Solvency II: Co-Legislators need to enhance efforts to further integrate single market for insurance

Insurance Ireland published its position paper on the European Commission’s legislative proposal and Communication on the Review of the prudential supervisory framework, Solvency II.

Insurance Ireland published its position paper on the European Commission’s legislative proposal and Communication on the Review of the prudential supervisory framework, Solvency II.

In its paper, Insurance Ireland welcomes the proposals by the European Commission. The application of Solvency II in 2016 was a milestone and Solvency II presents the gold-standard worldwide in terms of prudential regulation.

The Solvency II Review is an opportunity to further integrate the single market for insurance. Particularly for Ireland, further integration would have a very positive impact. Removing barriers to cross-border service provision would enable Irish insurers to service their consumers and businesses more efficiently across the single market. For Irish businesses and consumers, removing regulatory and administrative barriers might result in more competition and consumer choice, potentially even attracting insurers to cover currently unserved market segments.

Unfortunately, the European Commission missed the opportunity to present proposals for the further integration of the single market. Instead, the Commission condemns cross-border business in the single market as particularly risky, fortifying or even increasing regulatory and administrative barriers. Furthermore, the European Commission strengthens national discretions and a national market-focused approach.

Solvency II is a trademark for the EU insurance industry and a signal of trust globally. However, the discussions at international level on an International Capital Standard highlighted little or no appetite by other jurisdictions to follow the EU example to the extent of Solvency II. The result is that Solvency II, in its current form, creates a substantial competitive disadvantage for EU insurers, i.e., by the disproportionate capital requirements due to the risk margin.

The European Commission links great ambitions on the transition towards a more digital and sustainable future as well as the development of European capital markets to the Solvency II Review. The Irish insurance industry supports these ambitions. However, there seems to be a fundamental misunderstanding about the way to fully embrace the capacity of the industry. In its communications, the European Commission emphasises how it helps the industry to make substantial investments in the next years. While there is no doubt that some of the amendments will have that impact, it needs to be noted that the Commission is only addressing existing flaws of the overly complex and burdensome Solvency II. “Re-balancing” these necessary adjustments with other more onerous amendments will undermine the positive nature of the proposals.

Finally, it will be important to address the overall regulatory burden of Solvency II. While the European Commission’s ambitions target to balance capital requirements over time, they ignore the impact of the overall significantly increasing regulatory burden. In this regard, the European Commission presents valuable proposals on a more proportionate application of Solvency II, i.e. for undertakings qualifying for a new low-risk class and captives, but does not consequently follow through with an overall reduction of the regulatory and administrative burden linked to the complexity of Solvency II.

The Irish insurance industry is committed to support the work of the European Parliament, the Council and the Commission to address the open issues to make the Solvency II Review a success for insurers, businesses and consumers across the single market.

Insurance Ireland (Member Association) Company Limited by Guarantee trading as
Insurance Ireland. Registered in Ireland. No. 553048. Registered Office: Insurance Centre,
5 Harbourmaster Place, IFSC, Dublin 1. DO1 E7E8.

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