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ECB strategy review should include plan to exit loose monetary policy measures

Insurance Europe has today published its response to a consultation by the European Central Bank (ECB) on its ongoing strategy review. Interest rates are very significant for the insurance industry: they impact product offering, as well as the measurement of insurers’ balance sheet positions and, more broadly, their solvency ratios.

The insurance sector agrees that a loose monetary policy was an appropriate reaction to the global financial crisis, as well as to the eurozone debt crisis. With the COVID-19 pandemic severely affecting the economy, responses also need to be timely, targeted and strong. However, they must be temporary. The ECB strategy review should therefore include a plan to exit loose monetary policy measures as quickly as possible. Market participants and governments should know that central bank support can only be temporary.

The industry also notes that:

  • The ECB should assess more thoroughly the impact of its policies regarding interest rate levels and asset purchase programmes on long-term consumer savings and pensions. Persisting inflation at moderate levels and negative interest rates, as well as ever changing and at times unnecessarily rigid regulation, results in massive redistribution effects at the expense of traditional savers.
  • A focus on other policy areas should not result in trade-offs with the mandate of price stability. There is a risk of overburdening monetary policy, if other policy objectives get a higher priority.
  • The review of Solvency II must result in meaningful improvements given that the ECB’s low interest rate policy amplifies problems already identified with the framework and the barriers that those problems create for insurers providing long-term products and long-term investment.
  • More transparency of monetary policy decisions would be welcome.
Published 2 September 2020