EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2019 and fourth annual report on long-term guarantee measures and measures on equity risk. The analysis carried out by EIOPA in the annual reports on long-term guarantees measures and measures on equity risk will serve as a basis for the Opinion on the 2020 review of Solvency II. This year's results show that most of the measures are widely used. Consistent with the trends observed in the last years, availability of long-term guarantee products is mainly stable or decreasing across the European Economic Area. Overall, the national supervisory authorities have observed a decrease in the size and duration of guarantees.
The results show that 699 insurance and reinsurance undertakings in 22 countries with a European market share of 75% 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 660 undertakings in 22 countries to mitigate the effect of exaggerations of bonds spreads. The transitional measure on technical provisions is applied by 159 undertakings in 11 countries with respect to contracts concluded before the start of Solvency II to ensure a smooth transition to the new regime. The average Solvency Capital Requirement ratio of undertakings using the voluntary measures is 235% and would drop to 159% if the measures were not applied. This confirms the importance of these measures for the financial position of insurance and reinsurance undertakings.
In addition to the long-term voluntary measures, the report analyzes the impact of the extrapolation of risk-free interest rates; for that purpose, an information request to insurance and reinsurance undertakings was carried out by EIOPA. Undertakings assessed the impact of two scenarios to change parameters of the extrapolation. At EUR level, scenario 1 (increase of the last liquid point for the euro from 20 to 30 years) would result in a reduction of the Solvency Capital Requirement ratio by 31 percentage points and scenario 2 (increase of the last liquid point for the euro from 20 to 50 years) would result in a reduction of the Solvency Capital Requirement ratio by 52 percentage points.
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 of the European Union, and EC. EIOPA also plans to submit the opinion on the assessment of the application of the long-term guarantee measures and the measures on equity risk to EC in 2020, based on the annual reports submitted by then. EIOPA will provide its final assessment, including eventual proposed changes regarding the measures, by June 30, 2020.
Keywords: Europe, EU, Insurance, Solvency II, Long-Term Guarantee, Matching Adjustment, Volatility Adjustment, SCR, EIOPA
Previous ArticleEIOPA on Portfolios to Calculate Solvency II Volatility Adjustments
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.