On the occasion of today's discussion of Solvency 2 in the European Parliament's Economic and Monetary Affairs Committee ECON, MEP Henrike Hahn (Greens/EFA) and shadow rapporteur for Solvency 2, comments as outlined in Committee and quoted below:
"In line with the European Green Deal, it is crucial that we make the insurance sector fit for the green transition. We need to help insurers finance the green transition and we should now provide the insurance industry at the European level with the appropriate tools to do so.
Insurers can conduct climate risk analyses taking into account different scenarios. Through so-called transition plans, insurance companies can ensure that their business model is in line with the goal of climate neutrality enshrined in the EU climate law.
By introducing the "stewardship approach," insurers have the chance to use their shareholder rights to make the companies they invest in more climate neutral. We can already see a broad bipartisan consensus on these issues in the amendments, which is a good thing.
We should expand the mandate of the European Insurance and Occupational Pensions Authority (EIOPA) to review environmental, social and governance (ESG) risks. EIOPA should also assess the impact of biodiversity losses on insurers' capital requirements and explicitly include the liability side of insurers' balance sheets when assessing whether ESG risks warrant special treatment when setting capital requirements. In addition, regulators must be able to set additional capital requirements for insurers exposed to higher ESG risks if those risks are not adequately reflected in their capital requirements. Fossil fuel investments should also generally be treated as an investment in the riskiest asset class. This is exactly in line with the objectives that the Commission and Parliament have agreed to at the European level with the Green Deal.
One of the main objectives of Solvency II is to ensure that the European insurance sector has sufficient capital. To achieve this goal, Solvency II must remain within a risk-based approach. To this end, any changes to existing capital requirements should be adequately justified by empirical evidence.
In order to create a level playing field in the insurance industry and to contribute to market transparency, insurers should publish a comparison between the capital requirements resulting from internal models and those that would have resulted from the application of the standard formula. If the use of internal models results in capital requirements that are less than 75% of those that would have resulted from the application of the standard formula, insurers should provide clear evidence of this difference. This is the only way to maintain the confidence of market participants and policyholders in the insurance industry.
We also need to strengthen the supervisory framework for a fair and well-managed insurance sector. To this end, EIOPA's role in cross-border coordination should be strengthened. This includes EIOPA being able to initiate mediation and conduct on-site inspections on its own initiative. In addition, it would be beneficial to strengthen the exchange of information on macroprudential measures and to introduce further requirements on supervisory independence, such as mandatory cooling-off periods and the prohibition of trading in certain securities, similar to what is done in the banking sector.
I am pleased that some of my colleagues from the European Parliament have already made similar proposals to strengthen the supervisory framework."
Solvency II is a Directive of the European Union that codifies and harmonises insurance regulation.
My team and I are at your disposal for any further questions.