EU insurers' watchdog says eyeing 'macro-prudential' review of solvency rules

FRANKFURT (Reuters) - EU insurance industry regulator EIOPA plans to add broad-brush measures over the next few years to its core capital requirement rules, aimed at reducing the risk of a financial crisis developing from within the industry, it said on Tuesday.

"Mitigating the likelihood and the impact of a systemic crisis in insurance be an important policy objective," Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA), told an insurance conference.

Low global interest rates are challenging insurers' business models by narrowing the margins between what insurers earn from investments and pay out to policyholders.

The EU's risk capital requirement rules for insurers, known as Solvency II, came into force at the start of this year, and their effectiveness is to be re-examined after five years.

"Our proposal is to use the 2021 overall review to integrate in Solvency II a macro-prudential framework for insurance," Bernardino said.

Germany's finance ministry this week warned against making fundamental changes to the Solvency II rules, which only took effect on Jan. 1 after more than a decade of development.

But EIOPA wants to ensure "the coherence between micro- and macro-elements, avoid the emergence of conflicting incentives to insurers and facilitate the implementation of the regimes by the respective (national) authorities, Bernardino said, adding that regulators would look at insurers' funding models and new instruments as part of the effort.

While small and medium-sized insurers have complained that the Solvency II rules are already too complex, Europe is also home to some of the world's largest insurers, such as Allianz (ALVG.DE), Axa (AXAF.PA) and Generali (GASI.MI), huge investors operating across many markets.

Bernardino said macro-prudential operational objectives could include:

- ensuring sufficient loss-absorption capacity and reserving

- avoiding negative interconnections and excessive concentrations

- avoiding excessive involvement in activities whose features may pose systemic risk

- limiting pro-cyclicality and risk behaviour as insurers collectively search for yield

- avoiding moral hazard

EIOPA would work with the EU's financial early warning system, the European Systemic Risk Board (ESRB), in bringing macro-prudential elements into the solvency rules, he said.

(Reporting by Jonathan Gould; Editing by Georgina Prodhan, Greg Mahlich)