EIOPA Report Examines Use and Impact of LTG and Equity Risk Measures
EIOPA submitted—to the European Parliament, European Council, and EC—its 2018 and third annual report on Long-Term Guarantee (LTG) measures and measures on equity risk. The Solvency II Directive requires a review of the LTG 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 LTG measures and the measures on equity risk to the European Parliament, European Council, and EC.
The report first provides information on the legal background of the review of the LTG measures and measures on equity risk, describes the data used for this report, and offers a short overview of the European insurance market. It then captures the overall and detailed impact of these measures on financial position of the undertakings, policyholder protection, investments, consumer protection, financial stability, competition, and a level playing field in the insurance market in EU. Finally, the report focuses on risk management aspects in view of the specific requirements for LTG measures, also including an analysis of detailed features and types of guarantees of products with long-term guarantees.
Similar to the analyses of previous years, the results this year show that most of the measures are widely used. Nearly 737 insurance and reinsurance undertakings in 23 countries with a European market share of 74% use at least one of the voluntary measures. The voluntary measures include the matching adjustment, the volatility adjustment, the transitional measures on the risk-free interest rates, the transitional measures on technical provisions (TMTP), and 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 696 undertakings in 23 countries to mitigate the effect of exaggerations of bonds spreads. The transitional measure on technical provisions is applied by 162 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 (SCR) ratio of undertakings using the voluntary measures is 231% and would drop to 172% if the measures were not applied. This confirms the importance of these measures for the financial position of insurance undertakings. Additionally, EIOPA conducted an analysis on risk management aspects in relation to the regulatory reporting by undertakings of the LTG measures. The analysis covered the following aspects:
- The liquidity plan for undertakings applying the matching or the volatility adjustment
- The assessment of sensitivity of technical provisions regarding the assumptions underlying the extrapolation, the matching adjustment, and the volatility adjustment
- The assessment of compliance with capital requirements, with and without the measures
- Potential measures to restore compliance and analysis of LTG measures in the own risk and solvency assessment
National supervisory authorities identified room for improvement in relation to the level of detail of the regular supervisory reporting. In addition, they performed case studies to further explore how insurers build-in the results of the assessments on asset-liability management (ALM) into their overall ALM and risk management system. Practices observed vary across countries and measures.
Related Links
Keywords: Europe, EU, Insurance, Solvency II, Long-term Guarantee, Equity Risk, Matching Adjustment, Volatility Adjustment, TMTP, SCR, 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
EC Delegated Regulation on Specialized Lending Exposures Under CRR
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI Consults on Minimum Qualifying Rate for Uninsured Mortgages
OSFI is proposing new minimum qualifying rate for uninsured mortgages under the Guideline B-20.
OSFI Issues Letter on ICAAP Submission and Internal Audit of BCAR
OSFI issued a letter to confirm that a formal Internal Capital Adequacy Assessment Process (ICAAP) submission is not required in 2021.
ECB Updates List of Supervised Entities in EU in April 2021
ECB updated the list of supervised entities in EU, with the number of significant supervised entities amounting to 115 as of the March 01, 2021 cut-off date.
ESMA Issues Notification Templates for STS Synthetic Securitizations
ESMA published the interim simple, transparent, and standardized (STS) notification templates for synthetic securitizations, post the recent amendments to the Securitization Regulation.
EC Agrees to Prolong Scheme to Support NPL Reduction at Greek Banks
EC has approved the prolongation of an existing Greek scheme aiming to support the reduction of nonperforming loans, or NPLs, of Greek banks on the basis that it remains free of any State aid.
EIOPA Study Examines Internal Model Market and Credit Risks Under SII
EIOPA published a report presenting the results of its yearly study on the internal modeling of market and credit risks under the Solvency II Directive, also known as SII.
EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
EBA Updates Lists of Entities for Use in Capital Calculations under SA
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
FED Proposes to Automate Bank Stock Adjustment Using Call Report Data
FED published a proposal to automate non-merger-related adjustments to member banks' subscriptions to Federal Reserve Bank capital stock.