EIOPA announced a change in the frequency of current extraordinary processes for risk-free interest rate term structures (RFR) and symmetric adjustment to equity risk (EDA) from a weekly basis to every two weeks. The new frequency will apply from the week starting on May 25, 2020. Due to COVID-19 outbreak, EIOPA will continue to carry out extraordinary calculations every two weeks to monitor the evolution of the relevant risk-free interest rate term structures and the symmetric adjustment to equity risk. EIOPA is publishing this information to support insurance and reinsurance undertakings in the monitoring of their solvency and financial position under Solvency II.
Solvency II aims to implement an economic and risk-based supervisory framework in the field of insurance and reinsurance. The framework is built on three pillars, all equally relevant, that provide for quantitative requirements (Pillar 1), qualitative requirements (Pillar 2), and enhanced transparency and disclosures (Pillar 3). The starting point in Solvency II is the economic valuation of the whole balance sheet, where all assets and liabilities are valued according to market consistent principles. The risk-free interest rate term structure underpins the calculation of liabilities by insurance and reinsurance undertakings and their regulator publication ensures consistent calculation of technical provisions across Europe and contributes to higher supervisory convergence.
Additionally, the calculation of the symmetric adjustment is based on the behavior of an equity index built by EIOPA exclusively for that purpose. The legal requirements on the determination of the symmetric adjustment and of the EIOPA equity index are set out in the Solvency II Directive (as amended by Directive 2014/51/EU), the implementing measures of that Directive, and also in the implementing technical standard on the EIOPA equity index.
Keywords: Europe, EU, Insurance, Risk-free Rates, Solvency II, COVID-19, Symmetric Adjustment to Equity Risk, EDA, RFR Term Structures, EIOPA
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