The European Union on Wednesday proposed changing the bloc’s capital rules for insurers to unlock 120 billion euros ($ 141 billion) to fix an economy hit by COVID and to meet climate goals without eroding protection for insured.
Britain, home to the world’s largest commercial insurance market and left the EU last December, has also started reviewing capital rules known as Solvency II. He will examine how the changes in Brussels could affect London’s competitiveness.
The EU has also proposed a framework for the swift and orderly closure of ailing insurers to avoid destabilizing the financial system, mirroring a similar move with banks in the wake of the global financial crisis that led to the bailout of taxpayers. .
Anticipating fears that it will reverse the rules, the EU has said Solvency II will remain the “gold standard”.
“This is not a revolutionary change, it is gradual but important changes,” European Financial Services Commissioner Mairead McGuinness told reporters.
“This is not a freebie for the insurance industry.”
Solvency II capital rules were introduced for the € 10.4 trillion sector in 2016 and are applied by insurers like Allianz, Generali and AXA.
They were due for routine review, but the need to rebuild a pandemic-stricken economy and invest in green infrastructure to meet net zero-carbon goals added a sense of urgency.
The persistence of very low interest rates undermining insurers’ business models also needed to be addressed, as well as the need to better tailor Solvency II rules to smaller and less risky insurers.
The rule changes, which require the approval of EU states and the European Parliament, would free up € 90 billion in the short term and an additional € 30 billion in the long term.
Sven Giegold, member of the German Green Party in the European Parliament, said the proposals went in the “wrong direction” by ignoring advice from EU regulators, and maintained or even extended “lobby-induced” exceptions to the rules .
Olav Jones, deputy managing director of Insurance Europe, an industry body, said he welcomed the EU’s recognition of the need to reduce capital requirements, but that only a “significant and permanent” reduction capital would allow insurers to increase their support to the economy and regain the world’s competitiveness.
Brussels has proposed to mitigate the impact of what is known as the volatility adjustment, which mitigates the impact of short-term market movements on the solvency of insurers.
He also wants to make it easier for insurers to benefit from preferential capital treatment worth around € 10.5 billion by investing in long-term assets to green the economy.
The risk margin, or the money needed to transfer the business to another business in the event of a crisis, will also be reduced.
The EU’s insurance watchdog, EIOPA, will conduct centralized climate stress testing of the industry, with insurers also required to conduct long-term climate scenario analysis, he said.
The Commission decided not to propose an EU-wide harmonization of national insurance guarantee schemes, saying this could lead to significant costs for insurers and that it was necessary to focus on economic recovery .
($ 1 = 0.8524 euros) (Reporting by Huw Jones; editing by Alexandra Hudson)
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