Changes from report parliamentary committee draft to plenary report

DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

▸5 unchanged paragraphs

on the proposal for a directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012

(COM(2021)0582 – C90365/2021 – 2021/0296(COD))

(Ordinary legislative procedure: first reading)

The European Parliament,

– having regard to the Commission proposal to Parliament and the Council (COM(2021)0582),

Changed– having regard to Article 294(2) 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),(C90365/2021),

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

Removed– having regard to the opinion of the Committee on Legal Affairs on the use of delegated acts,

– after consulting the European Central Bank,

– 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),(A9-0251/2023),

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 4: (4) Ensuring effective resolution of failing insurance and reinsurance undertakings within the Union is an essential element in the completion of the internal market. The failure of such undertakings has an impact not only on policy holders and possibly the real economy and financial stability of the markets on which those insurance and reinsurance undertakings operate directly, but also on the trust in the internal market for insurance. The completion of the internal market in financial services has reinforced the interplay between the different national financial systems. Insurance and reinsurance undertakings are active on financial markets to manage their investment portfolio and the risks related to their activities. In that context, the inability of Member States to address the failure of an insurance or reinsurance undertaking and resolve it in a way that is predictable and harmonised and would effectively prevent broader systemic damage, can undermine the stability of financial markets and, consequently, the internal market in the field of financial services.

AddedAMENDMENTS BY THE EUROPEAN PARLIAMENT*

RemovedRecital 13: (13) It is necessary to ensure the suitability and effectiveness of the recovery and resolution framework while avoiding unnecessary administrative burdens and costs on undertakings and authorities. The implementation of such recovery and resolution framework should therefore be proportionate to the nature, scale and complexity of the undertaking concerned, and of its activities and services. Regarding the scope of the recovery and resolution planning requirements, authorities should determine, on the basis of a harmonised set of risk-based criteria, which undertakings are subject to the planning requirements. Low-risk profile undertakings as defined in Directive 2009/138/EC should be automatically exempt from the requirements of recovery and resolution planning.

Addedto the Commission proposal

RemovedRecital 15: (15) For an orderly resolution process, and to avoid conflicts of interest, Member States should delegate the resolution powers referred to in this Directive to the relevant insurance supervisory authorities.

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

RemovedRecital 20: (20) Resolution planning is an essential component of effective resolution. Supervisory authorities should therefore have all the information necessary to identify critical functions and ensure their continuation. Insurance and reinsurance undertakings have privileged knowledge of their own functioning and any problems arising from it, and supervisory authorities should therefore draw up resolution plans on the basis of, inter alia, the information provided by the undertakings concerned. / (This amendment applies throughout the text. Adopting it will necessitate corresponding changes throughout.)

Added2021/0296 (COD)

RemovedThe creation of additional administrative bodies should be avoided, in particular as in practice these authorities are often identical. Duplication of competences would lead to conflicts and confusion.

AddedProposal for a

RemovedTitle I – title: SUBJECT MATTER, SCOPE AND DEFINITIONS

AddedDIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

RemovedArticle 1 – paragraph 2 – subparagraph 1 a (new): Member States may provide for exemptions from the provisions of this Directive for undertakings that offer contracts within the meaning of Title II, Chapter II, Section 5, of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), provided it is ensured that the objectives of this Directive are still adequately met and, in particular, that the continuity of insurance relationships is guaranteed in the event of a failure of an undertaking within the meaning of paragraph 1 of this Article. For this purpose, Member States may, inter alia, require the establishment, maintenance or modification of a national protection scheme.

Addedestablishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012

RemovedAllows for an appropriate treatment of health insurance schemes that are used as an alternative to social security. Amendment to be read in conjunction with new Article 33a.

Added(Text with EEA relevance)

RemovedArticle 2 – paragraph 2 – point 7: deleted

AddedTHE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

RemovedThe creation of additional administrative bodies should be avoided, in particular as in practice these authorities are often identical. Duplication of competences would lead to conflicts and confusion

AddedHaving regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

RemovedArticle 2 – paragraph 2 – point 27: (27) ‘group supervisory authority’ means the supervisory authority in the Member State in which the group supervisor is situated; / (This amendment applies throughout the text. Adopting it will necessitate corresponding changes throughout.)

AddedHaving regard to the proposal from the European Commission,

RemovedThe creation of additional administrative bodies should be avoided, in particular as in practice these authorities are often identical. Duplication of competences would lead to conflicts and confusion.

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

RemovedArticle 2 – paragraph 2 – point 80: (80) ‘low-risk profile undertaking’ means a low-risk profile undertaking as defined in Article 13, point (10a), of Directive 2009/138/EC; / (This amendment applies throughout the text. Adopting it will necessitate corresponding changes throughout.)

AddedHaving regard to the opinion of the European Central Bank,

RemovedThis change is to align the exact spelling of the two legislative proposals that have been presented as a package.

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

RemovedArticle 3: deleted

AddedActing in accordance with the ordinary legislative procedure,

RemovedThe creation of additional administrative bodies should be avoided, in particular as in practice these authorities are often identical. Duplication of competences would lead to conflicts and confusion.

