On 28 February, the European Insurance and Occupational Pensions Authority (EIOPA) published for the first time the discount rates for the new regulatory system Solvency II. The discount rates will be applied by European insurers to determine the regulatory technical provisions for their insurance obligations. Sufficient technical provisions are a key factor for the insurers’ ability to pay appropriate benefits to their policyholders.
According to the European Directive Solvency II, EIOPA is required to provide risk-free interest rates for the purpose of discounting. For insurance liabilities in euro with a maturity of 30 years EIOPA’s discount rate will be 1.86%, significantly higher than the low-risk rates of the ECB of 1.48%. As a consequence, the amount of money that insurers will have to put aside is lower than their expected needs.
According to Sven Giegold, shadow rapporteur of the European Parliament on Solvency II, these measures risk the security of long-term insurance. In his opinion, EIOPA violates the requirements of Solvency II and does not ensure consumer protection but disguises the financial problems of insurance companies instead of ensuring transparency. Under Solvency II, insurers can increase the euro discount rates by a so-called volatility adjustment of 0.17%, thereby further deviating from economic reality. Due to the ineffective network structure of EIOPA to influence decision making, the Green MEP thinks that a European insurance union seems as necessary as the banking union was.
For more information, please read Sven Giegold's press release here.