Ms Wiens, the Solvency II review, which entered into force at the end of January, simplifies several requirements for small insurers. Why is it important for regulation to be proportionate?

The German insurance sector is quite diverse. We have large groups, but also smaller regional providers. In addition, the risk profiles of the undertakings vary considerably. Complex undertakings with a wide range of risks are more likely to have the organisational resources and staff required to cope with the complex requirements of Solvency II. Smaller providers, on the other hand, can quickly get overwhelmed. Regulation needs to take this into account. It should be appropriate for the undertaking’s size and risk profile. That’s what we mean when we talk about proportionality. If we bear this in mind, we can keep things proportionate, avoid excessive bureaucracy and maintain market stability.

But proportionality isn’t a new topic in European insurance supervision, is it?

The introduction of Solvency II already gave proportionality a major boost in insurance supervision, including in our supervisory practice at BaFin. For example, we have published three versions of MaGo, our circular on the “Minimum requirements under supervisory law on the system of governance of insurance undertakings”: one for undertakings that are subject to the Solvency II Directive, one for smaller insurers that are still subject to the Solvency I rules, and one for institutions for occupational retirement provision. There was no question, though, that we want even more proportionality – and the review has made it possible.

What are the most important simplifications resulting from the review for smaller, less complex insurance undertakings?

First of all, we now have legal clarity about which undertakings are eligible for specific simplifications, which is crucial. In future, this category will include all insurers that meet the criteria to be considered small and non-complex undertakings, or “SNCUs”. This clarity helps us immensely in our work and enhances transparency throughout Europe.

Starting in 2027, SNCUs will have an easier time calculating capital requirements using the standard formula. Under certain conditions, these undertakings will be allowed to use simplified calculations for immaterial risk modules – meaning for certain risks that are of minor importance to the undertaking – for a maximum of five years. If they meet certain criteria, SNCUs may also designate a single internally responsible person for multiple key functions. In addition, they can allow one person to hold a dual role both as a member of the management board and as the internally responsible person for a key function. This is a major step forward for European supervisory practice. In Germany, we have long made it possible to combine key functions and management board positions. We at BaFin were pioneers on this topic.

Where do you still see potential to allow for more proportionality?

For us, proportionality means more than just simplifying specific requirements for SNCUs. It is a fundamental principle of supervision that applies on a broader scale. Hence, we as supervisors have many options for taking a proportionate approach. For example, other insurers that are not classified as SNCUs can in principle also take advantage of general simplifications beyond the SNCU framework without having to obtain approval. The decisive factor is still the respective risk profile, which we assess on an individual basis.

What is BaFin doing to further embed proportionality in regulation?

The European Commission is currently working on the Level 2 legislative acts of the Solvency II review. This involves specifying the criteria that non-SNCUs need to fulfil in order to take advantage of the simplifications. In this context, we aim to help make these criteria – and their implementation – as simple and unbureaucratic as possible. Even when working on Level 1, that is to say the Solvency II Directive itself, we advocated raising the thresholds at which the Directive applies. And we succeeded. In the future, Solvency II will no longer apply to some undertakings that still fall under it today. This also means that, starting in 2027, they will no longer be subject to the requirements of DORA, the Regulation on digital operational resilience in the financial sector. It is important to me that we find a pragmatic and unbureaucratic solution for these undertakings. We will therefore refrain from taking any supervisory measures if these insurers do not fulfil the DORA requirements during the transitional period until the Solvency II amendments are transposed into German law.

Wherever possible, we want to make greater use of the opportunities for principle-based supervision provided by Solvency II, particularly in Pillar II, in order to achieve greater consistency in this area. A more principle-based approach means giving greater weight to the supervisor’s individual appraisal. And that will require us to engage in closer dialogue with the insurance undertakings.