Insurance Europe has responded to the European Commission’s call for evidence regarding its proposed Capital Markets Union (CMU), which aims to remove barriers to investment throughout Europe.
The response included around 50 examples of concerns that emerged from regulatory initiatives such as Solvency II, the packaged retail and insurance-based investment products (PRIIPS), the insurance distribution directive (IDD), the European Market Infrastructure Regulation (EMIR) and the Financial Conglomerates Directive (FiCOD).
Specifically, the response includes the following areas of concern:
- Solvency II valuation leads to artificial volatility by ignoring the link between insurers’ investments and the liabilities they back. This, combined with exaggerated capital requirements, disincentivises investment in long–term assets that are key for economic growth and can make long-term products non-viable.
- The risk of an information overload and the duplication of requirements between PRIIPs, IDD and Solvency II.
- The difficulties posed by the extremely tight implementation period for PRIIPs.
- Unnecessarily high cash needs created by the clearing obligation in EMIR which, together with burdensome reporting and risk management requirements, can lead to a reduction in hedging operations.
- For financial groups comprising of both insurance and banking activities, it is necessary to clarify interactions between the capital requirements directive for banking, Solvency II for insurance and FiCoD related regulations. This is in order to avoid the duplication of requirements which add complexity to group operations and create unduly increased costs in order to comply with excessive regulations.
- International developments by the International Association of Insurance Supervisors (IAIS) in the area of systemic risk and global capital standards, whose design and calibration diverge from Solvency II, risk endangering 15 years of efforts by both regulators and the industry on developing the Solvency II framework.
- The risk of inconsistencies and overlaps created by pre-emptive European Supervisory Authorities (ESAs) guidelines, including the European Insurance and Occupational Pensions Authority (EIOPA) guidelines on product oversight and governance (POG).
- Longer transitional measures for insurers applying part of the institutions for occupational retirement provision (IORP) directive for their occupational pension business, to ensure a level playing field with IORPs in markets making use of this option.
- Allowing IORPs to directly access reinsurance by amending Solvency II.