The long-term guarantee package under Europe’s proposed Solvency II reforms should deliver a high level of policyholder protection, according to a new report.

It will align the framework with the economic balance sheet concept and deliver comparability in a single market, the European Insurance and Occupational Pensions Authority (EIOPA) says. 

It will also deliver simplicity and an effective supervisory process.

However, “extended matching adjustment” should be excluded because it will not sufficiently protect policyholders and will be too difficult to supervise, according to EIOPA.

And the counter-cyclical premium proposal would have an adverse effect on financial stability, because of the way it would be triggered, the authority says. It should be replaced by the “volatility balancer”, a more simple and predictable measure.

The report also calls for insurers’ measures to maintain solvency to be published under the normal disclosure processes.

EIOPA’s analysis will help the European Union make an informed decision on the long-term guarantee package, Chairman Gabriel Bernardino says.

“The insurance business is about promises towards policyholders,” he said. “Solvency II is a sound framework that needs to be implemented as soon as possible.”