EIOPA Publishes Report on Use of Capital Add-Ons Under Solvency II
EIOPA published the second annual report on the use of capital add-ons by national competent authorities under Solvency II. The report examines the evolution of the usage of capital add-ons from 2016 to 2017, along with the evolution of the processes of each authority. The objective is to contribute to a higher degree of supervisory convergence in the use of capital add-ons between supervisory authorities in the different member states and to highlight any concerns regarding the capital add-ons framework.
The analysis is based on 2017 year-end Solvency II data, as reported by the undertakings and insurance groups via the Solvency II Quantitative Reporting Templates (QRTs) and an additional survey addressed to the national competent authorities from the 28 EU member states and three European economic area members. The report shows that a slight increase in the use of capital add-ons can be seen, although the overall usage remains extremely limited. During 2017, six national competent authorities have set capital add-ons to 23 solo insurance and reinsurance undertakings. This limited usage might be due to the negative image that is attributed to capital add-ons or to the level of judgment that is associated to the decision and calculation of the capital add-ons, which in turn inhibits supervisors from using it.
Even if the capital add-ons are not used often, when used, they have a material impact on the Solvency Capital Requirement (SCR) of some of the entities. The weight of capital add-ons ranges from a low of 1% to a high of 83%, with an average of 30% of the total SCR. The capital add-on seems to be a good and positive measure to adjust the SCR to the risks of the undertaking, when the application of other measures is not adequate—such as the development of an internal model—as in 18 cases the capital add-on was already set in 2016.
Related Links
Keywords: Europe, EU, Insurance, Solvency II, Capital Add-ons, SCR, Quantitative Reporting Templates, EIOPA
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Cassandra Hannibal
IFRS 17 subject matter expert; actuary; risk management and capital projection specialist
Jerome Ogrodzki
Insurance asset and liabilities modeling specialist; stochastic modeling expert
Previous Article
FCA Report Examines Reduction in Barriers of Entry to Banking SectorRelated Articles
BoE Clarifies Approach to Treatment of Payment Holidays on Form PL
BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.
BoE Provides Reporting Update on Form AS and Form FV
BoE updated the known issues document for the statistical reporting Forms AS and FV.
FED Announces Capital Requirements for Large Banks
FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020.
SRB Publishes Guidance on Implementation of Bail-In Tool
SRB published a set of documents to give operational guidance to banks on implementation of the bail-in tool.
BIS Publishes Update on G20 TechSprint Initiative
BIS published an update on the G20 TechSprint Initiative, which was launched in April 2020 and aims to highlight the potential for technologies to resolve regulatory compliance (regtech) and supervisory (suptech) challenges.
OSFI Provides Update on Implementation of IFRS 17 in Canada
OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.
EBA Provides Clarity on Implementation of Guidance on COVID Reporting
EBA updated the report on the implementation of selected COVID-19 policies.
FSI Note Discusses Challenges Associated with COVID Relief Measures
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
BCBS Consults on Principles for Operational Risk and Resilience
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
BoE Updates Template and Definitions for Form ER
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.
