Changes to Solvency II
The Solvency II Directive has been revised to make the insurance sector more resilient and to strengthen the role of insurers in long-term investments. Key changes include:
Calculation of Technical Provisions and Solvency Capital Requirements:
- An alternative methodology for the extrapolation of the risk-free interest rate has been introduced, leading to more prudent calculations in low-interest environments.
- Other adjustments to technical provisions are less prudent, promoting a balanced approach.
Macroprudential Instruments:
- New instruments have been introduced to mitigate systemic risks, such as liquidity risk management plans.
- Supervisors can take measures to better protect insurers with vulnerable risk profiles during exceptional sector-wide shocks.
Proportionality Measures:
- Small and non-complex undertakings (SNCUs) receive relief in reporting obligations and may combine key functions.
- Under certain conditions, non-SNCUs can also benefit from these proportionality measures.
Sustainability and Long Term:
- The revision encourages insurers to provide long-term capital, particularly for the Green Deal and digital transitions.
- The rules have been made more risk-sensitive to improve the sector’s resilience.
New IRDD Directive
The Insurance Recovery and Resolution Directive (IRDD) is designed to better prepare insurers and authorities for financial crises. Key aspects include:
Early Intervention:
- Authorities can intervene early and quickly in financial problems, even across borders.
- This helps protect policyholders and minimize the impact on the economy and financial system.
Policyholder Protection:
- The new rules minimize the use of taxpayer money in resolving financial problems at insurers.
- Closer cooperation between supervisors is prescribed to better inform and protect consumers, especially in cross-border activities.
Coordination and Cooperation:
- Coordination between national supervisors is strengthened to better manage cross-border activities of insurers and reinsurers.
- The European Insurance and Occupational Pensions Authority (EIOPA) is given new tasks, including the development of technical standards.
These changes and new directives will help the insurance sector to be better prepared for future challenges and contribute to economic growth and stability in Europe.
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