Insurance Europe

Solvency II

A risk-based regime for Europe

The Solvency II framework, in place since 2016, represented a fundamental change to a harmonised and sophisticated economic, risk-based regime. It replaced Solvency I, which was a very simplistic capital regime that was applied together with a wide range of different national requirements. Solvency II is strongly supported by the insurance industry because it aimed to align regulatory requirements with the best practices in capital management, risk management and governance already being used by insurers.

Key messages
Solvency II Review and

Insurance Recovery &
Resolution Directive (IRRD)

It has generally worked well. However, the framework contains some measurement flaws resulting in excessive capital requirements and volatility, especially for long-term business, and it places excessive operational burdens on companies. This impacts customers because it makes products more costly than necessary or simply not available and because it makes it much harder for insurers to offer guarantees and the right investment returns. It also impacts the wider society because it reduces insurers’ capacity to take risks away from individuals and businesses and restricts insurers’ ability to invest long-term and to help fund the recovery and sustainable transformation that Europe needs.

Views on the integration of
sustainability risks in
Solvency II

The Solvency II review, which is currently underway, needs to make a number of focused changes to address the limited number of flaws in the framework. The right improvements will lead to a better reflection of insurers’ real risk and, in aggregate, reduce the excessive capital, volatility and operational burden.

Insurance Europe is engaging with EU policymakers as the Solvency II review is a key opportunity to:

Enable insurers to play their full role in the important European objectives set out in the Green Deal, Capital Markets Union and the Next Generation EU plans for recovery after COVID-19
Support the competitiveness of the European industry on the global stage, and thus deliver on the EC ambition to strengthen Europe’s leadership in the world

Entering the final stages

Annual Report article, May 2024

To achieve these aims, the review should focus on the following priorities:

Address flaws and barriers relating to long-term business and investments
Address operational complexity and burden by making proportionality work in practice and streamlining reporting
Apply, but do not gold-plate, international agreements on systemic risk measures
Focus on areas of proven need, and avoid changing what works

For more details, please see Insurance Europe’s key messages on the Solvency II Review and Insurance Recovery & Resolution Directive (IRRD).