The EIOPA Chairman Gabriel Bernardino spoke at the Public Hearing on the 2018 Review of the Solvency II Delegated Regulation in Brussels. He highlighted the need to ensure that "the regime remains fit-for-purpose, works for insurance companies of all sizes and types, and that we continue to preserve regulatory certainty." He mentioned that, in its Advice to EC, EIOPA analyzed 29 topics focused on the three main areas—that is, increasing proportionality, removing unjustified constraints to financing the economy, and removing technical inconsistencies.
With respect to proportionality, the focus was on small and medium-size insurers and reduced granularity, where risk profiles justified this. EIOPA advised to further simplify calculations for a number of sub-modules such as natural, manmade, and health catastrophes. To reduce over-reliance on external credit ratings in the calculation of the Solvency Capital Requirement or SCR, EIOPA recommended applying simplified calculations by nominating only one credit rating agency and calculating capital requirements for the remaining non-complex assets only subject to the credit quality step 3. One of the main simplifications is the reduced burden on the treatment of lookthrough to underlying investments. Access to data was always an issue and EIOPA recommended allowing the grouping of underlying exposures and simplifications for the calculation of capital requirements. This change should be a significant relief in terms of administrative burden. Other simplifications included relief in the assessment of lapse and counterparty default risks.
Other topics that constitute a substantial part of the EIOPA Advice, according to the EIOPA Chairman, are interest rate risks, loss-absorbing capacity of deferred taxes, and risk margin. To improve calculation of capital requirements for interest rate risks, EIOPA recommended to implement new calibrations (current calibration with data up to 2008) that take recent evidence such as negative rates into account. Given the material impact on the capital requirements for certain types of insurers, EIOPA suggested to implement the methodology gradually over three years to mitigate the impact. To strike a reasonable balance between flexibility and foster greater supervisory convergence, EIOPA developed a set of key principles, consistent with the Solvency II framework, that allow proportionality and flexibility in the calculation while increasing the comparability of outcomes. He also added that, "we are of the opinion that the cost-of-capital needs to be kept on the same level while the review of other aspects of the risk margin should be assessed in the upcoming overall review of the Solvency II regime scheduled for 2021."
Finally, Mr. Bernardino emphasized that, with the changes proposed in the two sets of Advice by EIOPA, accompanied by a full impact assessment, complexity will be reduced while a proportionate, technically robust, risk-sensitive, and consistent supervisory regime for the insurance sector is retained. He concluded that "the proposed adjustments will reinforce Solvency II as a modern, risk-based, and proportionate regime; a European regime that is the worldwide reference on insurance regulation."
Related Link: Speech (PDF)
Previous ArticleESMA Issues Translations for Guidelines on Stress Test Scenarios
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.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
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.
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.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
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.
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.
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
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.