The European Insurance and Occupational Pensions Authority (EIOPA) launched today a public consultation on the future implementation of the new proportionality framework under Solvency II. The consultation covers two aspects, namely, the fine-tuning of the methodology for classifying insurance undertakings as small and non-complex – who would stand to benefit from proportionality measures – as well as the conditions for granting similar proportionality measures (i.e. certain reduced requirements) to insurers that do not by default fall in the small and non-complex category.
Following the recent review of the Solvency II Directive, the political agreement on the file has introduced amendments to the legislation to address concerns regarding the limited and inconsistent application of proportionality principles in the first years of Solvency II. The revised framework around proportionality sets clear criteria for identifying small and non-complex insurers in relation to the nature, scale and complexity of their risks and empowers supervisors to grant – and withdraw – similar concessions to other non-small insurers whose risk profile nevertheless justifies the use of some proportionality measures.
Finding the small and non-complex
On classifying undertakings and groups as small and non-complex, EIOPA believes that the proposed methodology is clear and comprehensive, and that no further specifications at this point are required.
Conditions for proportionality measures
Concerning the conditions for permitting the use of proportionality measures for insurers not classified as small and non-complex, EIOPA considered three options and suggests a hybrid approach based on both quantitative and qualitative elements. Such an approach would filter out the largest undertakings while leaving supervisors enough discretion in granting proportionality measures . EIOPA’s draft advice proposes a set of conditions for each of the eight proportionality measures foreseen by the new framework. The Consultation Paper details these measure by measure.
Consultation Process
EIOPA invites stakeholders provide their feedback on the Consultation Paper and the draft advice therein by responding to the questions via the online survey no later than 25 October 2024. Responses will be published on EIOPA’s website unless otherwise requested.
Notes and next steps
The proportionality principles already included in and foreseen for Solvency II reduce regulatory burdens and costs on small and non-complex companies, ensuring that compliance is attainable and relevant to the entity’s risk profile. Such principles support market diversity, completion and innovation while allowing supervisory authorities to allocate resources efficiently towards more complex firms with higher risk profiles.
The public consultation on this topic is a response to the European Commission’s Call for Advice. After the consultation, EIOPA will review stakeholders’ input and prepare final advice to be submitted to the European Commission by 31 January 2025.