The European Insurance and Occupational Pensions Authority (EIOPA) published its annual report on the use of capital add-ons during 2020. The analysis included in the report is based on 2020 year-end data collected under Directive 2009/138/EC (Solvency II) as reported by the solo undertakings or insurance groups from the European Economic Area; this was complemented by a dedicated survey for national competent authorities that entailed both qualitative and quantitative questions.
The objective of the capital add-on measure is to ensure that the regulatory capital requirements reflect the risk profile of the solo undertaking or of the insurance group. Therefore, it is important that national competent authorities use it when needed, with the aim to ensure a high degree of supervisory convergence in its application. It is also important to maintain a level playing field regarding the setting of capital add-ons. During 2020, two national competent authorities that set capital add-ons in the previous years no longer set capital add-ons in 2020. This situation led to a number of capital add-ons set at the end of 2020 even lower than in 2019. In 2020, seven national competent authorities set capital add-ons to nine solo undertakings (six non-life and three life undertakings respectively), while, in 2019, nine national competent authorities had set capital add-ons to ten solo undertakings, including two life, seven non-life undertakings and one composite (excluding the capital add-ons set by the UK in the past). For groups, similarly to 2019, no capital add-ons were set during 2020.
Due to the low number of capital add-ons, the weight of capital add-ons imposed on undertakings using the standard formula remains very low overall in 2020 (that is, less than 0.1% of the total Solvency Capital Requirement of all undertakings). However, it remains significant when considering the amount at individual level accounting for 25% of the total Solvency Capital Requirement of the undertakings with capital add-ons. Although there is a wide range in its distribution (from 86% to 1%), in all cases (except for one) the capital add-on increases the Solvency Capital Requirement by at least 10%. Following the findings of the survey, in view of a decreasing number of capital add-ons at an already low level, EIOPA will continue to monitor the usage of capital add-ons and pay attention on the proposals made by national competent authorities on how to make a more efficient use of this tool in the future.
Keywords: Europe, EU, Insurance, Reinsurance, Solvency II, SCR, Capital Add-Ons, Solvency Capital Requirement, EIOPA
Previous ArticleEC Consults on Review of Mortgage Credit Directive
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards
The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.