‘Urgent need for clarity’ on treatment of RFR around IBOR transition – Insurance Europe

Written by Adam Cadle

01/07/2020

An “urgent need for clarity” is needed on how EIOPA’s Solvency II (SII) risk-free rates (RFR) will be amended to reflect the transition away from IBOR rates, Insurance Europe has said.

In its response to EIOPA’s discussion paper on the impact of IBOR transitions on SII RFR, Insurance Europe argued that the “lack of clarity from EIOPA creates an obstacle to the transition as insurers are unlikely to be willing to meaningfully transition their asset exposures away from IBOR-based swaps until they can fully understand and measure the transition risks”.

“In some markets, such as the euro market, it is unknown if and when the transition away from IBOR rates will occur,” it added.

“For these markets, it is too early to assess if a common transition approach across the EU is optimal. In developing its approach, EIOPA should seek to maintain the level of liability valuations by ensuring that the market data used to calculate the RFRs are appropriately adjusted for credit risk.”

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