On 2 September, Gabriel Bernardino, Chairman of EIOPA, gave a speech1 on the “dos and don’ts” of implementing Solvency II. He expressed his hope that, overall, Solvency II will lead to “intelligent and effective regulation which does not stifle innovation” and his belief that it is a “solid step towards financial stability, better transparency and enhanced consumer protection”.

One of Mr Bernardino’s most interesting comments is that EIOPA will be “very attentive” to any material unintended consequences of the implementation of Solvency II, in particular those that have a negative impact on consumers. He gave the following examples of issues that EIOPA intends to monitor:

  • The investment behaviour of insurers: Mr Bernadino stated that Solvency II should create “the right approach to investment by insurers” and that it “recognises asset diversification as a key prudential element”. He explained that EIOPA will review relevant data as it becomes available.
  • The impact of Solvency II on insurance product availability, particularly in the current low interest rate environment: Although insurers will be expected to take “more conscious decisions on the risks that they are running”, Mr Bernadino was clear that Solvency II should not “unduly penalise specific products”.
  • Own Solvency Risk Assessment (ORSA) and risk culture: Mr Bernadino emphasised that the ORSA was a “cultural change” and that change in insurance companies would need to start from the top, rather than the ORSA being regarded as a secondary priority behind ensuring that capital requirements are met. Mr Bernadino expressed his view that the implementation of the ORSA should further embed a strong risk culture in the day to day operations of firms.

Although Mr Bernadino stated that EIOPA will closely monitor the way that the Solvency II system of governance is implemented in each member state, including each member state’s use of due proportionality, it will be interesting to see whether, and what type of, action is taken against member states whose implementing legislation is regarded as having “gold-plated” Solvency II. With a strong, active stance on gold-plating, EIOPA may be able to achieve the aim of equivalent prudential regulation across the EEA.