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Brussels approves changes to the Solvency II standard formula

12/03/2019 10:35 by The Soluciones Holísticas Team

The solvency criteria for investing in stocks and private debt get more relaxed.
The European Commission adopted on Friday 8 March 2019 a series of amendments to the delegated acts of Solvency II relating to the standard formula for the SCR calculus. They are changes of direct application once they are published, since the norm does not require any national legislative measure. The Member States and the European Parliament have a period of 3 months to raise objections.
The new rules will relax the capital requirements of insurance companies so that they can invest more in private shares and debt with the objective, according to the Executive, that their funds can be channeled "to the real economy, especially through the financing of small and medium enterprises".
Brussels defends in a statement that the European insurance sector is "well prepared" to make long-term investments in private stocks and debt, but "the real share of its investments in the real economy is still limited."

Help to finance the economy in the long-term
After the modifications, in addition, the calculation of the solvency mattresses is simplified, the prudential rules that the banking sector and the insurance sector must comply with and seeks to better reflect the development in risk management.
"Insurers stressed that some of the Solvency II regulations prevented them from investing more in stocks and private debt. We have listened to your concerns. The amendments we have adopted make it easier and more attractive for SMEs to invest and provide long-term financing to the economy", highlights the Vice-President of the European Commission responsible for Financial Services, Valdis Dombrovskis.
Jyrki Katainen, Vice President responsible for Employment, Growth, Investment and Competitiveness, adds: "SMEs can play a crucial role in creating jobs and sustainable economic growth, and in order to fulfill that role, they need to have access to a wide range of options. financing, in particular through the issuance of private shares and debt, today's shares will allow SMEs and other companies to have better access to these financing instruments of insurers, I am sure that this change will contribute to growth and prosperity throughout the Union."

Areas affected by the revision of the standard formula:

  • Use of external ratings
  • Simplifications
  • Exhibitions in front of regional and local authorities
  • Risk mitigation techniques
  • Look-through
  • Specific parameters
  • Loss absorption capacity of deferred taxes
  • Recalibration of mortality and longevity risks
  • Recalibrations of certain catastrophic risks
  • Concentration in market risk
  • Currency risk at the group level
  • Debt without credit rating
  • Unlisted shares
  • Strategic investments in actions
  • Risk margin
  • Comparison of own funds in banking and insurance

 

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