Featured Product

    EIOPA Publishes Discussion Paper on Insurer Stress Testing Framework

    June 24, 2020

    EIOPA published the second discussion paper on methodological principles of insurance stress testing. The paper covers approaches, challenges, and open points on the stress test framework on climate change, an approach to liquidity stress testing, and a multi-period framework for the bottom-up insurance stress testing. The discussion paper is part of a broader process to enhance the stress testing framework of EIOPA. The comment period for this discussion paper ends on October 02, 2020.

    The section on climate change sets out methodological principles to incorporate climate change risks in a stress testing framework, which can be used when developing future EIOPA bottom-up stress test on climate change risk. The climate change section covers transition and physical risks. Given the forward-looking, long term, and exploratory nature of the exercise, the proposal is based on a step-by-step approach initiating from the assessment of vulnerability of the insurers based on their current exposures, complemented by a forward-looking assessment of the potential changes in the business models and their implications to policyholders and potential spillover to other markets. Technically, the proposed approach is based on a medium-to-long term time horizon, with end-of-modeling horizon impacts evaluated as an instantaneous shock without reactive management actions. The main challenges in modeling the transition risk are granularity of the asset classification and calibration of the shocks. Given the long-term nature of the risks, the proposed metrics are mainly based on the Solvency II balance sheet. 

    The section on liquidity stress testing sets out methodological principles that can be used to design stress test exercises to assess the vulnerability of insurers to liquidity shocks. It proposes a step-by-step approach starting from the micro-objective of assessing the vulnerability of the insurers to liquidity shocks, complemented by a quali-quantitative questionnaire on the potential reactions to the adverse scenario. The stress test builds over the definition of the liquidity sources and of the liquidity needs of the insurance company. The metrics are specifically designed for liquidity purposes, thus no standard Solvency II capital-based indicators are requested. 

    The section on multi-period framework for the bottom-up insurance stress testing aims presents, from a theoretical perspective and without the aim of completeness, the major challenges implied in the introduction of a multi-period approach in a bottom-up insurance stress test exercise. The focus on the main theoretical endeavor is the definition of the guidelines on how to treat the future business and the reactive management actions over the period of the exercise. Process-wise, the discussion covers the limitation of the process applied so far by EIOPA in its bottom-up stress test exercises and suggests a new approach based on the iterative calculation/validation process. As a final remark, the multi-period approach is considered doable but at a high cost, thus an accurate cost-benefit analysis would be requested before initiating an exercise.

     

    Related Links

    Comment Due Date: October 02, 2020

     Keywords: Europe, EU, Insurance, Stress Testing, Methodological Principles, Bottom-Up Stress Testing, Climate Change Risk, Liquidity Risk, ESG, Solvency II, EIOPA

    Featured Experts
    Related Articles
    News

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News
    News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8699