EIOPA Publishes Solvency II Updates and Article on Catastrophe Risk
The European Insurance and Occupational Pensions Authority (EIOPA) published a statement on supervisory practices and expectations in case of a breach of the Solvency Capital Requirement (SCR). In addition, EIOPA published an Opinion that addresses the use of Solvency II risk mitigation techniques by insurers and includes a set of recommendations addressed to the national competent authorities to ensure convergent supervision. Also published was an article that considers the role of insurance in mitigating the impact of catastrophes and focuses on the interplay between climate change and insurance coverage. The article first develops a theoretical model of insurance, climate change, catastrophes, and the macroeconomy, using predictions from this model to empirically test and explore how insurance has mitigated the impact of catastrophes in the past; the results are then used to explore the potential impact of catastrophes using a range of climate-change scenarios.
The supervisory statement on expectations on the breach of SCR aims to foster supervisory convergence and states that, in cases of breach, supervisory practices need to be flexible and should consider the specific situation of the insurance or reinsurance undertaking. However, it is important that when certain triggers are reached, such as non-compliance with the SCR, convergent approaches are applied to ensure a similar protection of policyholders and beneficiaries across Europe. The ongoing uncertainty could lead to breaches of SCR in the future. Solvency II allows supervisory authorities to take early actions, therefore acting promptly to ensure supervisory convergence in this area is needed. EIOPA has finalized this statement post a consultation and the statement accompanies the resolution of comments from the public consultation, the feedback statement to stakeholders, and the impact assessment developed based on the input provided during the consultation period.
The Opinion on use of risk mitigation techniques by insurance undertakings includes a set of recommendations addressed to national competent authorities to ensure convergent supervision. The Opinion raises awareness about the importance of having a proper balance between the risk effectively transferred and the capital relief in SCR. The transfer of risk might also create basis risk and introduce other risks such as a possible increase in counterparty default risk and, depending on the structure, concentration risk. This balance is to be assessed following a case-by-case analysis to consider the particularities of each reinsurance structure and its specific interaction with the risk profile of the undertaking. The national competent authorities are expected to coordinate and cooperate in the assessment of such structures, going beyond a single member state to ensure a convergent approach. The Opinion on the use of risk mitigation techniques by insurance undertakings is accompanied by an impact assessment and the feedback statement addressing the comments received during the public consultation.
Related Links
- News Release on Supervisory Statement
- Supervisory Statement (PDF)
- News Release on Opinion on Risk Mitigation
- Opinion on Risk Mitigation (PDF)
- Notification on Climate Change Article
- Article on Climate Change (PDF)
Keywords: Europe, EU, Insurance, SCR, Regulatory Capital, Climate Change Risk, ESG, Solvency II, Solvency Capital Requirement, Catastrophe Risk, Climate Change Scenarios, EIOPA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Related Articles
BIS Paper Studies Impact of Fintech Lending on Small Businesses in US
The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.
UK Regulators Issue CRR Changes and Stress Test Scenarios for Banks
The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).
EBA Launches EU-Wide Transparency Exercise in 2022
The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.
SRB on CRR Quick-Fix to Policy for Multiple Point of Entry Banks
The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."
EC Rule Lists Advanced Economies for Market Risk Capital Calculations
The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.
EBA Publishes Final Regulatory Standards on STS Securitizations
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
