Solvency II review – do we see the light at the end of the tunnel?
On 5 November 2024, the European Council adopted the two pieces of legislation of the Solvency II review. The first part is the directive that amends the 2009 Solvency II directive, the EU’s main piece of legislation in the insurance area. The second piece of the package is a new directive which introduces new rules on insurance recovery and resolution for all EU insurers and reinsurers.
Adoption by the Council follows an agreement reached with the European Parliament at first reading under the co-decision procedure. The Solvency II review package was proposed by the outgoing Commission on 22 September 2021.
According to the Council, the new rules on Solvency II will boost the role of the insurance and reinsurance sector in providing long-term private sources of investments to European businesses. At the same time, they will make the sector more resilient and prepared for future challenges in order to better protect insurance policyholders. With this dual role, the insurance sector will contribute to deepening the capital markets union, financing the green and digital transitions and boosting Europe’s economic growth.
The aim of the new insurance recovery and resolution directive (IRRD) is to make insurers and relevant authorities in the EU better prepared for situations of significant financial distress, so that authorities can intervene early and quickly, including across borders. The new rules will protect insurance policyholders, while minimising the impact on the economy, the financial system and avoid recourse to taxpayers’ money.
Next steps are the signing of the two legislative texts, thereafter they can be published in the Official Journal (OJ). As the entry into force will occur 20 days later, and as the application will be 24 months after the entry into force date, it would be perfect timing if the publication would occur 12 December, in order for the new regime to start on 1 January 2027. It is however not sure this will be the case as there is no procedure with fixed timelines foreseen concerning the publication date in the OJ after the signing of a Directive or Regulation.
In the meantime, the Commission, in the area of Solvency II (SII), will have to complete Level 2 of the SII framework by amending Delegated Regulation (EU)2015/35. In addition, it will have to adopt a new RTS on exceptional sector-wide shocks, a new RTS on applicability criteria for macroprudential analysis in ORSA and Prudent Person Principle, a new RTS on liquidity risk management plans, a new RTS on determining relevant undertaking in respect to host Member State’s market, a new RTS on sustainability risk management including sustainability risk plans, and a new RTS on factors identifying undertakings under a dominant or significant influence and undertakings managed on a unified basis. Further, a series of existing ITS will need to be reviewed too such as the ones on regular supervisory reporting, the ITS on public disclosure and the ITS on the disclosure templates for supervisory authorities. EIOPA published in October several drafts on some of these RTS and ITS which are now open for public consultation.
Thereafter some new Level 3 (Guidelines) will need to be drafted and a series of existing ones will need to be revised. Still a lot of work for the coming two years!
