Featured Product

    ESRB Report on Macro-Prudential Measures and Instruments for Insurance

    November 26, 2018

    ESRB published a report identifying a shortlist of options for additional provisions, measures, and instruments that ESRB deems sufficiently promising to warrant further work. The report complements the work undertaken by EIOPA and reaches broadly similar conclusions. The shortlisted options would address the key systemic risk types by targeting several significant systemic amplifiers, sectoral vulnerabilities, and transmission channels.

    The shortlisted options in the report were selected on the basis of expert judgment since, as Solvency II has only recently come into effect, the data reported do not yet support a comprehensive time series analysis. The shortlisted options reflect the specificities of the (re)insurance business and their functioning naturally differs from the toolkit that was developed for other financial sectors (for example, banking). The shortlisted options would form part of a comprehensive regulatory framework. First, as part of making (re)insurers safer to protect policyholders, the shortlisted options include a proportionate extension and enhancement of micro-prudential reporting requirements. Second, as part of providing legal certainty in case an (re)insurer runs into difficulties and to ensure that any failure is orderly, they confirm the financial stability benefits of a harmonized EU-wide recovery and resolution framework. Third, as part of a macro-prudential toolkit to target systemic risks, they include the possibility for the following:

    • A power for authorities to impose, entity-based and/or activity/behavior-based market-wide capital increases and dividend restrictions in situations in which (re)insurance market developments could generate systemic risk
    • Symmetric capital requirements for cyclical risks
    • Liquidity requirements for (re)insurers with a vulnerable liquidity profile
    • A discretionary power for authorities to intervene in cases of mass lapses
    • Instruments to target bank-like activities to ensure cross-sectoral consistency of macro-prudential policy

    With the exception of the symmetric capital requirements for cyclical risks, which partly interact with measures already present in Solvency II, in particular the volatility adjustment (VA) and the matching adjustment (MA), the shortlisted options address the macro-prudential aspects not captured by the current EU regulation. Further work should consider international developments, changes in current regulation, and determine the appropriate level of legislation. As the potential implementation of any of the shortlisted provisions, measures, and instruments would require legislative changes, it would typically be accompanied by an impact assessment. One of the key elements of any future work would be to consider the extent of the legislative changes needed to implement certain provisions, measures or instruments and to consider the appropriate level of legislation.

     

    Related Link: ESRB Report (PDF)

    Keywords: Europe, EU, Insurance, Solvency II, Macro-prudential Measures, Systemic Risk, ESRB

    Featured Experts
    Related Articles
    News

    APRA Publishes Approach to Regulating and Supervising GCRA Risks

    APRA published an information paper that sets out a more intensive regulatory approach to transform governance, culture, remuneration, and accountability (GCRA) practices across the prudentially regulated financial sector.

    November 19, 2019 WebPage Regulatory News
    News

    IAIS Publishes Application Paper on Recovery Planning

    IAIS published the final application paper on recovery planning, along with the resolution of comments on the draft application paper.

    November 18, 2019 WebPage Regulatory News
    News

    FSB Publishes Summary of November Meeting of RCG for MENA Region

    FSB published a summary of the November meeting of the Regional Consultative Group (RCG) for Middle East and North Africa (MENA).

    November 17, 2019 WebPage Regulatory News
    News

    EBA Single Rulebook Q&A: Second Update for November 2019

    EBA updated the Single Rulebook question and answer (Q&A) tool with answers to eight questions that relate to the Bank Resolution and Recovery Directive (BRRD) and the Capital Requirements Regulation and Directive (CRR and CRD).

    November 15, 2019 WebPage Regulatory News
    News

    FSI Examines Use of Red Team Testing to Enhance Cyber Resilience

    The Financial Stability Institute (FSI) of BIS published a paper that examines the contribution of red team testing frameworks toward enhancing cyber resilience.

    November 15, 2019 WebPage Regulatory News
    News

    FASB Delays Effective Dates for CECL, Leases, and Hedging Standards

    FASB issued two Accounting Standards Updates finalizing the delays in effective dates for standards on current expected credit losses (CECL), leases, hedging, and long-duration insurance contracts.

    November 15, 2019 WebPage Regulatory News
    News

    ESMA Updates Q&A on Securitization Regulation in November 2019

    ESMA updated questions and answers (Q&A) on the Securitization Regulation (Regulation 2017/2402).

    November 15, 2019 WebPage Regulatory News
    News

    HKMA Announces Finalization of Banking Liquidity Amendment Rules 2019

    HKMA issued a letter informing all authorized institutions that negative vetting of the Banking (Liquidity) (Amendment) Rules 2019 (BLAR) has now expired. Thus, the BLAR will now come into operation from January 01, 2020.

    November 15, 2019 WebPage Regulatory News
    News

    BCBS Consults on Revised Disclosures for Market Risk Framework

    BCBS launched a consultation on the revised disclosure requirements for the market risk framework for banks.

    November 14, 2019 WebPage Regulatory News
    News

    BCBS Consults on Disclosure Templates of Sovereign Exposures of Banks

    BCBS published a consultation on the voluntary disclosure templates related to sovereign exposures of banks.

    November 14, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4167