Solvency II: Commission draft jeopardises long-term stability
In the opinion of the German Insurance Association (GDV), the proposed adjustments to the Solvency II framework could lead to noticeable burdens for the insurance sector. The association submitted its statement on the delegated regulation to the European Commission today.
"The revised Solvency II Directive is intended to strengthen companies through targeted relief so that they can invest more in the economy and drive innovation. However, the delegated regulation could achieve exactly the opposite," warns Jörg Asmussen, CEO of the German Insurance Association (GDV).
Criticism of long-term interest rates
“Life insurers guarantee interest rates for several decades,” says Asmussen. “Customers can rely on this. To keep this promise, insurers need a stable method for valuing these obligations. It is incomprehensible that the Commission does not provide sufficient safety buffers for this method to ensure its long-term stability. This needs to be improved urgently.”
The GDV criticizes in this context the planned method for deriving long-term interest rates. The parameter for determining the so-called First Smoothing Point (FSP) is to be determined with a safety buffer of just one percent. Considering long-term trends in the financial market, the association believes this approach is insufficient and could lead in the long-term to significant volatility in balance sheets.
Reduce the reporting obligations, don’t expand them
In addition, the GDV assesses that the draft Regulation fails to achieve its goal of reducing reporting obligations for insurers. Instead of reducing bureaucracy, it would add new requirements, such as the publication of additional sensitivity analyses in the Solvency and Financial Condition Report. “This will further increase the scope of these already complex and difficult-to-understand reports,” says Asmussen.
Relief for smaller companies
There is also considerable room for improvement in the proposed simplification for smaller insurers, according to the GDV. While the draft contains provisions for so-called small and non-complex undertakings (SNCUs), the association believes that the criteria remain too restrictive. In practice, only some companies have benefited from them so far.
The requirement that companies must “withstand all current of future risks” is particularly problematic. This wording is too broad and factually unverifiable. For any relief to be effective, the conditions must be realistic and practical.
After it has been adopted, the delegated regulation must still be reviewed by EU Member States and the European Parliament. It will enter into force once it is published in the Official Journal of the EU.
