The 2020 Solvency II review: The Commission consults but a lot of water will still flow under the bridge
The Commission has started its public consultation on the review of the Solvency II framework directive (SII FD). The consultation period will run till 21 October 2020. Apart from the SII FD, the scope of the review may extend to the SII Delegated and Implementing Regulations as appropriate. Normally, would it not have been for the pandemic crisis, EIOPA would already have delivered its technical advice requested by the Commission as the due date for that advice was 30 June 2020 (see formal request for technical advice sent to EIOPA 11 February 2019). However, on 8 May 2020, EIOPA, in close coordination with the European Commission, decided to delay its advice and holistic impact assessment to deliver it at end December 2020. This will allow EIOPA to take into account the importance of assessing the impact of the current Covid-19 situation on the SII Review. But this also moves the calendar with 6 months. The Commission is also concurrently consulting on its Inception Impact Assessment. The roadmap is open for feedback for 8 weeks and runs till 26 August 2020. The Commission will summarise the input received in a synopsis report explaining how the input will be taken on board and, if applicable, why certain suggestions can’t be taken up. In that roadmap, the Commission foresees a new legislative proposal by Q3 2021.
According to Article 111,3 of the SII FD, the Commission should present by 31 December 2020 “a report to the European Parliament and to the Council, accompanied, where appropriate, by proposals for the amendment of this Directive, or of delegated or implementing acts adopted pursuant hereto”. That obligation does not mean that the legal text with the proposal for amendments of the Solvency II framework should be ready by end 2020. As the Treaty confers uniquely to the Commission the right of initiative, it is up to the Commission to decide if and when legislation is proposed. The required review report can obviously give indications, directions, and even draft text. The Parliament and Member States can react to that report. But the report may or may not be accompanied by a formal proposal, being issued as a formal proposal for amendment of the SII FD. In the meantime, the debate on the report might ensure the Commission a maximum possible acceptance by the co-legislators, if and when it finally proposes its formal legal text to the co-legislators.
The ongoing public consultation will enable the European Commission to broaden its horizon beyond EIOPA’s technical advice and data. The Commission will through this consultation obtain stakeholders’ views and evidence on the broad objectives and priorities of the review of the European framework. As this is an open consultation any company, consumer or investor, analyst or consultant can reply. The consultation includes for example issues related to insurers’ role in the long-term financing of the economy, to their transparency towards the public, to policyholder protection, to the European Single Market for insurance, and to emerging risks and opportunities (climate and environment-related risks, digitalisation and cyber risks).
The responses to this consultation paper will provide important guidance to the Commission when preparing a formal Commission proposal, alongside EIOPA’s technical advice, if they are considered appropriate.
At the same time, the Commission hopes that this review will take into account any lessons learnt from the Covid-19 outbreak and its adverse consequences on EU households, businesses and financial markets. To that end the Commission has inserted specific but still broad questions relative to the flexibility of the framework under crisis situations, and related to prudential rules and Covid-19.
Didier Millerot, head of the European Commission’s Insurance and Pensions unit, has declared in a recent webinar that a legislative proposal can be expected at the earliest June-July 2021. The roadmap indicates Q3 2021. A delay of six months? What are the implications? I believed already for years that it was unrealistic to expect the amendments to the Directive to be there in 2021. I also believed and continue to believe that the amended SII FD would not to be applicable before 1 January 2026: that date has always been my estimated target date. The rule of thumb of the EU legislative process is that co-legislators need time for debate to arrive at an agreement: that time is roughly two years. If a proposal is adopted by the Commission in Q3 2021, an agreement by co-legislators cannot be reached earlier than Q3 2023. Thereafter, as it is a directive, 18 months are needed for transposition into national law, or Q1 2025. Application data usually follows 6 months to one year thereafter. That makes 1 January 2026 still feasible.