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    EIOPA Consults on Review of Securitization Framework in Solvency II

    June 16, 2022

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II. EIOPA also welcomed the consultation paper, which has been published by the International Association of Insurance Supervisors (IAIS), on detailed comparability assessment criteria for the Aggregation Method and the Insurance Capital Standard (ICS).

    EIOPA Consultation on Advice on Review of Securitization Framework

    The European Commission (EC) sent a call for advice to the Joint Committee of the European Supervisory Authorities (ESAs) on October 18, 2021. In it, EC sought assistance of the Joint Committee to assess recent performance of the rules on capital requirements (for banks and (re)insurance undertakings) and liquidity requirements (for banks) relative to the securitization framework’s original objective of contributing to the sound revival of the EU securitization market on a prudent basis. Regarding the insurance sector, the calibration of capital requirements for investments in securitization tranches was revised to reflect the new securitization framework in the banking sector, creating a specific framework for simple, transparent, and standardized (STS) securitization. For the purpose of the review of the framework, EC would need to receive the Joint Committee’s advice no later than September 01, 2022. EIOPA has launched a data collection that includes a questionnaire to gather information that will be included in the final advice. This consultation paper seeks views from stakeholders on the main components of the call for advice, which include:

    • Comparison of the securitization capital charges with other asset classes with similar characteristics
    • Practical or legal difficulties in investing in securitization with the STS label
    • Calculation for capital requirements for securitization (senior STS, non-senior STS, and Non-STS)
    • Treatment for STS and non-STS securitizations
    • Link between the capital requirement of securitization and capital requirement of underlying exposures
    • Granularity of the treatment of tranches
    • Implementation of the hierarchy of approaches in Solvency II
    • Definition of agency and modelling risk and application to Solvency II

     

    IAIS Consultation on Comparability Assessment Criteria

    The IAIS consultation paper sets the basis to establish an assessment that will, based on quantitative evidence from a sufficiently large sample of life and non-life Internationally Active Insurance Groups, evaluate whether the Aggregation Method and the ICS produce similar results over time and under different economic and market conditions. An essential requirement is that the Aggregation Method, as a framework for implementation of the ICS in the United States (or other interested jurisdictions), delivers outcomes that are at least as prudent as the ICS. Against this background, EIOPA encourages all stakeholders to participate in the consultation exercise to help, with their feedback, further shape the comparability criteria as well as the scenarios to be used as part of the assessment. The IAIS consultation is open until August 15, 2022. The journey toward finalization of the ICS is still ongoing, as the monitoring period approaches its defining stage. EIOPA emphasizes that the collection of data in the upcoming year will be key for defining the final outcome. To that end, a strong and leading European participation in the project is key, in particular for groups relying on internal models to determine their prudential capital requirements.

     

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    Keywords: Europe, EU, Insurance, Reinsurance, Solvency II, Securitization Framework, STS Securitization, Call for Advice, ICS, Aggregation Method, International, IAIS, EIOPA

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