SII risk evolution deserves ‘further reflection’ - Bernardino

Written by Adam Cadle

24/11/2017

The acceleration of the pace of change in business models, especially in life insurance, with the move towards contracts with lower and more flexible guarantees and pure unit-linked products “deserves further reflection from a regulatory perspective”, EIOPA chair Gabriel Bernardino has said.

Speaking at EIOPA’s 7th Annual Conference in Frankfurt this week, Bernardino said whilst this acceleration is a “natural management reaction to ensure the long-term sustainability of the insurers commitments and optimise capital in a Solvency II environment, it “also increases the transfer of risks to policyholders”.

Bernardino said he will use the 2021 Solvency II review to thoroughly analyse the new evidence available on the risks and characteristics of the long-term life insurance products, “especially concerning the illiquidity characteristics of the liabilities and the corresponding ability of insurers to mitigate short-term volatility by holding assets throughout the duration of the commitments, even in times of market stress”.

“In the coming weeks I will propose to my board the setup of a specific work stream to analyse these issues and, maintaining the sound market consistent orientation and the principles of policyholder protection of Solvency II, explore the development of a specific regulatory treatment to the spread and equity risk charges associated to long-term assets that back certain types of truly long-term illiquid liabilities,” he said.

“The intention should be to propose a regime that would better recognise the true risks of long-term transparent risk sharing products, for the benefit of consumers and the whole economy.”

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