EIOPA launches consultation on Opinion setting out technical advice for SII 2020 review

Written by Adam Cadle

15/10/2019

EIOPA has launched a public consultation on an Opinion that sets out technical advice for the 2020 review of Solvency II.

The Opinion will respond to the call for advice of the EC of 11 February 2019 on the 2020 review of Solvency II. The call for advice comprises 19 separate topics and these can be divided into three parts. Firstly, the review of the long term measures. These measures were always foreseen as being reviewed in 2020, as specified in the Omnibus II Directive. A number of different options are being consulted on, notably on extrapolation and on the volatility adjustment.

Secondly, the potential introduction of new regulatory tools in the Solvency II Directive, notably on macro-prudential issues, recovery and resolution, and insurance guarantee schemes. These new regulatory tools are considered thoroughly in the consultation.

Thirdly, revisions to the existing Solvency II framework including in relation to freedom of services and establishment; reporting and disclosure; and the solvency capital requirement.

EIOPA said: “The Solvency II framework is working well overall. Therefore the approach here has in general been one of evolution rather than revolution. The principal expectations arise as a result either of supervisory experience, for example in relation to cross-border business; or of the wider economic context, in particular in relation to interest rate risk.”

The main specific considerations and proposals of this consultation are: considerations to choose a later starting point for the extrapolation of risk-free interest rates for the euro or to change the extrapolation method to take into account market information beyond the starting point; considerations to change the calculation of the volatility adjustment to risk-free interest rates, in particular to address overshooting effects and to reflect the illiquidity of insurance liabilities; the proposal to increase the calibration of the interest rate risk sub-module in line with empirical evidence, in particular the existence of negative interest rates; the proposal to include macro-prudential tools in the Solvency II Directive and the proposal to establish a minimum harmonised and comprehensive recovery and resolution framework for insurance.

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