The European Insurance and Occupational Pensions Authority (EIOPA) published its annual report on the use of capital add-ons during 2020. The analysis included in the report is based on 2020 year-end data collected under Directive 2009/138/EC (Solvency II) as reported by the solo undertakings or insurance groups from the European Economic Area; this was complemented by a dedicated survey for national competent authorities that entailed both qualitative and quantitative questions.
The objective of the capital add-on measure is to ensure that the regulatory capital requirements reflect the risk profile of the solo undertaking or of the insurance group. Therefore, it is important that national competent authorities use it when needed, with the aim to ensure a high degree of supervisory convergence in its application. It is also important to maintain a level playing field regarding the setting of capital add-ons. During 2020, two national competent authorities that set capital add-ons in the previous years no longer set capital add-ons in 2020. This situation led to a number of capital add-ons set at the end of 2020 even lower than in 2019. In 2020, seven national competent authorities set capital add-ons to nine solo undertakings (six non-life and three life undertakings respectively), while, in 2019, nine national competent authorities had set capital add-ons to ten solo undertakings, including two life, seven non-life undertakings and one composite (excluding the capital add-ons set by the UK in the past). For groups, similarly to 2019, no capital add-ons were set during 2020.
Due to the low number of capital add-ons, the weight of capital add-ons imposed on undertakings using the standard formula remains very low overall in 2020 (that is, less than 0.1% of the total Solvency Capital Requirement of all undertakings). However, it remains significant when considering the amount at individual level accounting for 25% of the total Solvency Capital Requirement of the undertakings with capital add-ons. Although there is a wide range in its distribution (from 86% to 1%), in all cases (except for one) the capital add-on increases the Solvency Capital Requirement by at least 10%. Following the findings of the survey, in view of a decreasing number of capital add-ons at an already low level, EIOPA will continue to monitor the usage of capital add-ons and pay attention on the proposals made by national competent authorities on how to make a more efficient use of this tool in the future.
Keywords: Europe, EU, Insurance, Reinsurance, Solvency II, SCR, Capital Add-Ons, Solvency Capital Requirement, EIOPA
Previous ArticleEC Consults on Review of Mortgage Credit Directive
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.