AddedWhereas:

RemovedArticle 4 – paragraph 1 – point a: (a) the contents and details of pre-emptive recovery plans provided for in Articles 5 to 8 and resolution plans provided for in Articles 9 to 12;

Added(1) Distress of insurance undertakings can have substantial repercussions on the economy and social welfare in Member States should such distress lead to a disruption of the protection provided to policy holders, beneficiaries or injured parties. The role of reinsurance undertakings in the economy, their interconnectedness with primary insurance undertakings and financial markets more broadly, as well as the relatively concentrated reinsurance market require an appropriate framework to deal with their distress or failure in an orderly fashion. The recovery and resolution of both primary insurance undertakings and reinsurance undertakings should therefore be addressed, taking into account their respective specificities.

RemovedAs the Article refers to both recovery and resolution plans, the Articles in Section 3 covering resolution planning should be mentioned as well.

Added(2) The global financial crisis of 2008 exposed the vulnerabilities of the financial sector and its interconnectedness. Causes of distress and failure appeared to be linked, amongst others, to the evolution of financial markets and to the intrinsic nature of insurance or reinsurance activities. In that regard, underwriting risks, that is under-provisioned claims, mispricing, that is underestimated premiums, asset-liability mismanagement and investment losses are often referred to as main sources of concern for insurance and reinsurance undertakings. In that context, taxpayer money has been used to restore the deteriorated financial conditions of several insurance undertakings. Although Directive 2009/138/EC of the European Parliament and of the Council aimed at strengthening the financial system in the Union and the resilience of insurance and reinsurance undertakings, it did not completely eliminate the possibility of failures of such insurance and reinsurance undertakings. High market volatilities and prolonged low levels of interest rates could be particularly harmful for the profitability and solvency position of insurance and reinsurance undertakings. The sensitivity of insurance and reinsurance undertakings to market and economic developments therefore calls for particular caution and an adequate framework to manage, including in a pre-emptive manner, potential deteriorations of the financial positions of such undertakings. Some recent failures and near-failures, in particular of a cross-border nature, illustrated weaknesses of the current framework that need to be addressed to organise adequately the orderly exit from the market of insurance or reinsurance undertakings.

RemovedArticle 4 – paragraph 1 – point c: (c) the content and level of detail of the information required from undertakings pursuant to Article 5(7), Article 10(2) and Article 12(1);

Added(3) Services performed by insurance or reinsurance undertakings that cannot be substituted easily within a reasonable timeframe, or at a reasonable cost for policy holders, beneficiaries or injured parties, need to be seen as critical insurance products that need to be continued. Such services can be critical at Union, national or regional level. The continuity of insurance or reinsurance protection is often preferable to the winding down of a failing undertaking as such continuity delivers the most favourable outcome for policy holders, beneficiaries or injured parties. It is therefore crucial that adequate tools are available to prevent failures and, where failures occur, to minimise negative repercussions by preserving the continuity of those critical insurance products.

RemovedEditorial adjustment. Reference in Commission proposal is incorrect.

Added(4) Ensuring effective resolution of failing insurance and reinsurance undertakings within the Union is an essential element in the completion of the internal market. The failure of such undertakings has an impact not only on policy holders and possibly the real economy and financial stability of the markets on which those insurance and reinsurance undertakings operate directly, but also on the trust in the internal market for insurance. The completion of the internal market in financial services has reinforced the interplay between the different national financial systems. Insurance and reinsurance undertakings are active on financial markets to manage their investment portfolio and the risks related to their activities. ▐In that context, the inability of Member States to address the failure of an insurance or reinsurance undertaking and resolve it in a way that is predictable and harmonised and would effectively prevent broader systemic damage, can undermine the stability of financial markets and, consequently, the internal market in the field of financial services.

RemovedArticle 4 – paragraph 1 a (new): 1a. The simplified obligations shall automatically be applied to low-risk profile undertakings.

Added(5) The global financial crisis of 2008 highlighted the need to develop an appropriate recovery and resolution framework for insurance and reinsurance undertakings. At international level, the Financial Stability Board (‘FSB’) developed, in October 2014, Key Attributes on effective resolution regimes for any insurance undertaking that could be systemically significant or critical if it fails. In June 2016, the FSB released complementary guidance on developing effective resolution strategies and plans for systemically important insurers. In parallel, the International Association of Insurance Supervisors (‘IAIS’) adopted in November 2019 Insurance Core Principles for all insurance and reinsurance undertakings, a Common Framework for Internationally Active Insurance Groups detailing standards for pre-emptive recovery planning, and actions that authorities are expected to take towards an insurance or reinsurance undertaking that would exit the market and enter into resolution . Those developments should be taken into account when laying down a framework for the recovery and resolution of failing insurance and reinsurance undertakings.

RemovedIn the spirit of proportionality, low-risk undertakings should automatically benefit from the set of simplified obligations.

Added(6) Many insurance and reinsurance undertakings are operating beyond national borders. A lack of coordination and cooperation between public authorities to prepare and manage the distress or failure of an insurance or reinsurance undertaking operating across borders would undermine Member States’ mutual trust, result in a suboptimal outcome for policy holders, beneficiaries and injured parties and affect the credibility of the internal market for insurance.