2020 review of Solvency II : keeping the regime fit for purpose : in brief.
Date: 2020-12-20
Institutions: European Insurance and Occupational Pensions Authority
Subjects: directive (EU), financial solvency, financial supervision, insurance, insurance company, risk management

I N   B R I E F

#INSURANCE #SOLVENCYII

2020 REVIEW OF SOLVENCY II 
KEEPING THE REGIME FIT FOR PURPOSE

The introduction of Solvency II in January 2016 was a milestone.

The  insurance  industry  now  uses  a  risk-based  approach  to 
assess  and  mitigate  risks.  It  also  has  better  aligned  capital 
to the risks it runs. Insurers have significantly strengthened 
their governance models and their risk management capac-
ity.  The  Solvency  II  framework  is  working  well  overall  and 
indeed is a model which has been copied all over the world. 
EIOPA’s overall approach to the review has been therefore 
one of evolution not revolution.

However, there is no room for complacency particularly in 
the current economic situation. 

Solvency II needs to better reflect the low interest rate en-
vironment. It should also recognise that insurers with long-
term  and  illiquid  liabilities  are  particularly  able  to  hold  in-
vestments long-term.

In summary, the main purpose of the review was to make 
sure that the Solvency II regime remains fit for purpose. In 
doing so, we are also making sure that the regime can under-
pin the economic recovery after the pandemic. 

EIOPA’s approach to the Solvency II review is to address three areas where improvements are needed:

Balanced  updating  of  the 
regulatory framework
EIOPA  proposes  changes 
in 
several areas but with balanced 
overall  impact  on  insurers.  This 
reflects the fact that Solvency II 
is overall working well.

Recognition of the economic 
situation
In particular the persistence of low 
interest rates. EIOPA recommends 
proper  provisions  for  the  risk  of 
interest rate changes.

Regulatory toolbox completion
Including  better  protection 
of  policyholders  via  macro-
prudential 
recovery 
tools, 
and  resolution  measures  and 
insurance guarantee schemes.

TIMELINE

2019

2020

February
EIOPA  receives  a 
call  for  advice  on 
review 
the  2020 
from  the  European 
Commission

Mid-July to 
mid-October 
Public  consultation  on  draft 
advice  on 
reporting  & 
disclosure  and  on  insurance 
quarantee schemes 

Mid-October to January 2020
Public consultation on draft 
advice (on all advice other than 
on reporting & disclosure and 
insurance guarantee schemes)

March to June
Information  request  to 
undertakings for holistic 
impact assessment

July to September 2020
Complementary 
information request 
to take into account 
impact of Covid-19 
pandemic

December
Final advice 
submitted to EC 
and published

Q3 2021
European 
Commission 
proposal on 
the review

KEY FEATURES OF EIOPA’S ADVICE

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LONG-TERM GUARANTEE MEASURES AND EQUITY RISK
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Change the method of extrapolating risk-free interest rates to better reflect market rates
Volatility  adjustment:  better  align  the  design  of  the  adjustment  to  its  objectives,  in  particular 
reward insurers for holding illiquid liabilities.
Risk margin: recognise diversification over time thereby reducing size and volatility of the margin, 
especially for long-term liabilities
Equity risk: revise the criteria for the ability to hold equity long-term, by making a link with long-
term illiquid liabilities

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SOLVENCY CAPITAL REQUIREMENTS
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Increase  the  capital  requirement  for  the  interest  rate  to  reflect  the  steep  fall  of  interest  rates 
experienced during the last years and the existence of negative interest rates

PROPORTIONALITY
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Increase proportionality across the three pillars of Solvency II, especially regarding low risk undertakings
Introduce a new process for applying and supervising the principle of proportionality characterised by 
clarity, predictability, risk sensitiveness, supervisory dialogue and reversal of the burden of proof
Increase the effectiveness of proportionality embedded in the supervisory review process
Increase the transparency on the use of proportionality measures across the three pillars of Solvency II

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MACROPRUDENTIAL POLICY
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Supplement the current microprudential framework with a macroprudential perspective
Introduce tools and measures to equip national supervisory authorities with sufficient powers to 
address all sources of systemic risk

RECOVERY AND RESOLUTION
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Develop a minimum harmonised and comprehensive recovery and resolution framework for (re)
insurers to deliver increased policyholder protection and financial stability in the European Union

INSURANCE GUARANTEE SCHEMES
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Introduce a European network of national insurance guarantee schemes or alternative mechanisms 
that  should  meet  a  minimum  set  of  harmonised  features  for  the  benefit  of  policyholders  and 
financial stability.

LEARN MORE

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Visit the dedicated webpage: 
https://www.eiopa.europa.eu/browse/solvency-ii/2020-review-solvency-ii_en

CONTACT US
Westhafenplatz 1,  
60327 Frankfurt am Main
German y 
https://www.eiopa.europa.eu/

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PDF

ISBN 978-92-9473-278-1

doi: 10.2854/79297

EI-04-20-468-EN-N