Article

EIOPA’s advice on Solvency II: the jury’s in

23 March 2021
Elizabeth Gillam
Elizabeth Gillam
Head of EU Government Relations and Public Policy
EIOPA’s advice on Solvency II: the jury’s in

What is EIOPA’s advice on the EU’s Solvency II Review? If adopted, how might this impact on investing by the insurance industry? To help you understand, we’ve produced a white paper featuring insights from our expert, Elizabeth Gillam, Head of EU Government Relations and Public Policy.

EIOPA’s opinion – a driver or drag for Solvency II?

The Solvency II Review is seen as essential to driving the change to reinforce the role of the insurance industry as a long-term investor within the Capital Markets Union. In our white paper, we assess how far EIOPA’s advice contributes to this aim:

EIOPA’s guidance in key areas

  • Long-term guarantee measures and equity risk – with prospects for risk-free interest rates, risk-margin stability, volatility adjustment, and long-term equity-holding criteria
  • Solvency capital requirements – in the context of recent falling interest rates
  • Proportionality – should it go up, and are current mechanisms up to scratch?
  • Macroprudential policy – as a tool to address systemic risk
  • Recovery and resolution – as an aid to EU financial stability
  • Insurance guarantee schemes – in particular, to boost policyholder protection

 

EIOPA’s advice on valuing long-term liabilities

Many see Solvency II’s use of market-consistent rates as a disincentive to long-term guarantee products. Our experts look at how EIOPA addresses this and, in particular, the possible impact of its advice on four measures: the extrapolation method, the matching adjustment, the volatility adjustment, and the risk margin.

EIOPA’s advice on capital treatment of long-term investment

Looking at the asset side, our white paper tests EIOPA’s advice on:

  • Spread risk – on the merits of introducing a long-term bond spread risk module, and the use of dynamic volatility adjustment by internal models
  • Long-term equity (LTE) calibration – what impact does EIOPA reckon the LTE is having on market participants’ total equity? And how might criteria be adjusted to enable and enhance equity investment?
Download Whitepaper

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

  • This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.