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More capital in the fight against climate change

At the GDV conference, politicians and regulators will debate new rules for insurers. Though the existing ones have proven their worth, they need to be adapted to new situations. This is especially true with regard to climate change.

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© Christian Kruppa

The conference was opened by GDV Chief Executive Jörg Asmussen.

According to the financial supervisory authority BaFin, the turnaround in interest rates on the capital market has significantly improved the financial situation of German life insurers. "We're seeing sharply increasing solvency ratios at the moment", Frank Grund, executive director for insurance, said Tuesday at GDV's Insurance Regulation Conference in Berlin. The number of life insurers requiring intensive supervision would decrease accordingly. According to Grund, there were 20 life insurers in the previous year, but now there are 15.

The improved solvency situation is also reflected in the additional interest reserve. The additional capital buffer built up in response to the low interest rate environment, which currently amounts to around 100 billion EUR, has now been fully funded, Grund said. However, he did not see the need for major capital relief, he said, referring to the upcoming reform of the European supervisory regime Solvency II. "We have come through war, pandemic and low interest rate periods with a solid solvency system".

Improvements to Solvency II

Markus Ferber, the coordinator in the European Parliament's Finance Committee responsible for the Solvency II reform, still sees room for improvement on this point. Solvency II is currently calibrated very conservatively. “Insurers are not the long-term investors they could be", the EU parliamentarian said in a video message. This, he said, is a problem given the high expectations for the Green Deal as well as the revenue outlook for customers. Ferber still wants to push for improvements in the further negotiations.

The German government also wants to mobilise private capital more strongly for investments, as Florian Toncar, State Secretary in the Federal Ministry of Finance, emphasized. For Germany, it is therefore important that the Solvency II reform does not lead to additional burdens for industry. Toncar described the discussions about increasing the sector's exposure to equities as interesting: "We want insurance companies to have the opportunity to invest more profitably within a controlled framework".

Balance of competitiveness and financial stability

The European Commission's proposed amendment to Solvency II so far provides for capital relief for the European insurance sector of an average of 30 billion EUR over an extended period. "This maintains the balance between competitiveness on the one hand and financial stability on the other", emphasised Alexandra Jour-Schröder, Deputy Director General at the EU Commission. Trilogue negotiations on Solvency II will take place next year, with initial application of the revised framework expected in 2025, she said.

© Christian Kruppa

The GDV Regulatory Conference has established itself as a high-class industry meeting with politicians and supervisors. In picture (from left to right): Jörg Asmussen (GDV Chief Executive Officer), Dr Florian Toncar (Parliamentary State Secretary at the Federal Ministry of Finance), Dr Frank Grund (Executive Director at the financial supervisory authority BaFin) and Stefan Lehmann (Member of the Board of Management of Generali Deutschland AG).
 

© Christian Kruppa

The conference took place in the Spreespeicher in Berlin, where coal freighters once moored. In his opening speech, GDV Chief Executive Jörg Asmussen reminded the audience that it was regulation that had made the river navigable for large barges in the first place.
 

© Christian Kruppa

State Secretary of Finance and Member of Parliament Dr Florian Toncar (FDP) emphasised the importance of private capital for the necessary modernisation projects.

© Christian Kruppa

BaFin Executive Director Dr Frank Grund (left) attested to the strongly improved solvency situation of life insurers. Generali Deutschland Board Member Stefan Lehmann (right) listens intently.


© Christian Kruppa

The head of the European insurance supervisor EIOPA, Petra Hielkema, announced that she wants to make it easier for insurers to access long-term investments.

© Christian Kruppa

In his video message, MEP Markus Ferber (CSU) called for the revision of the Solvency II supervisory regime to give insurers more flexibility in their investments and to take greater account of the proportionality principle.

© Christian Kruppa

Capital relief for insurers should not be at the expense of financial stability, emphasised Alexandra Jour-Schröder, Deputy Director General at the European Commission, in an interview with Götz Treber, Head of the Competence Centre Corporate Governance and Regulation at GDV.

© Christian Kruppa

The discussion between Julia Symon (left) from the non-governmental organisation Finance Watch and Dragica Mischler, CEO of ÖRAG Rechtsschutzversicherung, focused on the question of how investors can best push the transformation of the industry.

© Christian Kruppa

The event was also the premiere for GDV's new corporate design. Head of Communications Daniela Werner presents the multi-coloured round signet.

The legislative process on sustainability reporting is further advanced. The EU Parliament, the EU Commission and the Council recently reached a trialogue agreement on the Corporate Sustainability Reporting Directive (CSRD), obliging companies to publish sustainability indicators. Some industry experts now even consider the effort involved in reporting and data collection to be greater than the implementation of the Solvency II reform. For example, there is great concern that there will be double reporting by corporations and their subsidiaries. But this is not the case, Jour-Schröder clarified on Tuesday: "If the parent company reports, that's enough".

Insurers support green transformation

By improving transparency about sustainability risks, policymakers also want to develop the market for green investments. So-called “green washing” (i.e. misleading marketing of only apparently sustainable financial products) is something the supervisory authorities want to prevent, however, as BaFin representative Grund emphasised. "No one has to sell green products. But if she does, it has to be right".

The insurance industry supports the path to a sustainable economy - if only out of self-interest. "Climate risks can be a threat to our business model", emphasised Dragica Mischler, CEO of ÖRAG Rechtsschutzversicherung, for the world will no longer be insurable beyond a certain level of global warming.

EIOPA wants higher coverage of natural hazards insurance policies

However, insurers reject higher capital requirements for "dirty investments". But such funding is needed to accelerate transformation in industrial companies that rely on investor capital, said Julia Symon of the nongovernmental organisation Finance Watch. She does not consider sustainability reports alone to be sufficient. "We need to start introducing risk measures today given the pace at which climate change is proceeding".

"The insurance sector is particularly affected by climate change risks", Petra Hielkemma, head of European insurance regulator EIOPA, also said. She said the agency wants to help the industry better manage climate change risks and broaden insurance coverage. According to the agency's own surveys, only 35 per cent of natural hazard losses in Europe are insured. The expansion of insurance coverage must go hand in hand with better adaptation to climate change, she said. "We can only take action to close insurance gaps if we also think about prevention", Hielkemma said.