EIOPA consults extensively on the Solvency II review
On 15 October 2019, EIOPA, the European Insurance and Occupational Pensions Authority, published an extensive and long consultation paper (878 pages!) to prepare for the review of the Solvency II framework directive. Since 1 January 2016, about 2800 insurers and reinsurers in the EU apply Solvency II. The directive is up for a selective mandatory review by the Commission by 1 January 2021. Therefore, EIOPA must complete its technical advice in the form of an Opinion to the European Commission by 30 June 2020. The review of Solvency II directive is broad: the consultation covers 19 topics.
The core areas are long-term guarantees measures and measures on equity risk; methods, assumptions and standard parameters used when calculating the Solvency Capital Requirement standard formula; Member States’ rules and supervisory authorities’ practices regarding the calculation of the Minimum Capital Requirement; and group supervision and capital management within a group of (re)insurance undertakings. In addition, EIOPA’s consultation, upon request of the Commission, focuses on several additional areas such as transitional measures, the risk margin, Capital Markets Union aspects, macroprudential issues, recovery and resolution, freedom to provide services and freedom of establishment, proportionality and thresholds, best estimate and own funds at solo level. Regarding insurance guarantee schemes and reporting and disclosure, EIOPA consulted separately and these consultations have ended.
However, despite this extensive review, it is the Commission’s and EIOPA’s intention to leave the fundamentals unchanged: “the fundamental principles of the Solvency II directive should not be questioned in the review, including the confidence level underlying the calibration of capital requirements and the market-consistent valuation”.
Several stakeholders have since its inception argued that Solvency II is too complex and slowly strangles small players, reducing richness of offer. Proportionality is therefore an area which has received extensive attention and EIOPA proposes to double the exemption thresholds related to technical provisions and to allow Member States to increase the current exemption threshold for premium income to maximum 25 million euro. In the area of governance (key functions), EIOPA proposes that some situations should be explicitly admitted provided they are justified in accordance with the proportionality principle: combination of key functions (except the internal audit function) with operational functions; combination of key functions and combination of the condition of eky function holder with the condition of member of the AMSB.
Stakeholders can reply till 15 January 2020.