The European Insurance and Occupational Pensions Authority (EIOPA) published a staff paper that offers an overview of the proposal for an Insurance Recovery and Resolution Directive (IRRD), which was put forward by the European Commission in September 2021. EIOPA also published the revised Guidelines on Valuation of Technical Provisions under Solvency II.
Paper on IRRD. In its staff paper, EIOPA welcomes the proposal as it addresses all relevant building blocks of a recovery and resolution framework and focuses on cooperation and coordination among authorities. EIOPA believes that the proposal has been fully aligned with the international standards but there are several technical issues that could be subject to debate (for example, on how the tools will work in practice). The key elements of the proposed IRRD are as follows:
- Single comprehensive framework across the European Union seeking to minimize the potential impact on policyholders and the stability of the system as a whole in case of insurance failure.
- Preventive planning as a fundamental element of the framework with the underlying idea that crisis prevention is less expensive and more effective than crisis management.
- Resolution authorities are proposed to be appointed; these authorities should be equipped with a minimum harmonized set of powers, will be in charge of undertaking all the relevant preparatory and resolution actions, and are expected to have specialized knowledge on the insurance undertaking, the insurance market, the possibilities for winding down insurers and the interconnectedness with other undertakings or other parts of the financial sector.
- Resolution objectives proposed to be considered are the protection of policyholders, the maintenance of financial stability, the continuation of critical functions, and the protection of public funds.
- Clear conditions for resolution and adequate safeguards in line with international standards have been proposed.
- A broad range of proposed resolution tools will provide authorities with flexibility to reach an optimal solution in any situation.
- Resolution colleges addressing the need for cooperation and coordination among authorities will ensure a successful resolution process, particularly in cross-border cases.
Guidelines on Valuation of Technical Provisions. During the 2020 review of Solvency II, EIOPA identified several divergent practices regarding the valuation of best estimate. In accordance with Article 16 of Regulation (No 1094/2010), EIOPA issued the revised guidelines on how insurance and reinsurance undertakings should apply the requirements of Solvency II Directive and the Commission Delegated Regulation (No 2015/35) on best estimate valuation. The revised guidelines apply to both individual undertakings and mutatis mutandis at the level of the group. The revision introduced new guidelines and amended current guidelines on topics including the use of future management actions and expert judgment, the modeling of expenses and the valuation of options and guarantees by economic scenarios generators and modeling of policyholder behavior. The revised guidelines do not deviate from the previous guidelines and only add additional details compatible with the high-level guidance included in the previous guidelines. The revised guidelines will be applicable from January 01, 2023.
- Press Release on Proposal for IRRD
- EIOPA Staff Paper on Proposal for IRRD (PDF)
- Press Release on Revised Guidelines
- Revised Guidelines on Valuation of Technical Provisions (PDF)
Keywords: Europe, EU, Banking, Insurance, Solvency II, IRRD, Resolution Planning, Insurance Recovery and Resolution Directive, Resolution Framework, Reinsurance, EIOPA
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.