Capital Markets Union: Making it easier for insurers to invest in the real economy

The insurance industry is well-equipped to provide long-term finance by investing in equity and private debt, including of small and medium enterprises (SMEs), but the actual share of their investments in the real economy remains limited. As a result of today’s rules, insurers will have to hold less capital for such investments and will therefore find it more attractive to invest in the economy. This will further help mobilise private sector investment – a key objective of the Capital Markets Union. The newly adopted rules, which take the form of a Delegated Regulation, amend the EU prudential rules for the insurance sector, known as Solvency II, and follow up from the Mid-term review of the CMU Action Plan.

Commission Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “One of the main objectives of the CMU is to foster economic growth in Europe by removing barriers to investment. Insurers were highlighting that some of the Solvency II rules were preventing them from investing more in equity and private debt. We have listened to their concerns. The amendments adopted today will make it easier and more attractive for them to invest in SMEs and to provide long-term funding to the economy”.

Jyrki Katainen, Vice-President responsible for Jobs, Growth, Investment and Competitiveness said:“SMEs can play a crucial role in job creation and sustainable economic growth. To fulfil that role, they need access to a broad range of financing options, including via equity and privately-placed debt. Today’s actions will allow SMEs and other companies to have better access to such financing instruments from insurers. I am confident that this change will contribute to growth and prosperity across the Union”.

Based on expert advice from the European Insurance and Occupational Pensions Authority (EIOPA) and in-depth analyses by the Commission, today’s Delegated Act lowers the capital requirements for insurers’ investments in equity and private debt, also aligning the rules applicable to banks and insurers.

Today’s amendments also change various other aspects of the Solvency II implementing rules, such as:

• new simplifications in the calculation of capital requirements,
• improved alignment between the insurance and banking prudential legislations,
• updated principles and standard parameters to better reflect developments in risk management and the most recent data (including a better treatment of financial hedging strategies).

This will improve the balance between burden and risk and ensure that Solvency II remains up-to-date.

Next steps:

The amendments will now be subject to a scrutiny period of 3 months by the European Parliament and the Council.

Background:

This legislation takes the form of an amendment to Commission Delegated Regulation (EU) 2015/35 (Solvency II implementing rules). Solvency II is the first harmonised, risk-based EU-wide prudential framework for the insurance sector. This amendment is part of a scheduled review of the implementing rules of the Solvency II insurance regulatory framework, which precedes a more fundamental review of the Solvency II Directive in 2020.

Several previous targeted amendments to the Solvency II implementing rules adopted between 2015 and 2018 have already contributed to the objectives of the Capital Markets Union Action Plan, and supported insurers’ investments in the real economy. In particular, in 2015 and 2017, the Commission introduced preferential treatments in the standard formula capital requirements to equity and debt investments in infrastructure projects and infrastructure corporates. In 2018, the Implementing Measures were amended to introduce more tailored capital requirements for simple, transparent and standardised securitisation.