European Council and Parliament agree amendments to Solvency II and IRRD
The Council of the European Union and the European Parliament have announced provisional agreement on amendments to Solvency II and the Insurance Recovery and Resolution Directive (IRRD). The press release is available here.
The press release indicates that the reforms to Solvency II will boost long-term investment from (re)insurers in European businesses, particularly in relation to financing the green transition and the recovery from the Covid-19 pandemic. These statements have echoes of the reasons for the ‘Solvency UK’ reforms which promise to free up capital from UK (re)insurers by changes to the risk margin and matching adjustment, so that it can be invested in UK infrastructure and businesses, as part of the ‘Brexit dividend’.
The European (re)insurance industry will also welcome the indications that simplified and proportionate rules will reduce the administrative burden on low risk profile undertakings (i.e. small and non-complex insurers, which should hopefully include captive undertakings). For more detail on some of the key points from the amendments to Solvency II which emerged through the EU legislative process, see my previous post here.
On the IRRD, as expected, Member States will have to set up national insurance resolution authorities, either within existing competent authorities (but as independent departments separate from the supervisory functions) or as standalone legal entities. The resolution authorities will have a range of tools to deploy when faced insurers that are failing or likely to fail (such as solvent run-off, write down and conversion and transfer tools). The requirement for (re)insurance companies to draw up and submit pre-emptive recovery plans to national supervisory authorities has been reduced, as it will only apply to companies representing at least 60% of the respective (re)insurance market (down from 80%). How this will be reconciled with the existing Irish regulations for pre-emptive recovery planning for insurers remains to be seen.
Similarly, resolution authorities will only have to draw up a resolution plan for (re)insurers representing at least 40% of their respective market (down from 70%). In more good news for low risk profile undertakings, the press release indicates small and non-complex undertakings will in principle not be subject to pre-emptive recovery planning requirements on an individual basis.
The deadline for Member States to implement the proposed amendments to Solvency II and the IRRD into national law is 1 January 2026.