Ireland: Insurance Quarterly Legal And Regulatory Update - 1 January 2018 – 31 March 2018

INSURANCE QUARTERLY LEGAL AND REGULATORY UPDATE

Solvency II

(i) EIOPA publishes monthly technical information for Solvency II relevant risk free interest rate term structures

The European Insurance and Occupational Pensions Authority ("EIOPA") intends to publish the technical information in relation to risk free interest rate ("RFR") term structures on a monthly basis to ensure consistent calculation of technical provisions across the European Union.

In Quarter 1, EIOPA published the RFR as follows:

  • With reference to the end of December 2017 on 9 January 2018;
  • With reference to the end of January 2018 on 6 February 2018; and
  • With reference to the end of February 2018 on 6 March 2018.

Undertakings should note that EIOPA has stated on their website that, in certain circumstances, it may be necessary for EIOPA to amend and/or republish the technical information after it has been published.

EIOPA's background material and the monthly technical information on the relevant risk-free interest rate term structures can be accessed here.

(ii) EIOPA publishes monthly symmetric adjustment of the equity capital charge for Solvency II

On a monthly basis, EIOPA updates information on the symmetric adjustment of the equity capital charge. The symmetric adjustment to the equity capital charge shall be included in the calculation of the equity risk sub-module in accordance with the Solvency Capital Requirements ("SCR") standard formula to cover the risk arising from changes in the level of equity prices. This adjustment is regulated mainly in Article 106 of the Solvency II Directive; Article 172 of the Solvency II Regulation as well as in the Implementing Technical Standards on the equity index for the symmetric adjustment of the equity capital charge (Commission Implementing Regulation 2015/2016/EU).

EIOPA published the technical information on the symmetric adjustment of the equity capital charge for Solvency II as follows:

  • With reference to the end of December 2017 on 9 January 2018;
  • With reference to the end of January 2018 on 6 February 2018; and
  • With reference to the end of February 2018 on 6 March 2018.

The monthly symmetric adjustment of the equity capital charge can be accessed via the

following link.

(iii) EIOPA publishes report on the application of group supervision under Solvency II

On 25 January 2018, EIOPA published its report (dated 22 December 2017) to the European Commission under Article 242(1) of Directive 2009/138/EC (the "Solvency II Directive") on the application of group supervision under Solvency II.

The report follows on from a request by the European Commission for EIOPA to consider 29 issues, which are listed in the annex to the report on the application of Title III (Supervision of insurance and reinsurance undertakings in a group) of Solvency II. The report covers areas such as:

  • EIOPA's involvement in promoting supervisory convergence in group supervision;
  • Definitions and scope of group supervision;
  • Functionality of the colleges of supervisors and cooperation of authorities within them; EIOPA's role in promoting supervisory convergence on Group internal models;
  • Group capital add-ons; and
  • The annex which contains the 29 issues for consideration by EIOPA from the European Commission.

A copy of the report can be found here.

(iv) Insurance Europe publishes response to EIOPA's draft advice to the European Commission on Solvency II

On 25 January 2018, Insurance Europe published its response to EIOPA's draft advice to the European Commission on its 2018 review of Solvency II. The response commented on EIOPA's draft advice and provided technical input into the areas under consideration.

Amongst other issues, Insurance Europe:

  • Noted with concern that EIOPA had chosen to address the interest rate risk Solvency Capital Requirement ("SCR"), despite this issue being out of the scope of the European Commission call for advice. As this issue will be a key focus of the Solvency II 2020 review, Insurance Europe noted that this is a more appropriate forum for its review;
  • Expressed concern regarding the theoretical approach taken by EIOPA in its draft advice. Instead, Insurance Europe advocated EIOPA take a more practical approach by measuring the economic impacts of its advice. This approach, the response noted, is more likely to achieve its intended outcomes;
  • Noted that, although Insurance Europe supports the level of supervisory convergence already provided for in the Solvency II framework, the favouring by EIOPA of a restrictive approach to convergence across all markets defeats the risk-based approach to regulation already provided for;
  • Recommended that EIOPA conduct an overall impact assessment of its proposals, as opposed to an assessment for each area of review, in order to provide an industry-wide picture of their impact; and
  • Advocated that EIOPA balance the aims of simplicity and risk-sensitivity more consistently throughout its advice.

