Featured Product

    EIOPA Report Examines Use and Impact of LTG and Equity Risk Measures

    December 18, 2018

    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
    Related Articles
    News

    APRA Consults to Standardize Submission Date for Quarterly Reporting

    APRA proposed to standardize quarterly reporting due dates for authorized deposit-taking institutions. The proposed standardized due date is 35 calendar days after the last day of the reference quarter, which will create a 14-calendar-day extension for credit unions and building societies.

    November 08, 2019 WebPage Regulatory News
    News

    EBA Single Rulebook Q&A: First Update for November 2019

    EBA updated the Single Rulebook question and answer (Q&A) tool with answers to two questions. The answers provide clarifications on topics related to own funds and strong customer authentication under the revised Payment Services Directive or PSD2.

    November 08, 2019 WebPage Regulatory News
    News

    FED Proposes to Extend Initial Compliance Dates Under SCCL Rule

    FED published a proposal to extend, by 18 months, the initial compliance dates for foreign banks subject to the single-counterparty credit limit (SCCL) rule.

    November 08, 2019 WebPage Regulatory News
    News

    EBA Publishes Technical Package on Reporting Framework 2.9.1

    EBA published a new release of the reporting framework 2.9.1. This release includes validation rules, Data Point Model (DPM) data dictionary, XBRL taxonomy, and other supporting documents. Additionally, the release fixes some modeling issues on COREP Liquidity and FINREP.

    November 08, 2019 WebPage Regulatory News
    News

    EBA Publishes Methodology and Draft Templates for Stress Tests in 2020

    EBA published a package for the 2020 EU-wide stress test exercise for banks.

    November 07, 2019 WebPage Regulatory News
    News

    EC Publishes Results of Fitness Check of Reporting Requirements in EU

    EC published results of the fitness check of supervisory reporting requirements in financial services legislation in EU.

    November 07, 2019 WebPage Regulatory News
    News

    BCBS Assesses NSFR and LE Rules in Argentina and China as Compliant

    BCBS published reports that assess the implementation of net stable funding ratio (NSFR) and large exposures, or LE, framework in Argentina and China.

    November 07, 2019 WebPage Regulatory News
    News

    FSB Publishes Summary of Plenary Meeting in Paris

    At the meeting, the Plenary reviewed vulnerabilities in the global financial system, fintech developments (including developments in the crypto-asset markets), ongoing work of FSB, and the work program for 2020.

    November 07, 2019 WebPage Regulatory News
    News

    HKMA Highlights Technology Initiatives at the Hong Kong FinTech Week

    HKMA co-organized, with InvestHK, the Hong Kong FinTech Week 2019, which was a five-day flagship fintech event that attracted thousands of attendees worldwide.

    November 06, 2019 WebPage Regulatory News
    News

    ECB Report on Fallback Provisions in Contracts Referencing EURIBOR

    ECB published a report, by private sector working group on euro risk-free rates, presenting recommendations for fallback provisions in contracts for cash products and derivative transactions referencing EURIBOR.

    November 06, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4118