LONDON (Reuters) - The European Union's capital rules for insurers need changing to reflect low interest rates and the need stronger supervisory powers to tackle risks, the bloc's insurance watchdog said on Thursday.
The EU is reviewing its Solvency II capital requirements for insurers that were introduced in 2016.
"EIOPA proposes changes in several areas but with balanced overall impact on insurers. This reflects the fact that Solvency II is overall working well," the European Insurance and Occupational Pensions Authority (EIOPA) said in a statement.
It will be up to the EU's executive European Commission to make proposals for legislative changes, which would need approval from EU member states and the European Parliament.
EIOPA said that national supervisors in the EU27 should have powers to impose a capital surcharge on insurers to cover systemic risk, and to impose additional measures such as a ban on dividends to preserve an insurer's financial position.
There were areas of "significant concern" that need addressing in the review as cuts in interest rates to mitigate the economic hit from COVID-19 has sent almost the entire euro swap curve into negative territory.
Insurers use rate curves to assess their liabilities and hence capital requirements.
"EIOPA's advice is that it is essential to recognise this economic picture in Solvency II," the watchdog said.