EU regulators cannot back down on capital requirements or Solvency review to clear path for ESG agenda

EU insurance regulators cannot let go of capital requirements, brush off the fine tuning of Solvency II or ease up on consumer protections just to grease implementation of the ESG agenda and the green transition, the chief of the EU’s insurance regulatory body EIOPA, Petra Hielkema, has said.

EIOPA’s review of Solvency II is “very much on the agenda this year,” Hielkema reiterated in a panel debate, under challenge from a member of the European Parliament.

Capital requirements are the sine qua non; they “remain very relevant” and “need to be robust.”

“If we have that, we can really deal with all the other risks that come and need our attention,” she said. Insurers handled the pandemic without regulator intervention thanks in large part to capital requirements laid down after the 2007-8 financial crisis, she noted.

Comments for a panel discussion at the European Financial Services Conference followed a challenge by European People's Party MEP Markus Ferber, deputy-chair of the Committee on Economic and Monetary Affairs and prior co-author of MiFID regulations, that regulators are overdoing prudential oversight while neglecting their duty to have insurers “fulfil their role as long-term investors” to support the ongoing recovery and the larger green transition.

Hielkema came back with her list of market-based threats to industry financials and, in turn, to consumer protections.

Inflation could herald a period of market volatility requiring supervisory sensitivities, she said. Lower-for-ever-longer interest rates forces regulators to focus on pension and life segments and increases the need for conduct oversight as consumers are pressed from guarantee products to investment products, she said.

While the call to make insurer balance sheets available to the green transition is “fully understandable, real and necessary,” a cut to capital requirements is no guarantee of action, Hielkema warned. A review of prior incentives to support infrastructure “didn’t necessarily show” that the capital followed the intended path, she said.

“You don’t need a regulatory framework to invest in green,” Hielkema said. While capital requirements are an obvious part of that debate, Hielkema remains stumped on the question of efficacy.

“Will it actually happen and be invested in the transition? I hope it will be, but I wonder what can be done to monitor if it is happening.”