EIOPA watchdog seeks insurance company capital regulations overhaul

Insurance company capital regulations - EU flags
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The EU organization is aiming to establish a more hands-on approach to the rules.

The European Union’s insurance company capital regulations require an overhaul that would provide a closer reflection of low interest rates, said the EU insurance watchdog. It also stated that stronger authority for intervention were required, such as banning dividends in order to maintain solvency throughout market shocks.

The EU’s Solvency II capital requirements from insurers is currently in a review process.

The Solvency II insurance company capital regulations impact insurers throughout the EU, including Allianz, Generali, and Axa. They were first introduced in 2016.

“EIOPA proposes changes in several areas but with balanced overall impact on insurers. This reflects the fact that Solvency II is overall working well,” said a statement from the European Insurance and Occupational Pensions Authority (EIOPA).

For this to move forward, the European Commission, the EU’s executive, would need to make legislative change proposals in Q3 2021. From there, the changes would need EU member state approval, as well as that of the European Parliament.

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The proposed changes to insurance company capital regulations are in response to trends from 2020.

Much of the reasoning behind the EIOPA’s recommendations have to do with trends that were identified in 2020. Starting in March, extreme market volatility occurred following the pandemic lockdowns in European economies. The impact from that was that central bank insurers reduced interest rates into negative territory in the euro zone.

According to the EIOPA, EU27 national supervisors should hold the authority to impose a capital surcharge on insurance companies in order to cover systemic risk. They should also have the power, said the watchdog, to impose further measures such as dividend bans, so that an insurance company’s financial position will be preserved.

In April, the EIOPA called on insurance companies to hold off distributions to maintain capital throughout the pandemic crisis. However, regulators in Germany chose not to participate.

Industry body Insurance Europe, called the EIOPA’s insurance company capital Insurance company capital regulations - EU flagsregulations proposals “disappointing”. It argued that it would make the capital rules more conservative, thereby reducing competition within the sector in the European Union.

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