A copy of the response is available here.

(v) EIOPA publishes updated Solvency II Q&A

On 2 February 2018, EIOPA published updated questions and answers ("Q&A") on the following:

  • (EU) No 2015-2450 with regard to the templates for the submission of information to the supervisory authorities;
  • (EU) No 2015-2452 with regard to the procedures, formats and templates of the solvency and financial condition report;
  • (EU) No 2015-2011 with regard to the lists of regional governments and local authorities;
  • Answers to questions on Commission Delegated Regulation (EU) 2015/35 supplementing Directive 2009/138/EC;
  • Guidelines on the System of Governance;
  • Answers to questions on Risk-free interest rate - VA calculations; and Symmetric adjustment of the equity capital.

The Q&A may be accessed here.

(vi) European Commission publishes Implementing Regulation on technical information for calculation of technical provisions and basic own funds in the Official Journal of the European Union

The European Commission Implementing Regulation (EU) 2018/165 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 31 December 2017 until 30 March 2018 under the Solvency II Directive was published in the Official Journal of the European Union on 3 February 2018.

The Implementing Regulation entered into force on 4 February 2018, and it applies from 31 December 2017 (the first reporting reference date to which the Implementing Regulation applies).

The Implementing Regulation can be found here.

(vii) EIOPA publishes final set of advice to the European Commission on Solvency II Delegated Regulation

EIOPA, on 1 March 2018, published its final set of advice to the European Commission on specific items in the Solvency II Delegated Regulation (the "Advice"). Elements of the Solvency Capital Requirement ("SCR") not covered by previous advice formed the scope of the review.

The Advice, dated 28 February 2018, makes a number of recommendations including the following:

In areas such as natural catastrophe risks and assistance and medical expenses, the availability of more recent data allows for revised calibrations. However, in areas such as longevity risks, mortality and cost-of-capital, analysis of recent developments provided no justification for change;

It recommended the recalibration of the interest rate risk SCR. This is because the current rate is not effective when interest rates are low, nor does it cater for negative interest rates;

In cases where unrated debt and unlisted equity can be given the same treatment as rated debt and listed equity, EIOPA recommended the use of objective criteria in these asset classes; and

As a follow-up to their analysis of the loss-absorbing capacity of deferred taxes, EIOPA recommended a set of principles to encourage supervisory convergence across markets.

The Advice is available here. The Advice is comprehensively summarised by EIOPA's cover letter to the European Commission, available here.

(viii) EIOPA publishes paper on Solvency II tools with macroprudential impact

On 21 March 2018, EIOPA published a paper titled, 'Solvency II tools with macroprudential impact.' The purpose of the paper is to set out and assess the tools already within the Solvency II framework which may be used to mitigate sources of systemic risk.

The tools analysed within the paper are as follows:

  • Symmetric adjustment in the equity risk module;
  • Volatility adjustment;
  • Matching adjustment;
  • Extension of the recovery period; and Transitional
  • measure on technical provisions.

The preliminary assessment carried out in this paper shows that the above tools ensure sufficient loss absorbency capacity and reserving. Furthermore, the tools also contribute to the policy objective of limiting procyclicality.

In addition, the paper notes that Solvency II has a number of other elements with indirect macro prudential impact, such as the prudent person principle. Although such instruments were not primarily designed to mitigate systemic risk, when considered in the aggregate they may contribute to this objective. The paper may be accessed here.

(ix) EIOPA publishes consultation paper on revisions to Solvency II ITS and disclosure and reporting guidelines

On 28 March 2018, EIOPA published a consultation paper inviting comments on draft amendments to the Commission Implementing Regulations setting out implementing technical standards on reporting and disclosure. The implementing technical standards relate to the Solvency II Directive.

The closing date for receipt of comments is 11 May 2018. The consultation paper can be accessed here. An accompanying impact assessment, which provides background to the consultation, is available here.

EIOPA has published the two Implementing Regulations separate to the consultation paper:

  • The proposed implementing regulation amending Commission Implementing Regulation (EU) 2015/2450 is available here.
  • The proposed implementing regulation amending Commission Implementing Regulation (EU) 2015/2452 is available here.

To view the full article click here

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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