Featured Product

    EIOPA Report Examines Use and Impact of LTG and Equity Risk Measures

    December 18, 2018

    EIOPA submitted—to the European Parliament, European Council, and EC—its 2018 and third annual report on Long-Term Guarantee (LTG) measures and measures on equity risk. The Solvency II Directive requires a review of the LTG measures and the measures on equity risk until January 01, 2021. As part of this review, EIOPA reports annually on the impact of the application of the LTG measures and the measures on equity risk to the European Parliament, European Council, and EC.

    The report first provides information on the legal background of the review of the LTG measures and measures on equity risk, describes the data used for this report, and offers a short overview of the European insurance market. It then captures the overall and detailed impact of these measures on financial position of the undertakings, policyholder protection, investments, consumer protection, financial stability, competition, and a level playing field in the insurance market in EU. Finally, the report focuses on risk management aspects in view of the specific requirements for LTG measures, also including an analysis of detailed features and types of guarantees of products with long-term guarantees.

    Similar to the analyses of previous years, the results this year show that most of the measures are widely used. Nearly 737 insurance and reinsurance undertakings in 23 countries with a European market share of 74% use at least one of the voluntary measures. The voluntary measures include the matching adjustment, the volatility adjustment, the transitional measures on the risk-free interest rates, the transitional measures on technical provisions (TMTP), and the duration-based equity risk sub-module. The volatility adjustment and the transitional measure on technical provisions are particularly widely used. The volatility adjustment is applied by 696 undertakings in 23 countries to mitigate the effect of exaggerations of bonds spreads. The transitional measure on technical provisions is applied by 162 undertakings in 11 countries with respect to contracts concluded before the start of Solvency II to ensure a smooth transition to the new regime.

    The average Solvency Capital Requirement (SCR) ratio of undertakings using the voluntary measures is 231% and would drop to 172% if the measures were not applied. This confirms the importance of these measures for the financial position of insurance undertakings. Additionally, EIOPA conducted an analysis on risk management aspects in relation to the regulatory reporting by undertakings of the LTG measures. The analysis covered the following aspects:

    • The liquidity plan for undertakings applying the matching or the volatility adjustment
    • The assessment of sensitivity of technical provisions regarding the assumptions underlying the extrapolation, the matching adjustment, and the volatility adjustment
    • The assessment of compliance with capital requirements, with and without the measures
    • Potential measures to restore compliance and analysis of LTG measures in the own risk and solvency assessment

    National supervisory authorities identified room for improvement in relation to the level of detail of the regular supervisory reporting. In addition, they performed case studies to further explore how insurers build-in the results of the assessments on asset-liability management (ALM) into their overall ALM and risk management system. Practices observed vary across countries and measures.

     

    Related Links

    Keywords: Europe, EU, Insurance, Solvency II, Long-term Guarantee, Equity Risk, Matching Adjustment, Volatility Adjustment, TMTP, SCR, EIOPA

    Featured Experts
    Related Articles
    News

    APRA Publishes Submission on Fintech and Regtech

    APRA published its submission, to the Senate Select Committee, on financial technology and regulatory technology.

    January 21, 2020 WebPage Regulatory News
    News

    ECB Consults on Guideline on Threshold for Credit Obligations Past Due

    ECB published a draft guideline, along with the frequently asked questions (FAQs), on the definition of the materiality threshold for credit obligations past due for less significant institutions.

    January 20, 2020 WebPage Regulatory News
    News

    BIS Discusses Role of Central Banks in Addressing Climate Change Risks

    BIS published a book that reviews ways of addressing the climate change risks within the financial stability mandate of central banks.

    January 19, 2020 WebPage Regulatory News
    News

    FSB Report Examines Global Nonbank Financial Intermediation Activity

    FSB published the ninth annual report examining the global non-bank financial intermediation activity.

    January 19, 2020 WebPage Regulatory News
    News

    OSFI Publishes Instruction Guide on Solvency Information Return

    OSFI published an instruction guide to assist administrators of pension plans in completing the Solvency Information Return that is required to be filed with OSFI.

    January 17, 2020 WebPage Regulatory News
    News

    EU Amends IFRS 9 Rule, Changes Concern Interest Rate Benchmark Reforms

    EU published Regulation 2020/34 regarding the International Accounting Standard (IAS) 39 and International Financial Reporting Standards (IFRS) 7 and 9.

    January 16, 2020 WebPage Regulatory News
    News

    FDIC and OCC Issue Statement on Heightened Cyber Security Risk

    In response to the heightened cyber-security risk facing the financial services industry and other critical business sectors, FDIC and OCC issued an interagency statement on heightened cyber-security risk.

    January 16, 2020 WebPage Regulatory News
    News

    BCRA Updates Regulation on Capital Requirements and Information Regime

    BCRA updated the rules on minimum capital requirements for financial entities and on certain aspects of the information transparency regime for quarterly and annual supervision.

    January 16, 2020 WebPage Regulatory News
    News

    BoE and FCA Outline Next Steps for LIBOR Transition in 2020

    BoE, FCA, and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have published a set of documents that outline the LIBOR transition priorities and milestones for 2020.

    January 16, 2020 WebPage Regulatory News
    News

    BIS to Expand Central Bank Membership

    BIS is to expand its central bank membership base and to increase collaboration in its work as a forum for international cooperation and as a hub for central banks and other financial authorities.

    January 14, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4511