* Insurance watchdog to review Solvency II in 2021
* Watchdog mulls adding macro-prudential aspects to rules
(Adds comment by Bernardino, further details, background)
FRANKFURT Oct 18 EU insurance industry
regulator EIOPA plans to add broad-brush measures over the next
few years to its core capital requirement rules, aimed at
reducing the risk of a financial crisis developing from within
the industry, it said on Tuesday.
"Mitigating the likelihood and the impact of a systemic
crisis in insurance be an important policy objective," Gabriel
Bernardino, chairman of the European Insurance and Occupational
Pensions Authority (EIOPA), told an insurance conference.
Low global interest rates are challenging insurers' business
models by narrowing the margins between what insurers earn from
investments and pay out to policyholders.
The EU's risk capital requirement rules for insurers, known
as Solvency II, came into force at the start of this year, and
their effectiveness is to be re-examined after five years.
"Our proposal is to use the 2021 overall review to integrate
in Solvency II a macro-prudential framework for insurance,"
Germany's finance ministry this week warned against making
fundamental changes to the Solvency II rules, which only took
effect on Jan. 1 after more than a decade of development.
But EIOPA wants to ensure "the coherence between micro- and
macro-elements, avoid the emergence of conflicting incentives to
insurers and facilitate the implementation of the regimes by the
respective (national) authorities, Bernardino said, adding that
regulators would look at insurers' funding models and new
instruments as part of the effort.
While small and medium-sized insurers have complained that
the Solvency II rules are already too complex, Europe is also
home to some of the world's largest insurers, such as Allianz
, Axa and Generali, huge investors
operating across many markets.
Bernardino said macro-prudential operational objectives
- ensuring sufficient loss-absorption capacity and reserving
- avoiding negative interconnections and excessive
- avoiding excessive involvement in activities whose
features may pose systemic risk
- limiting pro-cyclicality and risk behaviour as insurers
collectively search for yield
- avoiding moral hazard
EIOPA would work with the EU's financial early warning
system, the European Systemic Risk Board (ESRB), in bringing
macro-prudential elements into the solvency rules, he said.
(Reporting by Jonathan Gould; Editing by Georgina Prodhan, Greg