Changes from report parliamentary committee draft to plenary report

DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

Changedon the proposal for a directive of the European Parliament and of the Council Amendingamending Directive 2009/138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision

▸4 unchanged paragraphs

(COM(2021)0581 – C90367/2021 – 2021/0295(COD))

(Ordinary legislative procedure: first reading)

The European Parliament,

– having regard to the Commission proposal to Parliament and the Council (COM(2021)0581),

Changed– having regard to Article 294(2) and Article 53(1), Article 62 and Article 114 of the Treaty on the Functioning of the European Union, pursuant to which the Commission submitted the proposal to Parliament (C90439/2021),(C90367/2021),

– having regard to Article 294(3) of the Treaty on the Functioning of the European Union,

– having regard to the opinion of the European Economic and Social Committee of 23 February 2022,

– having regard to Rule 59 of its Rules of Procedure,

Changed– having regard to the report of the Committee on Economic and Monetary Affairs (A90000/2022),(A9-0256/2023),

1. Adopts its position at first reading hereinafter set out;

2. Calls on the Commission to refer the matter to Parliament again if it replaces, substantially amends or intends to substantially amend its proposal;

3. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Change 1

RemovedRecital 3: (3) As underlined in the Commission’s Communication of 24 September 2020 ‘A Capital Markets Union for people and businesses’18 , incentivising institutional investors, in particular insurers, to make more long-term investments will be instrumental in supporting re-equitisation in the corporate sector. To facilitate insurers’ contribution to the financing of the economic recovery of the Union, the prudential framework should be adjusted to better take into account the long-term nature of the insurance business. In particular, when calculating the Solvency Capital Requirement under the standard formula, the possibility to use a more favourable standard parameter for equity investments which are held with a long-term perspective should be facilitated, provided that insurance and reinsurance undertakings comply with sound and robust criteria, that preserve policyholder protection and financial stability. Such criteria should aim to ensure that insurance and reinsurance undertakings are able to avoid forced selling of equities intended to be held for the long term, including under stressed market conditions. As insurance and reinsurance undertakings have a wide range of risk-management tools to avoid such forced selling, the criteria should recognise such variety and not require the legal or contractual ring-fencing of long-term investment assets in order to benefit from the more favourable standard parameter for equity investments.

AddedAMENDMENTS BY THE EUROPEAN PARLIAMENT*

RemovedRecital 4: deleted / (deleted) / (deleted) / (deleted)

Addedto the Commission proposal

RemovedRecital 5: deleted / (deleted)

Added---------------------------------------------------------

RemovedRecital 14: (14) Captive insurance undertakings and captive reinsurance undertakings which only cover risks associated with the industrial or commercial group to which they belong, present a particular risk profile that should be taken into account when defining some requirements, in particular on own-risk and solvency assessment, disclosures and the related empowerments for the Commission to further specify the rules on such empowerments. Therefore, captive insurance undertakings and captive reinsurance undertakings should benefit from the proportionality measures by being automatically classified as low-risk profile undertakings.

Added2021/0295 (COD)

RemovedRecital 19: (19) Reporting and disclosure deadlines should be clearly laid down in Directive 2009/138/EC. However, it should be recognised that exceptional circumstances such as sanitary emergencies, natural catastrophes and other extreme events could make it impossible for insurance and reinsurance undertakings to submit such reports and disclosures, within the established deadlines. To this end, the Commission should be empowered to extend the deadlines under such circumstances after having consulted EIOPA.

AddedProposal for a

RemovedRecital 21: deleted

AddedDIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

RemovedRecital 22: deleted

Addedamending Directive 2009/138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision

RemovedRecital 24: deleted

Added(Text with EEA relevance)

RemovedRecital 25: (25) Good coordination between supervisory authorities is important for identifying, monitoring and analysing possible risks to the stability of the financial system that may affect insurance and reinsurance undertakings, and for taking measures to effectively and appropriately address those risks. Cooperation between authorities should also aim to avoid any form of duplicative or inconsistent actions.

