Europe warned that the Commission’s technical proposal will not work in practice. It is therefore calling for swift action by the Commission to amend its proposal so that it has the intended impact.
Regarding the risk margin, it should first be noted that this is a conceptual element of Solvency II that, according to the European Insurance and Occupational Pensions Authority, accounts for €200 billion of insurers’ capital and is over and above the amount needed to pay customer claims. There is significant evidence that the 6% cost of capital, a key element of its calibration, is too high. This impacts, in particular, long-term products and investment. If the Commission continues to ignore this evidence and preserve the status quo, it will miss a key opportunity to reduce the current barriers to long-term investment by insurers. While a more complete review of its purpose and design can take place in the 2020 review, a first step is needed and justified now.
Insurance Europe also said the review provides the opportunity to take a first step in improving the design of the volatility adjustment, by refining the trigger mechanism for the application of the country adjustment.
It also raised other concerns, including the need to avoid unnecessary limits on the calculation of loss absorbing capacity of deferred tax (LAC DT), which can be found in its response to the consultation.

Thursday, 29 November 2018

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Timid 2018 Solvency II review has missed opportunity for progress on CMU


In response to the European Commission’s update yesterday on the progress of its Capital Markets Union (CMU) project, Olav Jones, deputy director general of Insurance Europe, commented:
“As the EU’s largest institutional investors, Europe’s insurers have always supported the aim of the European Commission’s Capital Markets Union (CMU) project to unlock capital around Europe. However, while some progress has undoubtedly been made, several points remain to be addressed.
“On the review of insurers’ Solvency II regulatory framework, we feel that the EC is really missing an opportunity to unlock capital that insurers could be using to boost Europe’s economy.”
One of the aims of the CMU is to address regulatory barriers to investment, including prudential issues under Solvency II that prevent more long-term investment by the insurance industry.
“Some welcome improvements have been made with respect to the treatment of STS securitisations and infrastructure, but more action is needed and possible,” said Jones. “Several important aspects — equity, the risk margin, the volatility adjustment and the loss absorbing capacity of deferred taxes (LAC DT) — are not being appropriately addressed in the 2018 Solvency II review.”
In its CMU progress report, the European Commission refers to adjustments it has proposed to insurers’ investment in equity. Unfortunately, the draft EC proposal currently being consulted on as part of the Solvency II Delegated Acts in this area would not achieve its aim of unlocking investment, as the way it is designed makes it unlikely any insurer would qualify for the calibration.
The insurance industry strongly believes that this lack of effective action by the Commission is a missed opportunity. The unnecessarily high capital requirements for insurers’ long-term equity need to be reviewed to reflect the true long-term risk exposure of this asset class.

Friday, 29 June 2018

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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.

Monday, 25 June 2018

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EIOPA publishes an expanded set of Solvency II statistics on the European insurance sector



 EIOPA published a new set of statistical information on the European insurance sector based on Solvency II regulatory reporting for the fourth quarter of 2017.
In addition to the regular statistics, for the first time EIOPA is publishing new exposure statistics on the European insurance sector. This new data contains:
-         Detailed statistics on types of exposure as well as location of exposure both  at    European Economic Area and individual country level
-          Clear asset classifications including government bonds, commercial bonds and equity
-          Real estate exposures with a distinction between commercial and residential exposures
-          Raw aggregated exposure data to enable more in-depth analysis by end-users
Starting with today's publication, the new exposure data will become a regular part of the EIOPA insurance statistics which can be accessed via EIOPA's website.

Tuesday, 27 March 2018

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Insight briefing on 2018 review of Solvency II published



Insurance Europe has published an insight briefing on the upcoming Solvency II reviews, ahead of a European Commission hearing on changes to the regulatory framework that takes place today.
The briefing outlines which key areas of Solvency II need to be addressed. These include reducing the cost of capital in the risk margin, and the reduction of capital requirements for long-term investment in equity beyond unlisted equity. 

The briefing also outlines which areas should not be changed. In particular, it says that there should be no change to interest rate risk capital requirements and no artificial limits imposed on the loss absorbing capacity of deferred taxes. It adds that EIOPA’s proposed changes in these areas are not necessary, conflict with the Juncker Commission’s growth objectives and should not be taken forward.
The full briefing is available here.