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February 28, 2018

EIOPA submitted its second and final set of Advice to EC on the standard formula for the Solvency Capital Requirement (SCR) under Solvency II. This final Advice follows an EIOPA consultation that came out in November 2017 and ended on January 05, 2018. EIOPA had submitted the first set of Advice to EC in October 2017.

The Advice is accompanied by a full impact assessment, which considers the overall impact of both sets of Advice and provides an assessment of the components of this second Advice. EIOPA recommends:

  • Further simplifications and improvements to the calculation of capital requirements
  • Mixture of revised calibrations, simplifications and, where needed, proposals to achieve greater supervisory convergence
  • Further simplification of calculations for natural, man-made, and health catastrophes, particularly fire risk and mass accident, along with simplification of the treatment of look-through to underlying investments
  • Regarding the treatment of unrated debt and unlisted equity—objective criteria, such as financial ratios, when these important asset classes can be given the same treatment as rated debt and listed equity
  • New calibrations that take recent evidence, such as negative rates, into account, in the area of calculation of interest rate risk

EC had asked EIOPA to provide technical advice as part of its review of the SCR. EC had expressed its intention to review methods, assumptions, and standard parameters used when calculating the SCR with the standard formula. This review is to be performed before December 2018.

 

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Keywords: Europe, EU, Insurance, Solvency II, SCR Formula, Advice, EC, EIOPA

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