EIOPA Proposes Solvency II Guide on Contracts and Technical Provisions
The European Insurance and Occupational Pensions Authority (EIOPA) is consulting on revisions to the Solvency II guidelines on contract boundaries and on valuation of technical provisions; the guidelines have been in place since the implementation of Solvency II in 2016. As part of the 2020 review of Solvency II, EIOPA had identified several divergent practices on the implementation and supervision of the calculation of technical provisions. Thus, EIOPA is proposing changes to ensure a convergent application of Solvency II and its delegated regulation in this area. The comment period on this consultation ends on November 12, 2021, post which EIOPA will publish a final report on the consultation and submit the guidelines for adoption by its Board of Supervisors.
The proposed guidelines on contract boundaries are intended to promote consistent application of an insurance or reinsurance contract boundary. A contract boundary specifies whether the additional cover arising from policyholders’ options is regarded as existing or future business. The proposed guidelines provide further guidance on the existing requirements. They focus on the unbundling of an insurance and reinsurance contract and the assessment whether a financial guarantee or a cover has a discernible effect on the economics of the contract. In particular, the new guidance focuses on the aim of unbundling, ensuring that a contract has the same treatment regardless whether it is sold as one contract or as two independent contracts where both are equivalent in terms of risk. The guidelines help to determine which insurance or reinsurance obligations with regard to future premiums arise in relation to a contract in accordance with Articles 17 and 18 of Commission Delegated Regulation 2015/35; they are addressed to supervisory authorities under Solvency II.
The proposed guidelines on valuation of technical provisions are intended to enhance consistency and convergence of professional practices for all types and sizes of undertakings across the EU member states and to support undertakings in calculating their technical provisions under Solvency II. The proposed guidelines introduce new guidance and amend the current guidance on topics that are relevant for the valuation of best estimate, 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. EIOPA also identified the need for clarification in the calculation of expected profits in future premium. In the new and amended guidelines, EIOPA would clarify that, where contracts with material options and guarantees exist, undertakings are expected to use a valuation method that captures the time value of these contracts. The guidance on addressing expert judgement, a key component of the calculation of technical provisions, is being proposed based on the existing guidelines on the use of internal models, which were already applicable for technical provision valuation purposes. These guidelines are addressed to national competent authorities under Solvency II and will be ultimately applied both by actuaries and other professionals who may be appointed to perform tasks of the actuarial function.
Related Links
Comment Due Date: November 12, 2021
Keywords: Europe, EU, Insurance, Solvency II, Solvency II Review, Technical Provisions, Contract Boundaries, Supervisory Convergence, EIOPA
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Cassandra Hannibal
Life insurance actuary; risk management and economic capital specialist
Paul McCarney
Insurance product strategist; insurance domain expert; extensive experience developing risk assessment frameworks for insurers
Previous Article
ECB Announces Launch of Investigation Phase of Digital Euro ProjectRelated Articles
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
IOSCO Welcomes Work on Sustainability-Related Corporate Reporting
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
BoE Allows One-Day Delay in Statistical Data Submissions by Banks
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
ACPR Amends Reporting Module Timelines Under EBA Framework 3.2
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
APRA to Modernize Prudential Architecture, Reduces Liquidity Facility
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.
PBC Issues List of Systemic Banks, Adds 2 Foreign Banks to CERB List
The China Banking and Insurance Regulatory Commission (CBIRC) published the administrative measures for internal control of wealth management companies, which come into force on the day of promulgation.
PRA Publishes Discussion Paper on Its Future Approach to Policy
The Prudential Regulation Authority (PRA) proposed its approach to policy-making as it takes on wider rulemaking responsibilities under the Financial Services and Markets Bill.
ECB Publishes Opinion on Proposed Regulation on Data Act
The European Central Bank (ECB) published its opinion on the proposal for a regulation on harmonized rules on fair access to and use of data (Data Act).
