EIOPA Paper on Systemic Risk and Macro-Prudential Policy for Insurers

The paper puts together and summarizes the main findings of the work done by EIOPA, by linking sources of systemic risk and operational objectives, tools already available in the Solvency II framework, and other potential tools and measures to be further considered. The discussion paper primarily focuses on the “principles” and rationale for each tool, though the paper does not comprehensively address the operational aspects/challenges of each tool. In addition to the existing Solvency II tools with direct impact, the other potential tools and measures for further consideration include leverage ratio, capital surcharge for systemic risk, enhancement of the own risk and solvency assessment (ORSA), request of recovery plans, request of resolution plans, enhancement of the prudent person principle, liquidity risk ratios, additional reporting on liquidity, concentration thresholds, and enhanced monitoring against market-wide under-reserving. Similar to the approach followed with other legislative initiatives, the technical details could be addressed by means of technical standards, guidelines, or recommendations, once the relevant legal instrument has been enacted.

This work should now be turned into a specific policy proposal for additional macro-prudential tools or measures, where relevant and possible, as part of the Solvency II review. In the context of this series, EIOPA has followed a step-by-step approach, seeking to address the following questions:

• In the first paper in the series, which was published in 2017, EIOPA identified and analyzed the sources of systemic risk in insurance and proposed a specific macro-prudential framework for the sector.
• In the second paper, EIOPA identified, classified, and provided a preliminary assessment of the existing tools or measures in Solvency II framework to mitigate the previously identified systemic risk sources.
• The third paper assessed other potential tools or measures to be included in a macro-prudential framework for insurers. EIOPA focused on four categories of tools—namely, capital and reserving-based tools, liquidity-based tools, exposure-based tools, and preemptive planning. 

Related Links

• Press Release
• Discussion Paper: Systemic Risk and Macro-prudential Policy (PDF)
• Third Paper: Enhancing Macro-Prudential Framework (PDF)
• Second Paper: Solvency II Tools with Macro-Prudential Impact (PDF)
• First Paper: Systemic Risk and Macro-Prudential Policy (PDF)
• EC Call for Advice (PDF)

Comment Due Date: April 30, 2019

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