EIOPA Launches Consultation on Interbank Offered Rate Transitions
EIOPA launched a consultation on the Interbank Offered Rate (IBOR) transitions, in context of the EU Benchmarks Regulation. EIOPA seeks to adopt a common approach, for all currencies, on transition to the new rates to continue producing consistent risk-free rate term structures. The comment period for this consultation ends on July 23, 2021. In parallel, EIOPA issued an information request under which certain insurance and reinsurance undertakings from the European Economic Area that are subject to Solvency II are requested to provide information on the impact of IBOR transitions on the solvency position of undertakings, with reference date March 31, 2021. Insurance and reinsurance undertakings that are requested to participate should submit the completed reporting template to the respective national supervisory authority by June 25, 2021.
EIOPA had published a discussion paper on IBOR transitions in January 2020. The recent market developments as well the responses received to that discussion paper have enabled a new opportunity, which is expected to facilitate the switch to the new instruments in a way that the impact can be minimized as much as possible. Thus, in this consultation paper, EIOPA presents a modified approach of the instant change option included in the discussion paper published in 2020. Furthermore, proposals on the treatment of the credit risk adjustment (CRA), the impact of the Deep Liquid and Transparent assessment, and the long-term average spreads (LTAS) are also considered. The focus of this consultation is to address the issues identified within EIOPA’s risk-free rate methodology and production and to propose solutions for consultation. Additional issues related to the IBOR transitions, which emerge outside the risk-free rate environment and may affect directly or indirectly the insurance industry and the policyholders are not covered in this consultation. The 2020 review proposes additional changes in the methodology, which are under review.
The risk-free rate methodology of EIOPA seeks to produce consistent risk-free rate term structures based on replicability, market consistency of the risk-free rate term structures produced, stability for insurance undertakings, interests of policyholders, and capability of being implemented via the production process of EIOPA. Consequently, EIOPA wants to remain transparent, follow rather than lead the market and avoid unnecessary material impact on undertakings, arising from a technical change due to IBOR transitions. The proposal included in this consultation is generic and can be applied to all currencies allowing at the same time some degree of flexibility on when to perform the switch.
Related Links
Comment Due Date: July 23, 2021
Keywords: Europe, EU, Insurance, IBOR, Risk Free Rates, Benchmarks Regulation, Solvency II, EIOPA
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Cassandra Hannibal
Life insurance actuary; risk management and economic capital specialist
Jerome Ogrodzki
Insurance asset and liabilities modeling specialist; stochastic modeling expert
Previous Article
EBA Publishes Single Rulebook Q&A Updates for April 2021Related Articles
EBA Publishes Standards on Disclosure of Investment Policy Under IFR
The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).
EBA Updates Filing Rules for Supervisory Reporting
The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.
ECB Amends Guideline on Procedures for Collection of AnaCredit Data
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
APRA Finalizes Guidance for New Prudential Standard on Remuneration
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.
OCC Updated LIBOR Self-Assessment Tool for Banks
The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).
TCFD Updates Guidance for Financial Disclosures on Climate Risk
The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
BCBS Report Examines Progress on Adoption of Basel III Framework
The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.
ACPR Implements Updates Related to DPM Version 3.1
The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.
EBA Note Examines Transition Risks of Benchmark Rates
The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.
OSFI to Communicate Next Steps on Climate Risk Policy in Early 2022
In a letter to the federally regulated financial institutions and pension plans, the Office of the Superintendent of Financial Institutions (OSFI) published a summary of the feedback received to the January 2021 discussion paper on ways to address climate risks.
