Featured Product

    EIOPA Consults on Use of Risk Mitigation Techniques Under Solvency II

    September 29, 2020

    EIOPA is consulting on a supervisory statement on the use of risk mitigation techniques by insurance and reinsurance undertakings. Supervisory authorities are recommended to also apply this Supervisory Statement to insurance and reinsurance undertakings that make use of an internal model to calculate the Solvency Capital Requirement (SCR). During the consultation period, EIOPA will additionally assess potential "group issues" and "internal reinsurance." The deadline for submission of feedback to this consultation is November 24, 2020.

    This Supervisory Statement is the result of analyses on the use of reinsurance structures by insurance and reinsurance undertakings that optimize the use of capital under the Solvency II framework,
    when the Solvency Capital Requirement (SCR) is calculated with the standard formula. The use of risk mitigation techniques can have a significant impact on the SCR. For non-life insurance, it impacts the "premium and reserve risk" and the "catastrophe risk." For life insurance, due to the newly developed structures, reinsurance contracts or other contracts that are structured as reinsurance contracts can also impact other risk modules—for example, lapse risk, longevity risk, or even expense risk. The overall impact can significantly reduce the SCR of an insurance and reinsurance undertaking and, therefore, supervisory authorities are recommended to give appropriate attention to this subject. 

    Independently from the eligibility criteria for recognizing risk mitigation techniques for solvency purposes, insurance and reinsurance undertakings are expected to ensure that risk mitigation is commensurate with the relief in the SCR calculation when introducing new techniques. Undertakings are required, as part of the general governance requirements, to manage risk prudently. Although the use of risk mitigation techniques in general is a good tool to mitigate the (insurance) risk, it should be recognized that the transfer of risk might introduce other risks—that is, a possible increase in counterparty default risk, basis risk and depending on the structure, concentration risk.

    This Supervisory Statement should be read in conjunction with the Solvency II Directive (2009/138/EC), the Commission Delegated Regulation 2015/35, EIOPA guidelines on system of governance, and EIOPA guidelines on basis risk. The statement is intended to promote supervisory convergence on the assessment of the use of risk mitigation techniques under Solvency II, as it is recognized that potential divergent practices or potential supervisory arbitrage in this area could contribute to an unlevel playing field.


    Related Links

    Comment Due Date: November 24, 2020

    Keywords: Europe, EU, Insurance, Solvency II, Reinsurance, Solvency Capital Requirement, Concentration Risk, Catastrophe Risk, EIOPA

    Featured Experts
    Related Articles

    BIS and Central Banks Experiment with GenAI to Assess Climate Risks

    A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe

    March 20, 2024 WebPage Regulatory News

    Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures

    Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.

    March 18, 2024 WebPage Regulatory News

    Singapore to Mandate Climate Disclosures from FY2025

    Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies

    March 18, 2024 WebPage Regulatory News

    SEC Finalizes Climate-Related Disclosures Rule

    The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.

    March 07, 2024 WebPage Regulatory News

    EBA Proposes Standards Related to Standardized Credit Risk Approach

    The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU

    March 05, 2024 WebPage Regulatory News

    US Regulators Release Stress Test Scenarios for Banks

    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).

    February 28, 2024 WebPage Regulatory News

    Asian Governments Aim for Interoperability in AI Governance Frameworks

    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.

    February 28, 2024 WebPage Regulatory News

    EBA Proposes Operational Risk Standards Under Final Basel III Package

    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.

    February 26, 2024 WebPage Regulatory News

    EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS

    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.

    February 23, 2024 WebPage Regulatory News

    ECB to Expand Climate Change Work in 2024-2025

    Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.

    February 23, 2024 WebPage Regulatory News
    RESULTS 1 - 10 OF 8957