EU plan to ease insurance rules and release €120bn into economy unveiled

European commissioners Mairead McGuinness and Valdis Dombrovskis unveiled plans on Wednesday to ease capital rules for insurers to allow them to release €120 billion for investment over the long term. The released funds would help with the economic recovery from Covid-19 and promote investment in reaching climate goals, without reducing policyholder protection.

The European Commission is also proposing a harmonised approach across the union for the rescue or winding-down of ailing insurers. It follows on from a wholesale overhaul of banking resolution in the wake of the financial crash.

Investors

The planned insurance reforms envisage debt investors facing losses – or being converted into equity holders – if an insurer runs into trouble. But they stop short of replicating other post-crash banking sector reforms, such as the setting-up of a single European resolution fund for companies in trouble, or an obligation that insurers issue specific amounts and types of debt that could be “bailed in” during a crisis.

The Department of Finance and Central Bank of Ireland moved ahead of the publication of the EU plans by issuing a consultation paper earlier this month on a national resolution framework for insurers, asking whether the State should expand the role of the existing Insurance Compensation Fund (ICF) or set up a standalone fund.

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The Irish consultation paper asks for comments from interested parties on whether arrangements be should put in place to ensure that any levies put on insurers “are not directly imposed on the policyholders”. However, industry observers say that the costs will ultimately be borne by consumers.

Lobby group Insurance Ireland said that the the EU proposal “falls short” of an ambition to have a harmonised EU-wide approach to resolution. “The commission proposal focuses on national markets rather than the single market and might lead to inconsistencies and fragmentation,” it said.

Meanwhile, the commission’s proposed amendment to capital rules, known as Solvency II and in force since 2016, would release €90 billon of capital in the short term and an additional €30 billion in the long term, according to a question-and-answer document accompanying the announcement.

For context, EU insurers had more than €10 trillion of assets under management as of late 2020, according to industry body Insurance Europe.

Amendments

The aim is that the amendments, subject to approval from EU states and the European Parliament, will encourage insurers to invest to help the EU economy as it recovers from the pandemic as well as put money into green infrastructure and projects to help the EU reach its objective of being carbon neutral by 2050.

“Today’s proposal will help the insurance sector step up and play its full part in the EU economy,” said Ms McGuinness, the commissioner in charge of financial services, financial stability and capital markets.

“We are enabling investment in the recovery and beyond. And we’re fostering the participation of insurance companies in the EU’s capital markets, providing the long-term investment that is so vital for a sustainable future. Our growing capital markets union is essential for our green and digital future. We’re also paying close attention to the consumer perspective; policyholders can be reassured that they will be better protected in future if their insurer runs into difficulties.”