Joined Message of Financial Services Ireland (FSI) and Insurance Ireland (II) on the review of the European prudential supervisory regime for insurers, Solvency II:

The review of Solvency II is the opportunity to further integrate the EU single market and un-leash insurers’ capacities to facilitate the economic and social recovery of Ireland

The implementation of the first common European prudential supervisory regime, Solvency II, was a major step for the integration of the EU single market for insurance. The regime, which has applied since January 2016, is currently being reviewed by the European Commission and a legislative proposal to amend Solvency II is expected in summer 2021.

This review is the opportunity to further integrate the EU single market for insurance, remove barriers for the cross-border provision of services and amend some flaws which have been identified in the five years of application of the regime.

For Ireland as a small and open economy, the EU single market is vital as it enables Irish insurers to scale their businesses across the EU and, increases product availability and consumer choice. Therefore, FSI and II consider the further integration of the market and removing existing barriers as a key objective for the review. The basis for the provision of services across borders are a regulatory level-playing field, fair competition and functioning supervision (across borders). FSI and II believe that all three aspects should be prominently addressed in the review.

The second major objective of the review should be to enable insurers to use their full capacity to provide cover and to invest. The transition of the Irish economy towards a more sustainable and digital future, already, requires significant investments which cannot be borne by public funds alone. In addition, innovative solutions will need to assume the right insurance cover. The huge variety in the Irish insurance market is perfectly placed to provide potential new and tailor-made solutions.

The Covid-19 crisis did not only put additional pressure on public funding, but also increased investment and insurance needs for a swift and sustainable recovery.[1] The different impact which the crisis has on people will increase socio-economic imbalances and, for example, enhance the pension gap between high-income and low-income households and between genders.

The current Solvency II calibrations are overly complex and prudent. In addition to the further integration of the single market, the review should aim for adjusting the calibrations in a sound and sensible manner. The European insurance association, Insurance Europe, estimates that every Euro which is not spent on capital requirements equals 1.70 Euros invested in equity investments, 6 Euros invested in Green Bonds, or 1000 Euros of insurance cover against windstorms. Given the dimension of the miscalibration, the potential benefit of a proper recalibration is immense[2] and can have a significant impact on the economic and social recovery of Ireland and the EU.

FSI and II jointly call on Irish representatives in the European Parliament, the European Commission, and the Council to use the opportunity of the Solvency II Review to further integrate EU single market for insurance and adjusting existing miscalibrations of the regime to the benefit of the Irish economy businesses and consumers.

[1] The European Commission estimates an investment gap due to the Covid-19 crisis of 1046 bn Euros, 940 bn Euros of investment necessary for the green transition and 250 bn Euros for the digital transition in the EU.

[2] For example, the calibration of the risk margin required Irish insurers to hold more than 9.5 bn Euros in own funds in 2019 according to EIOPA data. An adjustment of the risk margin of about 50% is considered justified (see the PEIF summary of the joined industry proposal here).