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March 21, 2018

EIOPA published a paper on Solvency II tools with macro-prudential impact. This is the second paper in a series on systemic risk and macro-prudential policy in the insurance sector. The paper identifies, classifies, and provides a preliminary assessment of the tools or measures in the Solvency II framework. It assesses tools or measures that could mitigate the systemic risk sources that were identified in the first paper in the series, which was published in February 2018.

The paper provides an overview of the key elements of Solvency II that may contribute to mitigating systemic risk. The paper identifies the most relevant instruments/measures in Solvency II and then describes the way each tool works, maps the tool against a source of systemic risk, and assesses the impact of the tool, to the extent possible. The paper is focused on the tools with direct macro-prudential impact: the symmetric adjustment in the equity risk module, the volatility adjustment, the matching adjustment, the extension of the recovery period, the transitional measure on technical provisions, and prohibiting or restricting certain types of financial activities. Finally, the paper provides an overview of other measures in case of breach of the Solvency Capital Requirement (SCR), along with a summary of other measures available at the national level. The paper also includes an annex on the macro-prudential impact of the most relevant long-term guarantees measures under stress (that is, volatility adjustment and matching adjustment). 

The first paper in this series, which was published in 2017, identified and analyzed the sources of systemic risk in insurance. Through this paper series, EIOPA intends to ensure that any further extension of the debate on systemic risk and macro-prudential policy to the insurance sector fully reflects the specific nature of the industry.

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Keywords: Europe, EU, Insurance, Systemic Risk, Macro-prudential Policy, Solvency II, EIOPA

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