AddedTHE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

RemovedRecital 26: deleted

AddedHaving regard to the Treaty on the Functioning of the European Union, and in particular Article 53(1), Article 62 and Article 114 thereof,

RemovedRecital 30: deleted

AddedHaving regard to the proposal from the European Commission,

RemovedRecital 31: deleted

AddedAfter transmission of the draft legislative act to the national parliaments,

RemovedRecital 34: (34) The determination of the relevant risk-free interest rate term structure should balance the use of information derived from relevant financial instruments with the ability of insurance and reinsurance undertakings to hedge interest rates derived from financial instruments. In particular, it can happen that smaller insurance and reinsurance undertakings do not have the capacities to hedge interest rate risk with instruments other than bonds, loans or similar assets with fixed cash-flows. The relevant risk-free interest rate term structure should therefore be extrapolated for maturities where the markets for bonds are no longer deep, liquid and transparent. However, the method for the extrapolation should make use of information derived from relevant financial instruments other than bonds, where such information is available from deep, liquid and transparent markets for maturities where the bond markets are no longer deep, liquid and transparent. To ensure certainty, harmonised application and sufficient convergence speed while also allowing for timely reaction to changes in market conditions, the Commission should adopt delegated acts to specify how the new extrapolation method should apply. For that purpose, the rules on the determination of the starting point of the extrapolation should be calibrated in such a way that the starting point for the euro is set at a maturity of 20 years.

AddedHaving regard to the opinion of the European Economic and Social Committee,

RemovedRecital 37: deleted

AddedActing in accordance with the ordinary legislative procedure,

RemovedRecital 39 a (new): (39a) Directive 2009/138/EC requires that the amount of eligible own funds necessary to support the insurance and reinsurance obligations be determined for the purpose of the risk margin calculation and that the Cost-of-Capital rate is equal to the additional rate, above the relevant risk-free interest rate, that an insurance or reinsurance undertaking would incur holding that amount of eligible own funds. Directive 2009/138/EC also requires that the Cost-of-Capital rate be reviewed periodically. For that purpose, the reviews should ensure that the Cost-of-Capital rate remains risk-based and is not set at an overly conservative level. In addition, the projection of future capital requirements for that purpose should take into account the time-dependence of risks in the aggregation of projected future capital requirements. In particular, projected future capital requirements for later years should have a lesser contribution to the risk margin than projected capital requirements of the same level pertaining to earlier years.

AddedWhereas:

RemovedRecital 43 a (new): (43a) Directive 2009/138/EC requires that the Solvency Capital Requirement for interest-rate risk reflect the sensitivity of the values of assets, of liabilities and of financial instruments to changes in the term structures of interest rates, or in the volatility of interest rates. In light of recent experience with very low interest rates in many developed economies, the Solvency Capital Requirement for interest-rate risk should capture the risk that very low and negative interest rates can reduce even further. The modifications necessary to achieve that objective might have a significant impact on the solvency position of undertakings and should be introduced in a manner that avoids disruptions to the insurance and reinsurance market.

Added(1) Directive 2009/138/EC of the European Parliament and of the Council has created more risk-based and more harmonised prudential rules for the insurance and reinsurance sector. Some of the provisions of that Directive are subject to review clauses. The application of that Directive has substantially contributed to strengthening the financial system in the Union and rendered insurance and reinsurance undertakings more resilient to a variety of risks. Although very comprehensive, that Directive does not address all identified weaknesses affecting insurance and reinsurance undertakings.

RemovedRecital 44: (44) As part of the supervisory review process, it is important for supervisory authorities to be able to compare information across the companies they supervise. Partial and full internal models allow to capture the individual risk of an undertaking better and Directive 2009/138/EC allows insurance and reinsurance undertakings to use them for determining capital requirements without limitations stemming from the standard formula.

Added(2) The Covid-19 pandemic has caused tremendous socio-economic damage and left the EU economy in need of a sustainable, inclusive and fair recovery. Likewise, the economic and social consequences of Russia’s war against Ukraine are still unfolding. This has made the work on the Union’s political priorities even more urgent, in particular ensuring that the economy works for people and attaining the objectives of the European Green Deal. The insurance and reinsurance sector can provide private sources of financing to European businesses and can make the economy more resilient by supplying protection against a wide range of risks. With this dual role, the sector has a great potential to contribute to the achievement of the Union’s priorities.

RemovedRecital 47: (47) National supervisory authorities should be able to collect relevant information on the investment strategy of undertakings, analyse it together with other relevant information that might be available from other market sources. This could include supervising risks related to specific credit cycles, economic downturns and collective or herding behaviour in investments.

