EIOPA Publishes Report on Use of Capital Add-Ons Under Solvency II
EIOPA published the second annual report on the use of capital add-ons by national competent authorities under Solvency II. The report examines the evolution of the usage of capital add-ons from 2016 to 2017, along with the evolution of the processes of each authority. The objective is to contribute to a higher degree of supervisory convergence in the use of capital add-ons between supervisory authorities in the different member states and to highlight any concerns regarding the capital add-ons framework.
The analysis is based on 2017 year-end Solvency II data, as reported by the undertakings and insurance groups via the Solvency II Quantitative Reporting Templates (QRTs) and an additional survey addressed to the national competent authorities from the 28 EU member states and three European economic area members. The report shows that a slight increase in the use of capital add-ons can be seen, although the overall usage remains extremely limited. During 2017, six national competent authorities have set capital add-ons to 23 solo insurance and reinsurance undertakings. This limited usage might be due to the negative image that is attributed to capital add-ons or to the level of judgment that is associated to the decision and calculation of the capital add-ons, which in turn inhibits supervisors from using it.
Even if the capital add-ons are not used often, when used, they have a material impact on the Solvency Capital Requirement (SCR) of some of the entities. The weight of capital add-ons ranges from a low of 1% to a high of 83%, with an average of 30% of the total SCR. The capital add-on seems to be a good and positive measure to adjust the SCR to the risks of the undertaking, when the application of other measures is not adequate—such as the development of an internal model—as in 18 cases the capital add-on was already set in 2016.
Related Links
Keywords: Europe, EU, Insurance, Solvency II, Capital Add-ons, SCR, Quantitative Reporting Templates, EIOPA
Featured Experts
Paul McCarney
Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers
Brian Robinson
Actuary; risk management specialist; corporate and capital modelling expert
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
