Insurance Europe has warned that the European Commission's draft Level 2 proposals for Solvency II risk are undermining the bloc's wider economic goals.
The industry body said the measures do not reflect the ambition shown by EU co-legislators and could prevent insurers from playing a bigger role in funding growth and long-term investment.
In its consultation response, the federation reiterated its backing for a strong regulatory framework that protects policyholders and financial stability. However, it said the draft technical standards fall short of delivering the promised balance between prudential soundness and competitiveness.
Concerns over volatility and capital
One of the sector's main criticisms is the failure to adequately address artificial volatility. A miscalibrated Volatility Adjustment risk correction, coupled with a conservative and opaque model for long-term interest rates, would leave insurers' balance sheets overly sensitive to short-term market swings.
Insurance Europe also highlighted missed opportunities to "unlock trapped capital." Restrictive treatment of long-term equity investments, it said, will limit insurers' ability to channel funds into infrastructure, climate-related projects and other growth priorities.
While the Commission's proposed reduction in the risk margin is a step forward, the federation noted it remains less favourable than regimes in other jurisdictions, putting EU carriers at a competitive disadvantage.
Despite earlier promises of simplification, the draft framework introduces additional requirements that could increase operational burden. Insurance Europe warned this would add compliance costs without clear benefits for consumers or stability.
Industry view
"After many years of discussion, now is the time for the Solvency II review to deliver on its promise," said Angus Scorgie, head of prudential regulation at Insurance Europe. He argued that the final rules must combine strong consumer protection with a framework that fosters growth and reduces unnecessary red tape.
Analysts point to the UK's Solvency UK reforms as a sharp constrast. Since leaving the EU, the UK has sought to reduce capital requirements and free up billions for investment, particularly in infrastructure and green projects.
Industry observers also warn that unless Brussels adjusts its approach, EU insurers could be left less competitive than UK counterparts, potentially steering investment away from the bloc.
The Commission is expected to finalise the Level 2 measures later this year, with insurers watching closely to see whether the concerns raised by the sector are addressed.
