The European Insurance and Occupational Pensions Authority (EIOPA) wants a “harmonised and comprehensive” recovery and resolution framework for insurers, as it describes the current landscape as fragmented.
In an opinion piece published Wednesday, the regulator called for the European Parliament, the Council of the European Union, and the European Commission to take action. EIOPA believes a minimum degree of harmonisation in the field of recovery and resolution would help achieve policyholder protection, as well as maintain financial stability in the EU.
A fragmented landscape could especially impede the orderly resolution process of particularly cross-border insurance groups, the EIOPA said. “To reduce this risk, to avoid unnecessary economic cost stemming from uncoordinated decision-making processes between national authorities and to ensure orderly resolution, European action is required.”
It explained that minimum harmonisation entails the definition of a common approach to the fundamental elements of recovery and resolution. EIOPA said this should be addressed by the national frameworks while at the same time allowing Member States to adopt additional measures at the national level – as long as they are compatible with the principles and objectives set at the EU level.
“Although Solvency II has reduced the likelihood of insurers failing in the future, it is not designed to completely eliminate this risk. Having in place a harmonised and effective recovery and resolution framework is also particularly relevant in fragile market environments, like the current low interest rate environment which poses risk to insurers,” explained EIOPA.
It believes that the scope of a harmonised recovery and resolution framework should in principle cover all insurers and reinsurers within the scope of Solvency II. However, the framework should be applied in a proportionate manner.
For EIOPA chairman Gabriel Bernardino, the call for a harmonised European framework for recovery and resolution is another important step towards a more robust and stable insurance market for the benefit of policyholders.
“A comprehensive recovery and resolution framework is essential for effectively dealing with distressed undertakings, particularly in the current macroeconomic environment. National competent authorities need to be equipped with a broad set of powers to establish an effective and orderly resolution,” he said.
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