European Commission launches Solvency II review

The European Commission has launched a comprehensive review of the Solvency II Directive, Directive 2009/138/EC, and has formally mandated EIOPA to provide technical advice to support that process. The review focuses on the prudential regime that has governed EU (re)insurers since January 2016 and is expected to shape the regulatory agenda for European insurance over the next several years.

The Commission’s review request covers the full Solvency II framework directive and associated level‑2 measures, with EIOPA asked to deliver a broad package of technical input. EIOPA has stated that the Commission asked it to provide technical advice for a “comprehensive review” of Solvency II, rather than a narrow recalibration of selected parameters.

EIOPA’s mandate from the Commission dates back to a Call for Evidence issued in February 2019, which formally requested advice on the review of the Solvency II Directive. Following that request, EIOPA issued a Consultation Paper on its Opinion on the 2020 review of Solvency II in October 2019, setting out proposed directions for change and inviting market feedback. EIOPA has since confirmed that it provided its technical advice in the form of an Opinion delivered to the Commission on 17 December.

The Commission has adjusted the timetable for the review process as the work has progressed. EIOPA announced that it revised its timetable for advice on the Solvency II review so that the final Opinion would be delivered by the end of December 2020, extending the original schedule. In parallel, the Commission has organised policy discussions on the review, including a conference titled “2020 Solvency II review: Challenges and opportunities” held on 29 January.

Prudential and capital framework focus

The review is centred on the Solvency II regulatory regime that has applied to EU insurers and reinsurers since January 2016, with the Commission and EIOPA examining how the framework has operated in practice. Fitch Ratings has been cited as stating that the 2020 review of Solvency II is likely to be the dominant regulatory theme in European insurance over the next few years, underlining the breadth of potential prudential changes.

EIOPA has reported that it is advising the Commission on technical issues that include the extrapolation of long‑term interest rates, an area that directly affects the valuation of long‑dated liabilities and the solvency position of long‑term business writers. In addition to interest‑rate extrapolation, EIOPA has provided advice on the review of the Solvency Capital Requirement Standard Formula, which determines capital charges for firms using the standard approach rather than internal models. The Commission’s request for a comprehensive review means that these technical areas sit within a wider assessment of whether the current capital framework remains appropriate under the prolonged low‑rate environment and evolving risk profile.

Delegated Regulation and asset treatment

Before the current comprehensive review cycle, the Commission had already made targeted changes to the Solvency II Delegated Regulation in an early first phase. EIOPA reports that, in this phase, the Commission adapted the Delegated Regulation to review the treatment of infrastructure investments, adjusting how these assets are recognised and calibrated within the solvency framework.

These earlier adjustments to infrastructure and STS securitisation form part of the background to the broader 2020 review, which now re‑opens the overall calibration and structure of the regime. EIOPA’s subsequent advice on the Solvency Capital Requirement Standard Formula builds on that first phase by looking across risk modules and parameters, rather than focusing solely on specific asset classes.

Consultation and stakeholder process

The Commission has coupled its technical mandate to EIOPA with a structured public consultation process on the Solvency II framework directive. It has started a public consultation on the review of the Solvency II framework directive, seeking views from stakeholders on the functioning of the regime and potential areas for amendment. The Commission has also hosted a dedicated conference on the “2020 Solvency II review: Challenges and opportunities”, providing a forum for discussion between policymakers, supervisors and industry representatives.

The Commission’s public consultation on the 2020 review ran between July and October 2020, with a summary report later published to set out the feedback received during that period. This consultation window overlapped with EIOPA’s work on its Opinion, allowing stakeholder input to feed into both the Commission’s policy considerations and EIOPA’s technical assessment. The combination of EIOPA’s Consultation Paper, the Commission’s public consultation and the January conference has created multiple channels for market participants and other stakeholders to comment on the operation of Solvency II.

EIOPA’s Opinion and revised timetable

EIOPA has confirmed that it revised its timetable for advice on the Solvency II review so that the final Opinion would be delivered by the end of December 2020. This revision was announced in April 2020 and set a clear deadline for the completion of EIOPA’s technical work under the Commission’s Call for Evidence. EIOPA then delivered its technical advice in the form of an Opinion on 17 December 2020, meeting the revised timetable.

The Opinion represents EIOPA’s consolidated technical advice to the Commission on the comprehensive review of the Solvency II Directive, covering areas such as long‑term interest‑rate extrapolation and the Standard Formula. With this Opinion delivered, the next step sits with the Commission, which will use EIOPA’s advice and the consultation feedback to prepare legislative proposals to amend the Solvency II framework directive and related level‑2 measures.

The Commission’s 2020 review of Solvency II is expected to remain a central feature of the European insurance regulatory agenda until the legislative phase is complete and any changes are implemented. The timing of final decisions will depend on the Commission’s legislative process and subsequent negotiations, which have not been specified in the available material.

--- Sources: https://ec.europa.eu/ https://fmlc.org/publications/solvency-ii-2020-review-response-to-eiopa-consultation/ https://www.eiopa.europa.eu/browse/regulation-and-policy/solvency-ii/2020-review-solvency-ii_en