EIOPA published a report on the asset and liability management of insurers in relation to the illiquidity of their liabilities. The report supplements information provided in the EIOPA annual reports on long-term guarantee measures and is being published in response to a request from EC in the context of the 2020 Review of Solvency II. The report provides information on insurance liabilities; the asset management of insurers; long-term guarantee measures, including matching adjustment, volatility adjustment, actual yield, and dynamic volatility adjustment; and the market valuation of insurance liabilities.
In its analysis, EIOPA investigated the illiquidity of insurance undertakings from two different perspectives: a total balance-sheet approach with a focus on how undertakings can hold on to their investments and a liability perspective that focuses on the predictability of the timing of the cash flows. On asset management, a key distinction is made between the length of an investment in individual assets and of an investment in an asset class when establishing the holding period of assets. Another distinction is made between actual observed investment practices in the past and the capacity of an undertaking to hold on to investment in times of distress.
Regarding long-term guarantee measures, the report provides detailed information about the corresponding portfolios for the matching adjustment and about the reference portfolio used to calculate the volatility adjustment. The weighted average net and gross dynamic volatility adjustment impact have been analyzed for solo undertakings and for groups, including under a spread-widening scenario and a spread-tightening scenario. Finally, the report sets out the findings of EIOPA on the market valuation of insurance liabilities (these findings were also set out in the EIOPA consultation paper on the opinion on the 2020 review of Solvency II).
In responding to the request for information by EC, several data sources have been used, including the quantitative reporting templates provided regularly to EIOPA. In addition, information was collected separately from undertakings in Spring 2018 and Spring 2019. EIOPA also issued a questionnaire to national supervisory authorities on the areas of tax incentives and lapse rates. EIOPA will draw upon the analysis in this report in its Opinion on the 2020 Review of Solvency II.
Keywords: Europe, EU, Insurance, Solvency II Review, Solvency II, Asset Management Management, Long Term Guarantee, EIOPA
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