Solvency II adopted: GDV warns of risks in secondary legislation
GDV welcomes the final adoption of the Solvency II regulatory framework. When designing the technical details, it is now important to take the industry's long-term obligations into account.
Following today's adoption of amendments to the Solvency II Directive by the Council of the EU, the German Insurance Association (GDV) has expressed concerns regarding the technical design of the relevant secondary legislation (‘Level 2’). “The details still to be determined must not jeopardise the progress made with the Directive,” emphasises Jörg Asmussen, Chief Executive Officer of the GDV.
Maintain long-term stability
A key concern for insurers is maintaining the existing valuation method for long-term liabilities. A stable basis for calculation is essential, particularly for life insurers, whose liabilities often span several decades. As market data is only available for periods of up to 20 years, longer-term liabilities are valued on the basis of the so-called risk-free interest rate curve, which later leads to the ‘Ultimate Forward Rate’ based on long-term inflation and interest rate expectations.
Asmussen warns against technical adjustments that could lead to the gradual convergence to the ‘Ultimate Forward Rate’ only starting after the 20th year: “A later start to the extrapolation would lead to greater fluctuations in technical provisions and could place an unnecessary burden on companies’ own funds. The tried-and-tested starting point at year 20, on the other hand, offers the necessary stability and predictability to be able to continue to reliably offer long-term guarantees.”
IRRD: Keep burdens to a minimum
In addition to the changes to Solvency II, the Insurance Recovery and Resolution Directive (IRRD), which obliges insurance companies to draw up pre-emptive recovery and resolution plans for the event of a crisis, has also been adopted. This Directive is intended to further strengthen the resilience of the industry.
Asmussen added: “Insurers have already proven their resilience to crises and are subject to strict supervision. It is therefore important that the new requirements are designed in such a way that they do not place an excessive burden on companies. The IRRD should be implemented with a sense of proportion so as not to jeopardise the industry's existing strengths.”
Further process
The process for specifying the technical details of Solvency II at ‘Level 2’ was resumed in May 2024. Specific results are not expected until mid-2025 at the earliest. Consultations on the IRRD are planned from early 2025. The drafts of the European Insurance and Occupational Pensions Authority (EIOPA) will be submitted to the European Commission in several batches within 18, 24 and 30 months.