Brussels (Brussels Morning) The European Insurance and Occupational Pensions Authority (EIOPA) wants to update capital rules for insurers to expand intervention powers and reflect low interest rates, Reuters reports.
The push comes as the bloc reviews its Solvency II capital requirements for insurers that were put in place in 2016, with EIOPA now proposing changes in several areas.
The changes should have a balanced overall impact on insurers to reflect “the fact that Solvency II is working well overall,” an EIOPA statement points out.
EIOPA cites severe market volatility in March caused by restrictions that were introduced at the time in the fight against the coronavirus pandemic, as well as the effects of negative interest rates on insurers as reasons for changing capital rules.
In a note to clients, the Keefe, Bruyette & Woods investment banking firm claimed regulators were seeking authority well beyond the legal minimum in their efforts to intervene in insurers’ capital management decisions.
The EU Commission is to propose legislative changes in the third quarter of 2021, which will then have to be approved by EU member states and the EU Parliament.
EIOPA wants national watchdogs in the EU to have the authority to impose capital surcharge on insurers, a move aimed at covering systemic risk. It says national supervisors should also have the authority to impose bans on dividends to protect financial positions of insurers.
In addition, the insurance regulator wants national supervisors to have the authority to freeze policyholders’ redemption rights in exceptional circumstances. EIOPA maintains that insurers should have rules, just like banks, that govern their closure should they fail.
In April, EIOPA called on insurers to temporarily stop dividends distribution to protect their capital amid the coronavirus pandemic. However, German regulators did not conform.
Insurance Europe, comprising 37 national insurance associations, criticised EIOPA’s proposal as too conservative, stressing it would make the sector less competitive. The review should fix what needs fixing, it argued, rather than seeking a substantial overhaul with an extensive list of potential changes.