EIOPA Publishes Final Advice Resulting from 2020 Solvency II Review
EIOPA published the opinion on the 2020 review of the Solvency II regime. Overall, EIOPA notes that the Solvency II framework is working well from the prudential perspective and no fundamental changes are needed, rather a number of adjustments are required to ensure that the regulatory framework continues as a well-functioning risk-based regime. The opinion also reflects the need to supplement the current micro-prudential framework with a macro-prudential perspective, including the introduction of specific tools and measures to equip supervisors with sufficient powers to address all sources of systemic risk. EC proposal on the review is expected in the third quarter of 2021.
The proposed measures aim to keep the regime fit-for-purpose by introducing a balanced update of the regulatory framework, reflecting better the economic situation, and completing the missing elements from the regulatory toolbox; in short, these three areas form the EIOPA approach to Solvency II review. The EIOPA opinion considers the 19 topics covered in the EC call for advice (published in February 2019) to EIOPA on the review of the Solvency II Directive. As included in the opinion, the key proposals from EIOPA include the following:
- Adjustments to the capital treatment of interest rate risk, reflecting the steep fall of interest rates experienced during the last years and the existence of negative interest rates; recommendation for changes to the interest rate curves used by insurers to value liabilities, specifically in respect of the method of extrapolating risk-free rates to better reflect market reality
- Improvements to the volatility adjustment to better align the design to its objectives and increase its effectiveness in curbing short-term volatility and rewarding insurers for holding illiquid liabilities
- Refinements to the calculation of the risk margin of insurance liabilities, recognizing diversification over time, thus reducing its volatility and size, in particular for long-term liabilities
- Revisions to the criteria for the ability to hold equity long-term, by making a link with long-term illiquid liabilities, with the aim to better reflect risks and further encourage long term investments
- Clear risk-based quantitative criteria to identify low-risk undertakings eligible for applying proportionality measures, by recommending the introduction of a new process for applying and supervising the principle of proportionality
- Support for efficient exchange of information among national supervisory authorities during the process of authorization and in case of material changes in cross-border activities
- Establishment of a minimum harmonized and comprehensive recovery and resolution framework and the introduction of a European network of national Insurance Guarantee Scheme that should meet a minimum set of harmonized features with the primary aim to protect policyholders—paying compensation when needed or ensuring the continuation of insurance policies
Accompanying the opinion are several documents, including
- Factsheet providing an overview of the opinion
- Background document setting out the analysis that the EIOPA technical advice for the 2020 review is based on and an annex to this document covering natural catastrophe (nat cat) policy conditions
- Impact assessment of individual policy options per topic, for the advice
EIOPA also published a report on quantitative reporting templates and annexes containing templates and related instructions; this material covers the Individual Quantitative Reporting Templates at solo and group levels, including Financial Stability Reporting. This report aims to provide stakeholders the full view of the future reporting and disclosure requirements, as a complement of the legislative proposals in this area covered by the Opinion. The document contains information on the templates proposed for deletion, templates proposed for simplification, new templates proposed for inclusion, and the revision and inclusion of new risk-based thresholds to provide an understanding of the reporting and disclosure framework envisaged by EIOPA, particularly the application of the proportionality principle in reporting requirements. Based on the proposals included in this document, EIOPA will propose amendments to the implementing technical standards on reporting and disclosure and will revise the EIOPA guidelines on Financial Stability Reporting in accordance with its mandate.
Keywords: Europe, EU, Insurance, Solvency II, Solvency II Review, ESG, Resolution Framework, Reporting, Proportionality, Macro-Prudential Framework, Disclosures, Opinion, Solvency Capital Requirements, EIOPA
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Skilled life insurance actuary; subject matter expert on IFRS 17 and source of earnings
Previous ArticleEC Adopts Draft Regulation on Supervisory Reporting Under CRR
CFPB Finalizes Rule on Small Business Lending Data Collection
The Consumer Financial Protection Bureau (CFPB) published a final rule that sets out data collection requirements on small business lending, under section 1071 of the Dodd-Frank Act.
BCBS to Consult on Pillar 3 Climate Risk Disclosures by End of 2023
The Bank for International Settlements (BIS) published a summary of the recent Basel Committee (BCBS) meetings.
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
US Congress Report Examines Data Privacy and Cybersecurity Regulations
The U.S. Congressional Research Service published a report on banking, data privacy, and cybersecurity regulation.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
EU to Conduct One-Off Scenario Analysis to Assess Transition Risk
The European authorities recently made multiple announcements that impact the banking sector.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.