COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the documents Proposal for a Directive of the European Parliament and of the Council amending Directive 2009/138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision and Proposal for a Directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012
Date: 2021-09-22
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: aid to undertakings, company in difficulties, financial risk, financial solvency, financial supervision, insurance company, insurance law, principle of proportionality, reinsurance, risk management

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   EUROPEAN COMMISSION  Brussels, 22.9.2021  SWD(2021) 261 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the documents Proposal for a Directive of the European Parliament and of the Council amending Directive 2009/138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision and Proposal for a Directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012 {COM(2021) 581 final} - {SEC(2021) 620 final} - {SWD(2021) 260 final}  
 
 
Executive summary sheet 

Impact assessment of the Proposal for a Directive amending Directive 2009/138/EC of the European Parliament and of the 
Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II)  

A. Need for action 

Why? What is the problem being addressed?  
The Solvency II Directive, which has applied since 2016, introduced a harmonised, sound and robust prudential framework 
for  insurance  firms  in  the  EU.  It  is  based  on  the  risk  profile  of  each  individual  insurance  company  in  order  to  promote 
comparability, transparency and competitiveness. 
The evaluation has concluded that, overall, the Solvency II framework functions effectively, but that certain elements need 
to be improved.  

1.  Solvency  II  still  includes  disincentives  to  long-term  investment  in  equity,  and  does  not  capture  the  longer-term 

sustainability risks;  

2.  Solvency  II  does  not  appropriately  reflect  the  low  interest  rates  environment,  and  may  unduly  generate  high 

volatility in solvency ratios;  

3.  Solvency II can prove to be overly complex for small and less risky insurers; 
4. 

recent  failures  of  insurers  operating  across  borders  highlighted  shortcomings  in  supervision  and  confirmed  that 
policyholders are not consistently protected across the EU if their insurer fails;  
the supervisory toolkit to prevent systemic risks may prove to be insufficient.   

5. 

What is this initiative expected to achieve?  
Taking  into  account  the  above-mentioned  problems,  the  review  of  Solvency  II  aims  to  go  further  in  achieving  the 
Commission’s initial objectives for Solvency II, namely: 

increasing insurers’ contributions to the long-term and sustainable financing of the economy; 

1. 
2.  preserving the international competitiveness of EU insurers and improving their efficiency; 
3.  enhancing the protection of policyholders; 
4.  contributing to financial stability. 

What is the value added of action at EU level?  
The review will amend existing EU legislation and will introduce new elements, notably on environmental risks, resolution, 
macro-prudential tools and, possibly, insurance guarantee schemes (IGSs). These amendments are justified by the cross-
border nature of the insurance business. It is more efficient for insurers to be subject to a single set of rules than to various 
national frameworks. Similarly, only EU-level action can ensure that all consumers benefit from equal treatment.  

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred  choice  or 
not? Why?  
The baseline scenario for all problems is “do nothing”.  
Regarding  long-term  and  green  investments,  the  preferred  options  are  to  facilitate  long-term  investments  in  equity  by 
loosening  the  eligibility  criteria  for  preferential  treatment  of  such  investments,  and  to  strengthen  risk  management 
requirements  for  climate  and  sustainability  risks.  Other  options  that  were  considered  include  proceeding  to  a  general 
reduction in capital requirements for all equity investments and/or lowering capital requirements for green investments.   
Regarding  risk  sensitivity  and  volatility,  a  first  option  was  to  fix  all  technical  flaws.  However,  the  preferred  option  is  to 
proceed  to  such  fixes  while  ensuring  that  the  cumulative  impact  of  all  changes  remains  moderate  in  terms  of  capital 
requirements. 
Regarding proportionality, one approach is to follow EIOPA’s advice; this implies very significant increases in thresholds of 
exclusion  from  the  scope  of  Solvency  II  and  the  identification  of  “low  risk  profile”  insurers,  which  would  be  subject  to 
automatic proportionality measures. The preferred approach is to proceed to a lower increase in exclusion thresholds, but 
to go further than EIOPA in enhancing proportionality within Solvency II, including for public disclosure. 
Regarding  quality  of  supervision  and  policyholder  protection,  the  choice  is  to  cumulatively  improve  the  quality  of  cross-
border supervision and to introduce minimum harmonising rules that aim to ensure policyholders are adequately protected 
in cases of insurance (near-)failure.  
Regarding financial stability, while EIOPA and the ESRB propose to introduce an extensive macro-prudential framework, 
similar to what exists in the banking sector, the preferred option is to make targeted amendments to ensure supervisors 
have sufficient tools to prevent financial stability risks, in line with international standards. 
This combination of preferred options is the most cost-effective, and is consistent with the main objectives of Solvency II 
(policyholder protection, financial stability) and with the current political priorities (CMU, European Green Deal). 

Who supports which option?  

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Support from stakeholders varies between the different issues.  
Among  the  proposed  options,  the  majority  of  stakeholders  would  support  the  proposed  way  forward  on  long-term  and 
green financing, and on risk sensitivity and volatility.  
On  proportionality,  policyholders  would  support  the  preferred  option.  Insurers  that  would  benefit  from  the  proportionality 
measures would  generally  support the proposed  approach,  although they  would go further than this approach regarding 
the scope for excluding insurers from Solvency II.  
Consumers/NGOs  would  support  the  preferred  option  on  quality  of  supervision  and  policyholder  protection,  and  highly 
value the need to preserve financial stability. Insurers would prefer limited changes in those two areas. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?  
The combination of preferred options is expected to: 

facilitate insurers’ ability to fund businesses; 
incentivise insurers to take better account of sustainability risks; 
foster long-termism in insurers’ activities, by better mitigating the impact of market volatility; 

- 
- 
- 
-  enhance policyholder protection by  

i. 
ii. 
iii. 

better incorporating the low-yield environment; 
strengthening coordination and consistency of supervision; 
introducing minimum harmonising rules to mitigate the impact of insurance (near-)failures.  

-  help preserve financial stability. 

The  initiative  would  result  in  an  increase  of  up  to  EUR  30  billion  in  the  amount  of  own  funds  in  excess  of  capital 
requirements, depending on market conditions. As the changes that would reduce insurers’ solvency ratios would only be 
gradually implemented over several years, in the short term the initiative would release up to EUR 90 billion of capital that 
insurers could use to support the economic recovery.  

What are the costs of the preferred option (if any, otherwise main ones)?  
Some  individual  changes,  notably  in  relation  to  interest  rates,  would  on  their  own  reduce  insurers’  capital  resources. 
However, as stated above, the cumulative effect of all changes would be an increase in insurers’ own funds in excess of 
capital requirements. 
The cost of introducing IGSs would be around EUR 21 billion, which would be partly passed on to policyholders through 
increased premiums.  
The review would generate moderate implementation and administrative burdens.  

How will businesses, SMEs and micro-enterprises be affected?  
The review could waive the mandatory application of Solvency II for up to 186 insurers. In addition, at least 249 insurers 
that would remain within the scope of Solvency II would benefit from simpler and more proportionate rules, which would 
reduce their compliance costs. Moreover, the review would facilitate insurers’ capital funding of SMEs. 

Will there be significant impacts on national budgets and administrations?  
No 

Will there be other significant impacts?  
No 

D. Follow up 

When will the policy be reviewed?  
The legislation will be subject to a complete evaluation 5 years after its implementation deadline,  to assess how effective 
and  efficient  it  has  been  in  achieving  the  objectives  presented  in  this  report  and  to  decide  whether  new  measures  or 
amendments are needed. 

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