Like most modern European Directives, Solvency II includes a structured review process to give the legislature an opportunity to (a) check the regime’s working properly; and (b) make adjustments, if it’s not.

The Solvency Capital Requirement (SCR) is due for review by 2018, and the rest of Solvency II is due for review by 2021. So, to get the SCR-review ball rolling first, the European Insurance & Occupational Pensions Authority (EIOPA) is planning to publish a discussion paper in 2016; and a series of roundtables in 2017. More to follow, no doubt.

In his key note speech, delivered at EIOPA’s 6th Annual Conference in Frankfurt on 18 October 2016, Gabriel Bernardino (EIOPA’s chair) described EIOPA as “committed to … evidence-based policy making“, where “changes must be carefully justified and clearly necessary“. He also noted that EIOPA is especially interested in “concrete proposals to ensure more simplicity and proportionality” in the Solvency II regime – comments that are bound to be welcome in the insurance market, even if the word “more” seems out of place to some.

However, EIOPA still wants to establish “a comprehensive European Union macro-prudential framework for insurance” to ensure there’s enough loss absorption capacity and reserving in the system; to avoid negative inter-connections, excessive concentrations, and excessive involvement in activities that may pose systemic risk; to limit pro-cyclicality, especially as insurers search for yield; and to avoid moral hazard.

Solvency II does some of this work, but it doesn’t do enough. So EIOPA is planning “a full assessment of the macro-effectiveness of these elements [in Solvency II]“; and it “use the 2021 … review to integrate in Solvency II a macro-prudential framework for insurance [to] ensure the coherence between the micro- and macro-elements, avoid the emergence of conflicting incentives to insurers, and facilitate the implementation of the regimes by the respective authorities“.

EIOA is also planning to publish a discussion paper about the recovery and resolution of cross-border insurers, which covers “the rationale for harmonization and [puts] forward first ideas on the building blocks of a minimum harmonized recovery and resolution framework for insurers in the European Union” … a second potential cause for concern, from an equivalence perspective? We’ll see. More to follow…

This tends to suggest that change is coming in both the medium and longer term, and within and without Solvency II. If that’s right, it will be a cause for concern for those who are hoping the UK will be regarded as Solvency II equivalent on all 3 bases in a post-hard-#Brexit scenario, because it suggests that Europe’s version of Solvency II will change, in circumstances where the UK’s version of Solvency II might not, and that would undermine the case for equivalence.