1. SOLVENCY II

1.1 Updates on the proposed Solvency II amending Directive

On 10 June 2022, the European Parliament's Economic and Monetary Affairs Committee (ECON) published a draft report on the European Commission's legislative proposal for a Directive amending Directive 2009/138/EC (Solvency II Directive) (the Amending Directive).

The report contains a draft European Parliament legislative resolution, setting out suggested amendments to the proposed Amending Directive which address issues including:

  • Proportionality: excluding a larger number of small insurance undertakings from the scope of the Solvency II Directive by increasing thresholds appropriately;
  • Supporting the Recovery and other EU policy objectives: a proposal to modify the criteria of the duration-based equity risk submodule, to set the boundaries of the symmetric adjustment mechanism of the equity risk sub-module in accordance with actual data experience and to clarify aspects of the matching adjustment;
  • The use of Level 1 and Level 2 legislation: proposal to provide more detail and political guidance directly in the Solvency II Directive in relation to topics such as the volatility adjustment and long term equity investments; and
  • Co-operation between supervisors: proposal to make collaboration and information exchange between home and host supervisors mandatory.

A copy of the draft report can be accessed here.

On 17 June 2022, the Council of the EU announced that it has agreed its general approach on the proposed Amending Directive.

The general approach agreed, amongst other things:

  • takes into account the specificities of national insurance industries when updating the capital requirements regime;
  • improves the protection of insurance policyholders through enhanced co-operation between supervisory authorities and continues to prevent insurer failure;
  • aims to improve proportionality, long-term guarantee measures, cross-border supervision issues and the creation of macroprudential tools; and
  • assigns new tasks to EIOPA.

The general approach reached completes the negotiating mandate agreed by the Council and provides the Council Presidency with a mandate for further discussions with the European Parliament.

The press release can be accessed here.

1.2 EIOPA launches consultation on the advice on the review of the securitisation prudential framework in Solvency II

On 15 June 2022, the European Insurance and Occupational Pensions Authority (EIOPA) launched a consultation on the advice on the review of the securitisation prudential framework in Solvency II in response to the European Commission's call for advice to the European Supervisory Authorities (ESAs) for the purposes of the securitisation prudential framework review in October 2021.

In relation to the insurance sector, EIOPA's consultation covers investment behaviour of insurance undertakings, assessment of the securitisation capital framework and the treatment of securitised products within Regulation (EU) 575/2013 (Capital Requirements Regulation or CRR) and comparison with Solvency II.

EIOPA welcomes comments on the proposed policy options by 13 July 2022 in order to gather information that will be included in the final advice. EIOPA will consider the feedback received from stakeholders before submitting the final proposal for adoption.

Further information on the consultation can be accessed here

2. EUROPEAN INSURANCE AND OCCUPATIONAL PENSIONS AUTHORITY (EIOPA)

2.1 EIOPA publishes report on costs and past performance of insurance and pension products

On 5 April 2022, EIOPA published its fourth report on the costs and past performance of insurance and pension products which contains analysis showing that insurance-based investment products (IBIPs) offered steadily positive returns in 2020.

Some of the main findings include the following:

  • Unit-linked products delivered net returns of 6% on average; hybrid products a 2% return; and profit participation products a 1.4% return. The move away from profit participation products accelerated in 2020, prompted by the pandemic and the prospect of lower for longer interest rates. Expectations of rising inflation also represent a concern for consumers.
  • The report also notes that higher risk classes delivered higher net returns for unit-linked and hybrid products, while longer holding periods continued to drive higher performance of profit participation products. Certain lower-risk products posted low, and even negative, net returns.
  • For the first time, an analysis was conducted on a sample of products with sustainability features. These strongly outperformed standard IBIPs. This analysis predates the entry into force of the Sustainable Finance Disclosure Regulation (SFDR) harmonising Environmental, Social, Governance (ESG) products.

A copy of the press release can be accessed here.

A copy of the report can be accessed here,

2.2 EIOPA issues supervisory statement on supervision of run-off undertakings

On 7 April 2022, EIOPA published a supervisory statement on supervision of run-off undertakings which aims to ensure that high-quality and convergent supervision is applied to run-off undertakings and portfolios, while accounting for their specific nature and risks, proportionality, and the prudent person principle.

While it is recognised that properly and fairly managed run-off undertakings can benefit the insurance market and policyholders by enabling cost reduction and providing for orderly exits from the market, a number of supervisory issues and challenges in supervision have been observed by EIOPA. These issues relate to:

  • Businesses' risk profiles;
  • Difficulties with the process of authorisation of changes of ownership or portfolio transfers; and
  • The Solvency II framework not making specific provision for run-off undertakings.

The statement emphasises that the risk profile of an undertaking should be in line with its risk appetite, acquired businesses should be kept profitable, and prudent assumptions should be applied to both technical provisions and capital requirements' calculation. There should be no impact on the insurance service, or on the protection of policyholders.

A copy of the statement can be accessed here.

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