EIOPA Changes Frequency of RFR and EDA Processes to Two Weeks
EIOPA announced a change in the frequency of current extraordinary processes for risk-free interest rate term structures (RFR) and symmetric adjustment to equity risk (EDA) from a weekly basis to every two weeks. The new frequency will apply from the week starting on May 25, 2020. Due to COVID-19 outbreak, EIOPA will continue to carry out extraordinary calculations every two weeks to monitor the evolution of the relevant risk-free interest rate term structures and the symmetric adjustment to equity risk. EIOPA is publishing this information to support insurance and reinsurance undertakings in the monitoring of their solvency and financial position under Solvency II.
Solvency II aims to implement an economic and risk-based supervisory framework in the field of insurance and reinsurance. The framework is built on three pillars, all equally relevant, that provide for quantitative requirements (Pillar 1), qualitative requirements (Pillar 2), and enhanced transparency and disclosures (Pillar 3). The starting point in Solvency II is the economic valuation of the whole balance sheet, where all assets and liabilities are valued according to market consistent principles. The risk-free interest rate term structure underpins the calculation of liabilities by insurance and reinsurance undertakings and their regulator publication ensures consistent calculation of technical provisions across Europe and contributes to higher supervisory convergence.
Additionally, the calculation of the symmetric adjustment is based on the behavior of an equity index built by EIOPA exclusively for that purpose. The legal requirements on the determination of the symmetric adjustment and of the EIOPA equity index are set out in the Solvency II Directive (as amended by Directive 2014/51/EU), the implementing measures of that Directive, and also in the implementing technical standard on the EIOPA equity index.
Related Links
Keywords: Europe, EU, Insurance, Risk-free Rates, Solvency II, COVID-19, Symmetric Adjustment to Equity Risk, EDA, RFR Term Structures, EIOPA
Featured Experts
Adam Koursaris
Asset and liability management expert; capable modeler; risk and capital specialist
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Cassandra Hannibal
Life insurance actuary; risk management and economic capital specialist
Previous Article
ECB Releases Results of March Survey on Credit Terms and ConditionsRelated Articles
HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
EBA Guide to Monitor Threshold for Intermediate Parent Undertakings
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
PRA Finalizes Approach to Supervision of International Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
FCA Issues PS21/9 on Implementation of Investment Firms Regime
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
EBA Proposes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
IOSCO Proposes Recommendations on ESG Ratings and Data Providers
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
ESMA Group Issues Recommendations on RFR Switch in Interdealer Market
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
ECB Study Assesses Impact of Basel III Finalization Package
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
PRA Updates Remuneration Policy Statement Templates and Tables
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.
