The Committee on Economic and Monetary Affairs (ECON) in the European Parliament today adopted by 55 votes in favour, (3 votes against and 1 abstention) its position on the review of the Solvency II directive. Henrike Hahn, Member of the European Parliament (The Greens/EFA), substitute member of the ECON committee and shadow rapporteur for Solvency II comments:
“Today's vote on Solvency II is a clear success for climate protection, especially thanks to months of explicit Green pressure on the EPP Group. With the decision of the ECON-committee, we have come one-step closer towards ensuring that insurance companies finally have to address climate risks. As long-term investors and risk managers, insurers are crucial to a successful green transformation of our economy.
The parliamentary position on Solvency II bears a clear, green handwriting, for instance, by requiring insurance companies to draw up and publish transition plans that address sustainability and transition risks with regard to their business model and strategy.
Another green success is that the European Insurance and Occupational Pensions Authority (EIOPA) received a mandate to assess whether specific capital requirements should be set for sustainability and biodiversity risks. However, it is very unfortunate that we are not introducing the so-called “One-for-one rule” for insurers already today. According to this rule, insurance companies must fully cover the risks of every euro invested in fossil fuels with one euro of own capital. If insurers themselves make the decision to rely on fossil fuel investments in times of climate change, it is inexplicable why European taxpayers should provide blanket backing for this.
With today's decision, we are creating important incentives for insurers to no longer invest in fossil fuel projects or to insure them. However, an appropriate risk assessment of fossil investments with regard to capital requirements is still not possible without the "One-for-one rule".
It is also highly problematic that the EPP, in cooperation with the extreme right-wing ID group, was able to achieve massive capital relief for insurers. Here, great lobby pressure, which has been bowed to to the potential detriment of the citizens of Europe, plays an unfavourable role.
Despite good damage control from opposing cross-party cooperation, the decline in capital requirements is particularly dangerous at times of heightened financial stability risks, putting policyholders' and taxpayers' money at risk.
It is also a great success that, thanks to our green initiative, the risk emanating from crypto assets will in the future be better reflected in capital requirements. This way we are contributing to financial stability in the insurance sector.”
I would be happy to answer any further questions.
Briefing for the vote on 18.07.2023
The European Parliament's position on the revision of the Solvency II Directive, which provides the regulatory framework for insurers at EU-level, was put to the vote in the Economic and Monetary Affairs Committee on Tuesday, 19 July 2023.
The European Parliament's position received a majority: 55 MEPs voted in favour, 3 against and 1 abstained.
The revision of the directive aims, among other things, to improve cooperation between supervisory authorities and strengthen supervisory powers, to integrate climate risks more closely into reporting and risk management, and to improve information requirements for policyholders.
After complicated negotiations in the European Parliament, the trilogue negotiations with the Council of the European Union and the European Commission can begin in September. The Council had already decided on its position on Solvency II on December 20, 2022.
The Green Analysis
Long-term guarantees and equities:
- The calculation of the long-term guarantees and equities defines how much own capital insurers have to hold in order to meet their customers' claims in the future.
- Despite some damage limitation, we were ultimately unable to fully defend the push of the EPP and the extreme right-wing ID group for more capital relief, also because the Commission's proposal already contained a reduction in capital requirements.
- This will make the insurance sector more unstable in the future.
- In addition, large insurance companies can continue to use so-called internal models to calculate their capital requirements, which often leads to significantly lower requirements. The Commission's proposal provided for such companies to disclose to supervisory authorities at least the capital requirements that would have resulted from the application of the standard formula. However, the EPP Group blocked this aspect.
- The risks emanating from crypto assets will in the future be better reflected in insurers’ capital requirements.
Sustainability and governance:
- Insurers are required to run climate change scenario as part of their own risk and solvency assessment.
- Insurers must draw up transition plans, including goals and milestones, and these must be disclosed. This way, the commitment of insurers to decarbonisation and climate protection can be tracked in the future.
- EIOPA is mandated to assess whether specific capital requirements should be set for activities associated with high ESG and biodiversity risks. Unfortunately, the "one-for-one rule" has not yet been introduced for insurers.
- Sustainability risks should be disclosed and integrated into risk management processes. Insurers also need to consider the impact of their investment decisions on ESG factors.
- The cross-border cooperation of supervisory authorities will be enhanced to complete the internal market.
- Regulators gain new macroprudential powers in the event of liquidity or financial crises.
- In the future, policyholders will receive simpler and more targeted information on the solvency and financial situation of their insurer.
- Insurance companies must subject their balance sheets to regular audits.