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knowledge 28 September 2021 |

European Commission Issues Review of Solvency II Regime

On 22 September 2021, the European Commission (the “Commission”) adopted its review of the prudential framework for insurers and reinsurers (the “Solvency II Regime”) in the context of the EU’s post pandemic recovery (the “Review”) here.

The Review consists of:

  • a legislative proposal to amend the Solvency II Directive1;
  • a communication on the review of the Solvency II Directive; and
  • a legislative proposal for a new insurance recovery and resolution directive (this legislative proposal may need to be considered in the context of the Department of Finance’s recent public consultation on the development of a national resolution framework for (re)insurers here).

The Commission states that the proposals in the Review are intended to make targeted adjustments to the Solvency II Regime. These adjustments aim to (i) strengthen European (re)insurers' contribution to the financing of the COVID-19 recovery, (ii) progress the Capital Markets Union2 and (iii) channel funds towards the European Green Deal3. The Commission estimates that its proposed reform of capital requirements could lead to the release of up to €90 billion of (re)insurers’ capital in the short term at EU level.

Key proposals include:

  • changes to the long-term guarantee measures to improve risk sensitivity and better mitigate undue volatility;
  • introducing greater proportionality by allowing more small (re)insurers to be exempted from the Solvency II Regime and by creating a more suitable framework for (re)insurers identified as having a low risk profile;
  • refining rules on transparency to better adapt disclosures required from (re)insurers to the information needed by recipients;
  • improving the quality of supervision in relation to ongoing compliance with prudential rules, cross-border (re)insurance business and (re)insurance groups;
  • introducing new requirements on long-term climate change scenario analysis; and
  • a new insurance recovery and resolution framework which includes provision for the designation of a national resolution authority empowered to apply resolution tools and exercise resolution powers in each Member State.

It should be noted that the Review does not contain proposals for the alignment of insurance guarantee schemes. The Commission states that it is committed to reassess the appropriateness and timing of any such alignment in the future.

The next step is for the European Parliament and the Member States in the Council to negotiate the final legislative texts on the basis of the Review. The Commission will also now launch work on delegated acts supplementing the amendments to the Solvency II Directive anticipated by the Review.

  1. Directive 2009/138/EC Insurance and Reinsurance Directive (recast)
  2. Communication from the Commission: A Capital Markets Union for people and businesses - new action plan (COM(2020)590)
  3. Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions: The European Green Deal (COM(2019)640)

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.