Added(3) As underlined in the Commission’s Communication of 24 September 2020 ‘A Capital Markets Union for people and businesses’, incentivising institutional investors, in particular insurers, to make more long-term investments will be instrumental in supporting re-equitisation in the corporate sector. To facilitate insurers’ contribution to the financing of the economic recovery of the Union, the prudential framework should be adjusted to better take into account the long-term nature of the insurance business. In particular, when calculating the Solvency Capital Requirement under the standard formula, the possibility to use a more favourable standard parameter for equity investments which are held with a long-term perspective should be facilitated, provided that insurance and reinsurance undertakings comply with sound and robust criteria, that preserve policyholder protection and financial stability. Such criteria should aim to ensure that insurance and reinsurance undertakings are able to avoid forced selling of equities intended to be held for the long term, including under stressed market conditions. As insurance and reinsurance undertakings have a wide variety of risk-management tools to avoid such forced selling, those criteria should recognise such variety and not require the legal or contractual ring-fencing of long-term investment assets in order for insurance and reinsurance undertakings to benefit from the more favourable standard parameter for equity investments. Finally, the insurance or reinsurance undertaking’s management should commit to a minimum holding period of the equities through written policies and demonstrate its ability to maintain this portfolio over that holding period, rather than being compelled to invest for the said holding period, which is not prudent.

RemovedRecital 54: (54) Supervisory authorities should have the necessary powers to preserve the solvency position of specific insurance or reinsurance undertakings during exceptional situations such as adverse economic or sector events affecting a large part or the totality of the insurance and reinsurance market, in order to protect policyholders and preserve financial stability. Those powers should be applied on a case-by-case basis, as a matter of last resort and only if there is imminent danger of policyholders' rights being endangered or to financial stability. Those measures should respect common risk-based criteria and not undermine the functioning of the internal market.

Added(3a) Adjustments that better take into account the long-term nature of the insurance business might lead to an increase in free available capital as a result of the reduction in the Solvency Capital Requirement. Where this is the case, insurance and reinsurance undertakings should consider not to direct freed-up capital towards shareholder distributions or management bonuses, but should strive to direct the freed-up capital towards productive investments in the real economy in order to support the economic recovery and the Union’s broader policy objectives.

RemovedRecital 62: deleted

Added(3b) Insurers and reinsurers have the freedom to invest anywhere in the world, and are not limited to the Union. Investments in third countries may also be conducive to general development aid policies of the Union or Member States. Therefore, insurance and reinsurance undertakings should ensure that their investment policy reflects the objectives of the up-to-date EU list of non-cooperative jurisdictions for tax purposes and of Directive 2015/849 of the European Parliament and of the Council in respect of high-risk third countries.

RemovedRecital 77: (77) Commission Delegated Regulation (EU) 2019/98130 introduced a preferential treatment for long-term investments in equity. The duration-based equity risk submodule, which also aims at reflecting the lower risk of investing over a longer time horizon, is of limited use in the Union because Member States have the option of not using that submodule and it is subject to criteria that are stricter than those applicable to long-term equity investments. Therefore, the criteria should be adapted to make the use of that submodule at least as attractive as other forms of long-term investments in equity.

Added(4) In its Communication of 11 December 2019 on the European Green Deal, the Commission made a commitment to integrate better into the Union’s prudential framework the management of climate and environmental risks. The European Green Deal is the Union’s new growth strategy, which aims to transform the Union into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases by 2050. It will contribute to the objective of building an economy that works for the people, strengthening the Union’s social market economy, helping to ensure that it is future-ready and that it delivers stability, jobs, growth and investment. In its proposal of 4 March 2020 for a European Climate Law, the Commission proposed to make the objective of climate neutrality and climate resilience by 2050 binding in the Union. That proposal was adopted by the European Parliament and by the Council and it entered into force on 29 July 2021. The Commission’s ambition to ensure global leadership by the EU on the path towards 2050 was reiterated in the 2021 Strategic Foresight Report, which identifies the building of resilient and future-proof economic and financial systems as a strategic area of action.

RemovedRecital 78: deleted

Added(5) The EU sustainable finance framework will play a key role in meeting the targets of the European Green Deal and environmental regulation should be complemented by a sustainable finance framework which channels finance to investments that reduce exposure to these climate and environmental risks. In its Communication of 6 July 2021 on a Strategy for Financing the Transition to a Sustainable Economy, the Commission committed to propose amendments to Directive 2009/138/EC to consistently integrate sustainability risks in risk management of insurers by requiring climate change scenario analysis by insurers.

RemovedRecital 79: deleted

Added(5a) Numerous legislative acts have recently been proposed and adopted to improve resilience and contribution to sustainability, in particular in relation to sustainability reporting, including Regulation (EU) 2019/2088 of the European Parliament and of the Council, a directive amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting, and a directive on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937, which all affect the insurance and reinsurance sector.