EIOPA Updates Data to Calculate Volatility Adjustments Under SII
EIOPA published the updated representative portfolios for use in the calculation of the volatility adjustments to the relevant risk-free interest rate term structures for Solvency II. EIOPA will start using these updated representative portfolios for the calculation of the volatility adjustments at the end of March 2021, which will be published at the beginning of April 2021. EIOPA also published a report that provides an overview of the administrative sanctions or other measures imposed by national competent authorities under the Insurance Distribution Directive (IDD). The report shows that, in eight member states, nearly 1,923 administrative sanctions or other measures were imposed.
For the calculation of volatility adjustments under Solvency II, EIOPA published the updated representative portfolios three months in advance to allow insurers and reinsurers sufficient time to prepare for this change. The updated portfolios are based on the end-of-2019 annual reporting templates as reported by European insurance and reinsurance companies to their national supervisory authorities. Due to the departure of UK from EU, the representative portfolios no longer include data from UK insurance and reinsurance undertakings. The updated portfolios enable more accurate reflection of the impact of market volatility under the Solvency II framework. EIOPA plans to revise the representative portfolios annually, with the next update being scheduled for the end of 2021, according to Article 194 of the Technical Documentation. EIOPA also updated the Technical Documentation on the methodology to derive risk-free rate term structures, with the results of Deep Liquid and Transparent assessment and the representative portfolios update for 2021.
The volatility adjustments are derived from spreads of representative portfolios of assets. The representative portfolios are derived in accordance with Article 49 of the Commission Delegated Regulation 2015/35. The volatility adjustment is a measure to ensure the appropriate treatment of insurance products with long-term guarantees under Solvency II. Insurers and reinsurers are allowed to adjust the risk-free rates to mitigate the effect of short-term volatility of bond spreads on their solvency position. This way, the volatility adjustment prevents procyclical investment behavior of insurers and reinsurers.
Related Links
- Press Release on Updated Representative Portfolios
- Updated Representative Portfolios (XLSX)
- Updated Technical Documentation (PDF)
- Report on Administrative Sanctions Under IDD
Keywords: Europe, EU, Insurance, Solvency II, IDD, Insurance Distribution Directive, Volatility Adjustment, Risk-Free Rates, 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
Related Articles
EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
EBA Publishes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
EIOPA Examines Physical Climate Risk Exposure, SII Non-Compliance
The European Insurance and Occupational Pensions Authority (EIOPA) published a report assessing insurers' exposure to physical climate change risks
EC Publishes Results on Review of Web Accessibility Directive
The European Commission (EC) published the results of a public consultation, held in October 2021, on the review of the Web Accessibility Directive.
NGFS Report Explores Quantification of Climate Risk Differentials
The Network for Greening the Financial System (NGFS) published two reports to aid central banks and regulators in their oversight of the financial sector and in their central bank operations
MAS Consults on Adjustment Spreads for Conversion of SOR Contracts
The Monetary Authority of Singapore (MAS) and the SC-STS are jointly consulting, until June 10, 2022, on setting adjustment spreads for the conversion of legacy SOR contracts to SORA reference rate.
OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
EBA Proposes Standards to Support Secondary NPL Markets
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
EBA Issues Standards for Crowdfunding Service Providers Under ECSPR
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
