NBB published a communication, for insurance companies, on exemption from the obligation to allocate additional provisions, commonly known as "flashing provisions," in 2020. Pursuant to Article 34d, § 4, of the Royal Decree on the annual accounts of insurance companies, NBB considers it necessary to impose a condition for granting an exemption from the obligation to allocate the "flashing provision" for the 2020 financial year. In response to the COVID-19 pandemic, NBB has decided to discontinue the 2020 stress test exercise and thus tighten the conditions for granting this exemption.
Under the condition for granting an exemption for the financial year 2020, insurance companies are required to achieve, continuously during 2020, a coverage of at least 125% of the solvency capital requirement (SCR) as defined in the supervisory law, without resorting to the transitional measures referred to in articles 668 and 669 of the law. NBB requests to receive a projection of the SCR ratio at December 31, 2020 to be able to assess compliance with this condition. The exemption file must be sent to NBB by November 15, 2020. The communication also highlights that analyses done as part of the Solvency II review have shown that capital requirement for interest rate risk can be seriously underestimated in the standard formula. The current regulations indeed provide that, in calculating the capital requirement, the yield curve cannot go below 0%.
Related Link (in French): NBB Communication
Keywords: Europe, Belgium, Insurance, COVID-19, Solvency II, Stress Testing, SCR, Interest Rate Risk, Capital Requirement, Flashing Provisions, Reporting, NBB
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