A Europe-wide survey of insurers has indicated that the European Union’s Solvency II regulatory regime brings benefits but ultimately deters long-term business.
Andreas Brandstetter, Insurance Europe president, Chief Executive Officer (CEO) and chairman of UNIQA Insurance Group, said, “The European Commission’s 2020 review of Solvency II must address the regulation’s overly conservative nature and the fact that it treats insurers as if they were short-term traders when they are, in fact, mostly long-term investors.”
The Insurance Europe-conducted survey showed that over three-quarters of respondents had seen a positive effect from the EU’s 2016 Solvency II regulation on their risk management and governance practices and on their management of assets and liabilities.
However, 58% of those offering long-term savings products with guarantees said that Solvency II has had a negative effect.
48% said that the regime has led them to invest less than optimum amounts in equities, long-term bonds, private placements or unrated debt.
Insurance Europe claim that these findings prove that insurers are under pressure to shift risk to customers and to withdraw from long-term guaranteed savings products and that Solvency II is affecting the ability of insurers to invest long-term in the economy.
Brandstetter called for further issues to be addressed in the current, 2018 Solvency II review. These include reducing the cost of capital in the risk margin, which requires all insurers to set aside extra capital that in practice may only be needed in the very rare cases when there is a failure.
Brandstetter said that the Solvency II risk margin currently removes over €200 billion of capital from insurers’ balance sheets, which could instead be put to productive use.
He also called for a reduction in the calibration of long-term equity investments, which are currently based on trading risk and create a barrier to greater investment.
