Insurance Europe has voiced its concerns in response to a consultation by the European Insurance and Occupational Pensions Authority (EIOPA) on implementing the new proportionality framework under Solvency II.
The framework aims to ensure a consistent application of European Union regulations across the insurance sector while also reducing the administrative workload, aligning with the European Commission’s goal of cutting down on reporting requirements. Despite these intentions, there are several issues the industry is urging regulators to address.
While Insurance Europe acknowledged that the revised framework offers certain beneficial adjustments, particularly for small and non-complex undertakings (SNCUs), it pointed out that the existing Solvency II framework already provides all (re)insurers with the ability to adopt proportionality measures tailored to their specific risk profiles. Preserving this flexibility is crucial, according to the federation.
A major concern raised by Insurance Europe is the proposed restriction on applying proportionality measures only to companies with risk profiles that are “not materially different” from SNCUs. In the federation’s view, this condition, which is narrower than what the current Solvency II Directive allows, could exclude many companies from benefitting.
Additionally, EIOPA’s draft limits proportionality measures to firms that have not undergone substantial changes in their business models over the last three years. This approach, Insurance Europe argued, fails to consider the dynamic nature of the insurance industry where companies often evolve and innovate.
The federation emphasised that the principle of proportionality should be adaptable enough to accommodate the diverse range of business models present across the European market, not just those of SNCUs. To maintain this adaptability, Insurance Europe is recommending that EIOPA’s proposed quantitative and qualitative criteria be treated as non-binding guidelines, ensuring insurers have the necessary flexibility to operate effectively.
Further concerns were raised regarding cross-border operations and the use of innovative reinsurance strategies. For Insurance Europe, EIOPA’s implication that these practices inherently involve higher risk is misguided. “EIOPA’s suggestion that cross-border business or innovative reinsurance techniques inherently carry more risk is unfounded and should be removed,” the federation stated.
Similarly, the Reinsurance Advisory Board has submitted its consultation response, echoing the same issues highlighted by Insurance Europe.
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