The European Union has insisted proposed changes to Solvency II – the bloc’s capital rules for insurers - were not an easing of the procedures but a 120 billion euros ($141 billion) move to repair an economy hit by COVID and to meet climate goals without eroding policyholder protection.

The rule changes, which need approval from EU states and the European Parliament, would release 90 billion euros in the short term and a further 30 billion euros in the long term.

The EU said Solvency II would remain the "gold standard" with EU financial services commissioner Mairead McGuinness explaining: “This is not a revolutionary change these are gradual, but important changes. This isn't a gift to the insurance industry."

The Solvency II rules were introduced for the 10.4 trillion euro sector in 2016 with the aim of improving protection for policyholders and creating a safer and more resilient area.  Solvency II codifies and harmonises the EU insurance regulation and concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency.

The EU believes very low interest rates which undermine the business models of insurers also needed addressing, along with the need to better modify Solvency II rules to smaller, less risky insurers.

Britain, which is home to the world's biggest commercial insurance market and left the EU last December, has also begun reviewing the capital rules and will scrutinise how changes by Brussels could affect London's competitiveness.

The EU also proposed a framework for the swift and orderly closure of insurers in trouble to avoid destabilising the financial system, mirroring a similar move with banks following the global financial crisis that led to taxpayer bailouts.

EU insurance watchdog EIOPA will conduct centralised climate stress tests of the sector, with insurers also required to conduct long-term climate scenario analysis, it said.

The Commission decided not to propose an EU-wide harmonisation of national insurance guarantee schemes, saying it could entail significant costs for insurers and there was a need to focus on economic recovery.

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