EIOPA Consults on Illiquid Characteristics of Insurance Liabilities

By Regulatory News

October 29, 2018

Solvency II

EIOPA launched a request for feedback on the methodological considerations about illiquid characteristics of insurance liabilities. The consultation addresses how the short- and long-term risks of long-term investments relate to the potential illiquid characteristics of insurance liabilities. The consultation ends on December 07, 2018. Based on the feedback received, EIOPA will further assess whether the risks connected to illiquid liabilities and the assets covering long-term liabilities are adequately reflected in the current regulatory regime.

To explore any new evidence on the features of liabilities, especially concerning their illiquidity characteristics, a dedicated EIOPA Project Group on illiquid liabilities (PG) was set up. The illiquidity characteristics of liabilities may contribute to the ability of insurers to mitigate short-term volatility by holding assets throughout the duration of the commitments, even in times of market stress. In the request for feedback, PG intends to assess the illiquidity characteristics of insurance liabilities, the actual holding periods of assets of insurers, and the risks of holding on to assets over a longer term

The work within the PG starts with an analysis on the product side. The first step involves understanding and analyzing the characteristics of the products in the market, with the intent to establish illiquidity indicators. The consultation report summarizes the analysis the PG so far. In the second step, the evidence on the actual holding period of assets by insurers will be analyzed. The aim is to get an overview on the management of different asset classes and to understand whether the holding of assets depends on the characteristics of the underlying insurance liabilities. The approach that the PG has chosen in this respect is outlined in the fourth section of the report. This section also describes the analysis to be performed by the PG on the risk of holding assets over a longer term.

The PG is also dealing with selected parts of the Call for Information from the EC. This Call was sent to EIOPA in April 2018 and requires EIOPA to submit a report by December 2019. It asks EIOPA, among others, to provide data on the liquidity of an undertaking’s insurance liabilities and information on the asset management of insurers. Stakeholder input to this request for feedback will help prepare an information request to the undertakings and EIOPA expects to send out this information request at the beginning of 2019. The information request will cover all relevant aspects necessary to answer the information request from EC, in addition to the other areas covered by the PG. It is intended to consult on any results derived on the basis of the information provided by undertakings in Autumn 2019.

Related Links

Comment Due Date: December 07, 2018

Keywords: Europe, EU, Insurance, Solvency II, Illiquid Liabilities, EC, EIOPA

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