EIOPA issued a statement supporting views of ESRB on the importance of improving the monitoring of liquidity risks in the insurance sector. Earlier, in a letter addressed to the EIOPA Chair, ESRB strongly encouraged EIOPA and its members to promptly finalize and operationalize the framework for monitoring of liquidity risks in the insurance sector. In its statement, EIOPA highlights that, as a response to COVID-19 crisis, it has already developed and put in place a proportionate framework to enhance the nature and the consistency of the information collected on liquidity risks. Until now, there is no evidence of the materialization of liquidity risks in the insurance sector.
The ESRB letter, states that, to date, there has been a lack of consistent data for assessing the magnitude of potential liquidity risks in the insurance sector and the related financial stability risks. Therefore, supervisors may not be in a position to judge with confidence the scale of potential liquidity pressures in the future and the potential financial stability implications of a crystallization of such liquidity risks. In the past, ESRB has flagged that the Solvency II review presents an opportunity to better enable supervisors to address liquidity risk of insurers with a vulnerable liquidity profile. Additionally, ESRB judges that, in the near term, priority should be given to improved monitoring of liquidity risks in the insurance sector, to enhance Europe’s preparedness to respond to potential future shocks that could lead to a deterioration in financial stability conditions.
In response, this recent statement from EIOPA clarifies that, as part of the Solvency II Review, EIOPA has consulted on concrete proposals to reinforce the macro-prudential dimension of the regime; this includes elements to strengthen the tools available to assess and monitor liquidity risks. The proposals will be assessed in the coming months in face of the COVID-19 evidence. The statement adds that EIOPA will continue to contribute to the ESRB work to support the stability of the insurance sector and its contribution to the overall stability of the financial system.
Keywords: Europe, EU, Insurance, Solvency II, Liquidity Risk, Financial Stability, COVID-19, Solvency II Review, ESRB, EIOPA
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