ESRB Responds to EIOPA Consultation on 2020 Review of Solvency II
ESRB published its response to the EIOPA consultation paper on review of Solvency II. ESRB highlighted that, although Solvency II has helped strengthen safety of individual insurers and EIOPA has been central to making the new regime a success, certain gaps exist in the current framework. ESRB points out that it welcomes the review and the consultation of EIOPA the ongoing review of Solvency II, which is a unique opportunity to close the existing gaps in the years to come. The EIOPA consultation covers topics such as long-term guarantee measures, measures on equity risk, technical provisions, own funds, standard formula for solvency capital requirement, calculation of minimum capital requirement, reporting and disclosures, proportionality, group supervision, macro-prudential policy, and recovery and resolution.
The proposals set out in the response to the consultation paper by EIOPA reflect the positions that ESRB has taken over the past few years. These proposals have been grouped under three broad headings, which reflect the topics that ESRB considers most pertinent with regard to their systemic impact:
- Better reflect macro-prudential considerations in Solvency II. The response letter discusses enhancement of the macro-prudential dimension of Solvency II and extension of the recovery period under Article 138 of Solvency II. The section on enhancing the macro-prudential dimension of Solvency II sets out the solvency, liquidity, and horizontal tools proposed by ESRB to reflect the macro-prudential considerations that have been identified in a report approved by the ESRB General Board in 2019 as necessary to enhance Solvency II.
- Establish harmonized recovery and resolution framework across EU. ESRB agrees with the draft advice by EIOPA on the need for a harmonized recovery and resolution framework across EU. The ESRB General Board considered recovery and resolution of the insurance sector and published its views in a report in 2017. This report concludes in favor of a harmonized effective recovery and resolution framework for insurers and sets out points that such a framework should include.
- Continue to ensure that risks are properly captured under Solvency II. EIOPA consultation paper considers options for the calculation of risk-free interest rate term structure. ESRB welcomes the analysis by EIOPA, as it sees the need to adjust the risk-free interest rate term structure to better meet macro-prudential considerations. ESRB considers it important that the resilience of the insurance sector to property risks is not weakened at the current juncture. ESRB identified vulnerabilities in both commercial real estate and residential real estate that should be considered in any recalibration of property risk.
In addition, ESRB welcomes that EIOPA is giving ample consideration to the principle of proportionality in its consultation paper. Some of the proposals set out in the response interact with those made in the EIOPA consultation paper. To better understand this interaction and to support the further calibration of the tools, it would be important for EIOPA to consider these proposals in its impact assessment. This is particularly relevant for the symmetric volatility adjustment, which can be integrated into the own proposals of EIOPA for this measure.
Related Links
Keywords: Europe, EU, Insurance, Solvency II, Solvency II Review, Recovery and Resolution, Macro-prudential Tools, Proportionality, Reporting, SCR, Response to Consultation, EIOPA, ESRB
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Related Articles
BIS Innovation Hub Sets Out Work Program for 2021
BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.
EC Plans to Consult on Crisis Management and EDIS Framework Revisions
In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.
EBA Finalizes Remuneration Standards for Investment Firms in EU
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
ECA Recommends Actions to Enhance Resolution Planning for Banks
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA Proposes Rules on Identity Verification of Depositor Protection
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB Publishes Work Program for 2021
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA Issues Update on Move to New Data Collection Platform
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank Publishes Derivation Rules for Reporting by Banks
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
