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Economic and monetary challenges - Review of EU regulations to support the financing of the EU economy and financial stability

A lesson from Solvency II: incremental progress is better than delayed perfection

By Bernardino Gabriel - Chair, European Insurance and Occupational Pensions Authority (EIOPA)


EIOPA’s focus shifted from regulation to supervision with the application of the new risk-based supervisory framework “Solvency II” as of 1. January 2016. The regulatory journey ended; a new journey commences towards consistent and convergent implementation.

EIOPA’s key objective is to achieve supervisory convergence. We aim at ensuring consistent application of EU Regulation, guaranteeing a level playing field and preventing regulatory arbitrage, and safeguarding consistent protection for all policyholders and beneficiaries. The journey towards convergence will mean change and all National Competent Authorities (NCAs) within EIOPA must join the collective effort to develop a European supervisory culture. As we are in an internal market, the quality of national supervision is no longer solely a national issue, it is a European issue. The EU supervisory system will only be as strong as its weakest link; stronger and more coordinated supervision at the EU level is essential.

Now that Solvency II is in place we need a period of stability of the regulatory framework. But financial regulation and supervision cannot exist independently from economic reality. A sound process of post evaluation of the new regime is an integral part of good regulation. Practical supervisory experience and data collected under Solvency II will provide inputs for future regulatory work. Any future revisions must be guided by the evidence offered and impacts can take time to emerge.

EIOPA is committed to evidence-based policymaking. Changes must be carefully justified and clearly necessary. Greater accuracy and risk-sensitivity must always be carefully weighed against the competing objectives of simplicity and proportionality. We will gather evidence of the cumulative effects and unintended consequences, but also on the insurer’s investment behaviours and the product availability to consumers.

Any future revisions must be guided by the evidence offered and impacts can take time to emerge.

In terms of the regulatory reviews foreseen under Solvency II, EIOPA is specifically looking at the appropriateness of the models, assumptions and standard parameters used when calculating the Solvency Capital Requirement (SCR). The review must be carried out by 2018 and, in my opinion, should also include the treatment of sovereign bonds as the recent financial crisis has demonstrated to all of us that they are not always risk-free. We should build appropriate incentives to avoid excessive concentration on a specific sovereign, perform a rigorous impact assessment and define appropriate transition measures to avoid unintended consequences.

Furthermore, EIOPA will analyse the impact of the Long Term Guarantee measures (LTG) on an annual basis, assessing all its components, like for example the matching adjustment, the volatility adjustment and the transitional measures. EIOPA will provide an opinion by 2020.

Moreover, the future review of Solvency II should also benefit from the progress achieved at an international level. EIOPA will continue to give the EU a strong voice in international fora and will further strengthen its successful participation in the development of the insurance International Capital Standards.

Of equal importance to EIOPA, in terms of potential gaps in the current legislation, is the need for a European recovery and resolution framework in insurance. There are substantial differences across countries in the extent to which such powers are available. In the absence of a common EU framework, we see the emergence of national regimes which may be inconsistent or even contradictory.

In all these initiatives we will seek first and foremost to be proportionate and useful to European citizens, recognising that incremental progress is better than delayed perfection.