Insurance Europe has responded to a European Insurance and Occupational Pensions Authority (EIOPA) consultation on the implementation of the new proportionality framework under Solvency II. This framework, which seeks to ensure EU regulation is consistently applied across the insurance industry, has the potential to enhance consistency and reduce administrative burdens, in line with the European Commission's objectives of reducing reporting obligations. However, several concerns remain that the industry seeks to address.
Insurance Europe acknowledges the changes to the Directive include some helpful improvements for small and non-complex undertakings (SNCUs). However, it stresses that the current Solvency II framework already allows any (re)insurer to apply proportionality measures suited to its specific risk profile, and this flexibility must be maintained.
One of the key concerns Insurance Europe raises relates to the restriction of proportionality measures to companies with risk profiles “not materially different” from those of SNCUs, which is more restrictive than the existing Solvency II Directive. EIOPA’s draft proposals also limit proportionality measures to companies without material changes in their business model over the past three financial years, failing to acknowledge the dynamic and evolving business models in the insurance sector. By limiting the scope, the proposed measures risk stifling innovation and preventing many (re) insurance companies from benefiting from the flexibility proportionality is intended to provide.
The insurance industry emphasises that the principle of proportionality should accommodate the wide variety of business models that exist in the European market, including non-SNCUs. The federation therefore recommends that the quantitative and qualitative proposed criteria, serve as non-binding guidance to ensure flexibility.
In addition, significant concerns have been raised regarding cross-border insurance activities and the use of innovative reinsurance. Insurance Europe highlights that EIOPA’s suggestion that cross-border business or innovative reinsurance techniques inherently carry more risk is unfounded and should be removed.
The Reinsurance Advisory Board also submitted its response to the consultation echoing the same concerns.