Nearly 2 years following the European Commission's proposal, a significant milestone was achieved in July, when the submitted project received validation from the Parliament's Committee on Economic and Monetary Affairs (ECON).

Key Points

  • Several changes are underway in the quantitative pillar to address what is perceived as unwarranted volatility of the solvency ratio. These changes primarily focus on enhancing the existing counter-cyclical mechanisms that are already in place.
  • To incentivize insurers to boost their involvement in financing a sustainable economy over the long term, the long-term equity investment scheme (LTEI) is undergoing a redesign. The aim is to expand the scope of insurers’ assets eligible for favorable capital requirements under LTEI, allowing a larger portion to benefit from these advantages. 
  • The purpose of the revision is also to more accurately reflect the interest rate environment, specifically addressing the occurrence of negative rate configurations that were observed a few years ago.
  • Risk management policies and tools must be able to integrate environmental, social and governance factors. In particular, insurers will need to consider the implications of the net zero transition. At this stage, the text does not mention any modulation of capital requirements based on whether financial assets meet specific social or environmental criteria, but EIOPA has initiated research on this topic.
  • One of the main objectives of the revision is to alleviate the regulatory burden imposed by Solvency 2 on smaller market participants and entities, which do not generate significant risk exposures. Several amendments have been proposed to extend the principle of proportionality, which would streamline reporting and risk management processes or simplify the quantitative assessments for such entities.
  • The review does not overlook the protection of policyholders and the overall stability of the financial system. On the contrary, it introduces significant enhancements in these areas. This includes provisions to improve the monitoring of cross-border activities and the introduction of a dedicated chapter on preventing systemic risks.