Vice-President Valdis Dombrovskis
Opening keynote speech at the Public Hearing on Solvency II
Brussels, 27 March 2018
Ladies and Gentlemen,
Welcome to Brussels and welcome to this public hearing on the Solvency II delegated act.
Insurance is fundamental to our economy, and countless households and businesses depend on it to hedge against risk. By ensuring the stability of insurance markets, Solvency II protects consumers and strengthens Europe's economic resilience. It has now been in effect for over two years, and today we are eager to listen to your views.
Today's hearing will focus on the implementing rules – or delegated act, which deals with stress-based standard capital requirements. It is due to be reviewed by the end of this year, and today's discussions will feed into this exercise.
In my speech, I would like to focus on our work to build a Capital Markets Union, before moving to the ongoing review of Solvency II. I will end by touching on a topic that is rapidly gaining in importance, namely sustainable finance.
Ladies and gentlemen, Europe's insurance sector supports our economy not only through the critical risk-management it provides. It also does so as one of the largest investors in economic growth, with more than €10 trillion in assets.
This is one of the reasons why the sector is important for our ongoing work to build the Capital Markets Union. CMU is an ambitious programme to diversify funding sources for companies, knock down barriers to cross-border investment, and increase options for investors. The aim is to create jobs and growth by augmenting the flow of capital to productive investments.
In the past few years, we have taken fundamental steps, and many of them relate to institutional investors like insurance companies and pension funds. For example, Europe's economy needs more investment in infrastructure such as energy pipelines, transport links and broadband rollout. So we have adjusted Solvency II to make it cheaper for insurance companies to invest in infrastructure projects and corporates. If insurers increased their investments in infrastructure to even 0.5% of total assets, this would mean an extra €20 billion of investment.
We have also adopted new rules to promote a safe and deep market for Simple, Transparent and Standardised securitisation, or STS. If these markets were built up again to the pre-crisis average, it would generate up to €150 billion in additional funding for the economy. Before summer, we aim to further amend capital requirements in Solvency II to take into account this new legal framework for high-quality securitisation. We will make sure that these revisions apply at the same time as the STS regulation in January 2019.
But despite steady progress our Capital Markets Union is still far from complete. Out of 12 legislative proposals on CMU that we have tabled so far, only three have been adopted. So the European Parliament and Member States need to accelerate their work to get CMU past the finish line before the next European elections. This is all the more urgent because Europe's largest financial centre is on the verge of leaving the single market. By the time Brexit happens, the pre-conditions for a true single market for capital need to be in place.
To complete the Capital Markets Union by 2019, we are following a strategy for major work along three dimensions: the EU Single Market, clear and proportionate rules, and efficient supervision.
Let me go through them one by one:
First, we want consumers and investors to benefit fully from the single market thanks to new EU-wide financial products.
For example, last June we proposed a Pan-European personal pensions product, or PEPP. PEPP would be a voluntary and portable product complementing existing pensions. They would have the same standard features wherever they are sold in the EU, and a broad range of providers would be able to offer them, including insurance companies.
By unlocking savings currently lying idle on low-interest rate accounts, PEPP could put funds to more productive use, and help Europeans plan for their retirement. And with appropriate tax incentives in Member States, we estimate that PEPP could double the expected growth of the private pensions market. The Parliament and Member States are making good progress on this file, and we stand ready to help them proceed towards the phase of trilogue negotiations.
Second, we want to remove barriers to deeper capital markets through clearer and simpler rules for businesses. For example, we hope for a quick agreement on our 2016 proposal on business insolvency, to promote preventive restructuring and give viable businesses a second chance.
The third dimension is about achieving more consistent supervision of EU capital markets, to protect investors and financial stability.
The European Supervisory authorities - EIOPA, ESMA, and EBA - are doing important work to implement EU legislation and supervise financial markets. We need to equip them to address new challenges and risks, and to better promote supervisory convergence in the EU. This is essential for deeper financial integration across the single market. So last year, we proposed targeted changes to their tasks, governance, and funding. The Commission stands ready to discuss with the Parliament and Council ideas to accelerate current negotiations.
Let me now come back to Solvency II and this year’s review of the delegated act. The Commission is working closely with EIOPA in this area, so I would like thank the EIOPA Chairman Mr. Gabriel Bernardino and his staff for their hard work on the technical advice for this review.
Based on this advice, today's hearing is an opportunity to discuss targeted improvements along three main axes:
First, we want to help insurers invest in growth creation. In particular, high quality private equity and privately placed debt should benefit from the same capital treatment as listed equity or investment grade corporate bonds.
Second, we will consider how proportionality under Solvency II can be improved, to minimise the reporting burden as much as possible. This is a priority for us – and I know that it is also for you.
Finally, we want to remove inconsistencies that have been identified in the implementing rules. Your experiences with over two years of applying Solvency II will be particularly useful here.
We are also interested in hearing your views on other relevant areas.
Many insurance companies are concerned about the impact that Solvency II may have on their long-term business, and the Commission takes this concern seriously. On this, we are open-minded and it goes without saying that any major reform would need to be well justified. In any case, this topic will be for the review on this directive, in 2020. We will shortly ask EIOPA to collect additional information over the next years on the impact of Solvency II on long-term investments.
I would like to end by focusing on an increasingly important factor in our work – namely sustainability. Climate change can have existential consequences for the insurance sector: last year, the amount of losses from natural disasters reached an all-time high – €110 billion. The more the planet warms, the harder it will be to insure it.
The financial sector as a whole must take responsibility for the health of our planet and seize the opportunities of the low-carbon transition. That is why we recently published our Action Plan for sustainable finance.
It is a ten-point strategy to provide a unified framework for all forms of sustainable finance, help speed up green investments, and spread sustainable finance globally. It was based on the advice of the High-Level Expert Group on sustainable finance, chaired by Christian Thimann, from whom you will hear this afternoon.
Let me mention some points of our Action Plan which are probably the most relevant for insurance:
First, we will propose to clarify the sustainability duties of various actors in the investment chain, such as institutional investors and insurance distributors. Institutional investors should work closely with their beneficiaries to consider sustainability in asset allocation and risk-management.
Second, we want to encourage companies to be more transparent about how they deal with sustainability risks. By next year, we will propose to revise our guidelines for corporate disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosure. We will also ensure that accounting rules do not discourage sustainable and long-term investments.
Finally, we will consider incorporating sustainability into prudential rules, including by amending Solvency II. For this, we will send a request for advice to EIOPA later this year. Our short-term actions will focus on qualitative and disclosure requirements in the Solvency II implementing measures.
Ladies and Gentlemen, the insurance sector matters for Europe, in many ways. It protects people and businesses from uncertainty and risks, it invests in our economy, and it may be an important ally in the fight against global warming.
Fundamentally, Solvency II is about maintaining financial stability and protecting consumers. That is why it matters that we keep it up to date, with targeted adjustments if necessary.
Solvency II has so far proved to be a success. As we build a Capital Markets Union that also works for our planet, the ambition is to continue this success also in the future.