Featured Product

    EIOPA Proposes Solvency II Guide on Contracts and Technical Provisions

    July 14, 2021

    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
    Related Articles
    News

    APRA Issues Interim Update to Policy Priorities for 2021 and Beyond

    In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.

    September 24, 2021 WebPage Regulatory News
    News

    EC Adopts Solvency II and Resolution Rules Package for Insurers

    The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.

    September 22, 2021 WebPage Regulatory News
    News

    OCC Issues Booklets on Regulatory Reporting and Earnings

    The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.

    September 22, 2021 WebPage Regulatory News
    News

    ECB Sets Out Results of Economy-Wide Climate Stress Tests

    The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.

    September 22, 2021 WebPage Regulatory News
    News

    EBA Examines Implications of Increasing Use of Digital Platforms in EU

    The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.

    September 21, 2021 WebPage Regulatory News
    News

    HKMA Issues Updates on Policy Measures Intended to Ease COVID Impact

    The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.

    September 21, 2021 WebPage Regulatory News
    News

    ISDA Responds to BCBS Proposal on Treatment of Cryptoasset Exposures

    The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.

    September 21, 2021 WebPage Regulatory News
    News

    BIS Quarterly Review Discusses Developments in Fintech and ESG Space

    BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.

    September 20, 2021 WebPage Regulatory News
    News

    BCBS to Consult on Supervisory Practices for Climate Risks by Year-End

    The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards

    September 20, 2021 WebPage Regulatory News
    News

    OCC Identifies Operational Risk Deficiencies in MUFG Union Bank

    The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.

    September 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7494