EC Vice President Speaks About Solvency II and Capital Markets Union

The EC Vice President mentioned that the insurance sector in Europe supports the economy as one of the largest investors in economic growth, with more than EUR 10 trillion in assets. Thus, the sector is important for the ongoing work to build the Capital Markets Union. He mentioned new rules have been adopted to promote a safe and deep market for simple, transparent, and standardized securitization (STS). If these markets were built up again to the pre-crisis average, it would generate upto EUR 150 billion in additional funding for the economy. EC aims to further amend capital requirements in Solvency II to take into account the new legal framework for high-quality securitization. These revisions shall apply at the same time as the STS regulation in January 2019. He further added that despite steady progress, the Capital Markets Union is still far from complete. Out of the 12 legislative proposals on the Capital Markets Union, only three have been adopted. This is all the more urgent because the preconditions for a true single market for capital need to be in place by the time Brexit happens.

Mr. Dombrovskis explained that to complete the Capital Markets Union by 2019, a strategy will be followed for major work along three dimensions: the EU single market, clear and proportionate rules, and efficient supervision. First, consumers and investors should benefit fully from the single market thanks to the new EU-wide financial products. For example, a Pan-European personal pensions product (PEPP) was proposed, which will be a voluntary and portable product complementing existing pensions. This product would have the same standard features wherever it is sold in the EU and a broad range of providers would be able to offer them, including insurance companies. Second, barriers should be removed to deeper capital markets through clearer and simpler rules for businesses. The third dimension is about achieving a more consistent supervision of EU capital markets, to protect investors and financial stability. ESAs are doing important work to implement the EU legislation and supervise financial markets. 

He also discussed Solvency II, this year’s review of the delegated act, and targeted improvements. "First, we wants to help insurers invest in growth creation. In particular, high quality private equity and privately placed debt should benefit from the same capital treatment as listed equity or investment grade corporate bonds. Second, we will consider how proportionality under Solvency II can be improved, to minimize the reporting burden as much as possible... .Finally, we want to remove inconsistencies that have been identified in the implementing rules... ." Many insurance companies are concerned about the impact that Solvency II may have on their long-term business and EC takes this concern seriously. On this, "we are open-minded" and it goes without saying that any major reform would need to be well-justified. This topic will be for the review on this directive (Solvency II) in 2020. He also talked about the recently published Action Plan for sustainable finance and how it is relevant for the insurance sector. He concluded that "Fundamentally, Solvency II is about maintaining financial stability and protecting consumers. That is why it matters that we keep it up-to-date, with targeted adjustments if necessary."

Related Link: Speech

Keywords: Europe, EU, Insurance, Solvency II, Capital Markets Union, Sustainable Finance, PEPP, EC