EIOPA Report Analyzes Use and Impact of Long-Term Guarantee Measures
EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk. The annual EIOPA analysis on long-term guarantees measures and measures on equity risk since 2016 has served as a basis for the opinion on the 2020 review of Solvency II, which is to be delivered by the end of 2020. This opinion would present regulatory proposals to improve the design of the measures. Consistent with trends observed in the last years, the availability of long-term guarantee products is mainly stable or decreasing across the European Economic Area. Overall, national supervisory authorities have observed a decrease in the size and duration of guarantees.
The results this year show that most of the measures are widely used. The results show that 651 insurance and reinsurance undertakings in 21 countries, representing a share of 80% in the European market, use at least one of the following voluntary measures:
- The matching adjustment
- The volatility adjustment
- The transitional measures on the risk-free interest rates
- The transitional measures on technical provisions
- The duration-based equity risk sub-module
The volatility adjustment and the transitional measure on technical provisions are particularly widely used. The volatility adjustment is applied by 651 undertakings in 21 countries to mitigate the effect of exaggerations of bonds spreads. The transitional measure on technical provisions is applied by 136 undertakings in 11 countries with respect to contracts concluded before the start of Solvency II in order to ensure a smooth transition to the new regime. The average Solvency Capital Requirement (SCR) ratio of undertakings using the voluntary measures is 247% and would drop to 204% if the measures were not applied. This confirms the importance of these measures for the financial position of insurance and reinsurance undertakings. Where insurance or reinsurance undertakings depend on the transitional measures to comply with the Solvency Capital Requirement, national supervisory authorities are generally confident that undertakings will be able to reduce the dependency on transitional measures, to the point of no dependency by January 01, 2032. The impact of the measures on the financial position is reported to national supervisory authorities through the regular annual reporting.
The Solvency II Directive requires a review of the long-term guarantee measures and the measures on equity risk until January 01, 2021. As part of this review, EIOPA reports annually on the impact of the application of the long-term guarantee measures and the measures on equity risk to the European Parliament, the Council, and EC. The long-term guarantee measures are the extrapolation of risk-free interest rates, the matching adjustment, the volatility adjustment, the extension of the recovery period in case of non-compliance with the Solvency Capital Requirement, the transitional measure on the risk-free interest rates, and the transitional measure on technical provisions. The equity risk measures are the application of a symmetric adjustment mechanism to the equity risk charge and the duration-based equity risk sub-module.
Related Links
Keywords: Europe, EU, Insurance, Solvency II, Long Term Guarantee, Matching Adjustment, Volatility Adjustment, SCR, EIOPA
Featured Experts
Paul McCarney
Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers
Brian Robinson
Actuary; risk management specialist; corporate and capital modelling expert
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
