Freeing up capital for investments in the European economy – reducing bureaucratic barriers – greater focus on sustainability-related risks
On 13th December, EU legislators agreed on a series of reforms to the rules for regulating insurance companies (Solvency II) and, on 14th December, on a new framework for the recovery and resolution of insurance companies.
By reducing the cost-of-capital rate, which determines the number of accruals to be set up by European insurance companies, from the current 6% to 4.75%, large sums that insurance companies currently must hold as reserves are to be released. This is expected to result in 100 billion in surplus capital, which will be available for investments. This is intended to further boost economic revitalisation and should provide resources for investments in the European Green Deal.
The reform changes are also proposed to simplify supervision and improve cross-border cooperation between supervisory authorities when insurers operate in other EU member states.
According to the proportionality approach, small insurance companies with a simple and secure business model should benefit from a reduction in administrative effort.
Technical elaboration is still pending. Whether and how these changes will have an impact will largely depend on the practical implementation by the supervisory authorities.
In addition, sustainability-related risks are to be better considered and reported transparently in the future so that insurance customers can get a better understanding of a firm’s green credentials.
Similar to the recovery and resolution framework that already exists for banks, a framework is now also to be established for insurance companies. This is intended to ensure that failing insurance undertakings can be recovered or wound down without the taxpayer having to foot the bill.
Link to the EU press release: https://www.europarl.europa.eu/pdfs/news/expert/2023/12/press_release/20231212IPR15865/20231212IPR15865_en.pdf
Paul Johannes Spittau
Head of Group Carrier Relations & Insurance Mediation
T +43 664 537 17 42
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