Long-term financial stability under threat by Solvency II Commission proposal
The European Insurance and Occupational Pensions Authority (EIOPA) has called for an improvement of the safety buffer for determining long-term interest rates in the revised Solvency II Directive, citing potential significant volatility in balance sheets in the long-term sector. Jörg Asmussen, CEO of GDV, echoed these concerns, expressing that the delegated regulation could have the opposite effect.
The GDV, a German insurance association, also sees a need for improvement in the planned easing for smaller insurers under the Revised Solvency-II Directive. They argue that the criteria for the easing for small and non-complex undertakings (SNCU) are currently too restrictive.
Life insurers under the Revised Solvency-II Directive guarantee interest rates over several decades. However, the GDV criticizes the planned method for deriving long-term interest rates, as the parameter for determining the First Smoothing Point (FSP) is to be determined with only a 1% safety buffer. Insurers, they argue, need a stable method for valuing these long-term commitments, but the Commission does not provide sufficient safety buffers to ensure their long-term stability.
The GDV also takes issue with the requirement that companies must "withstand all current or future risks," deeming it problematic as it is too broad and practically unprovable.
Despite these concerns, the Revised Solvency-II Directive aims to provide targeted reliefs for companies to invest more in the economy and drive renewal. The draft regulation, however, fails to reduce reporting obligations for insurers, as claimed, but instead adds new requirements, such as the publication of additional sensitivity analyses in the Solvency and Financial Condition Report.
These additional reporting requirements, according to the GDV, will further inflate the complexity and difficulty of understanding reports. The delegated regulation will enter into force after publication in the Official Journal. After adoption, it must still be reviewed by member states and the European Parliament.
It's important to note that these concerns are not related to separate events such as SchadenBusiness Insurance Day, SchadenBusiness Politics and Insurance, and SchadenBusiness Regulation, which focus on broader issues in Germany and Europe.
Despite these challenges, customers can rely on these guaranteed interest rates, according to Asmussen. However, the GDV's concerns about the long-term stability of these commitments remain unaddressed. Only very few companies currently benefit from the SNCU regulations, as they stand.
In conclusion, while the Revised Solvency-II Directive aims to provide relief for insurers and drive investment, concerns remain about its potential impact on long-term stability and reporting requirements. The GDV's criticisms highlight the need for careful consideration and potential adjustments to ensure the directive achieves its intended goals without unintended consequences.
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