Solvency II has been applied since 1 January 2016. It was intended to promote comparability, transparency and competitiveness by providing an accurate individual risk profile for each insurance company.
However, EU insurance undertakings have been retreating from investments in long-term projects and companies although life insurance companies in particular, are natural long-term investors. Therefore, in the context of the Capital Markets Union action plan, the EC introduced more risk sensitive calibrations for infrastructure and European long term investment funds (ELTIFs). Similarly, new prudential calibrations in Solvency II for simple, transparent and standardised (STS) securitisation products, were introduced. The prudential treatment of private equity and privately placed debt in Solvency II was also considered as an impediment to investment. In particular a delegated regulation introduced prudential criteria that allow for reducing related capital charges in the standard formula.
In addition, insurance undertakings are now operating in unprecedented monetary conditions that have not been anticipated at the moment the prudential framework was designed. These specificities should now be better factored in the framework.
In this context the session will focus on discussing the challenges faced by policy makers on the occasion of the revision of the framework, in order to complete the wave of risk sensitivity improvements already initiated required to address emerging risks while fully benefiting from the investment potential expected from the EU insurance sector, without increasing the level of regulatory capital which appears to be set at an appropriate level although the business model of some player may demands dramatic adjustments.
Points of discussion
- What are the main challenges that have been faced by the insurance industry since the implementation of the Solvency II insurance framework, in an unprecedented economic context (Covid-19 pandemic, climate related emerging risks, subdued growth, low for long interest rates, etc.)?
- What are the missing/inadequate aspects of the regulatory framework that should be addressed during its revision?
- What should be the general priorities addressed by the Solvency II revision and their main features and objectives?