On 10 December, EIOPA responded to the European Commission’s consultation on a Commission Delegated Regulation amending the Solvency II Delegated Regulation (EU 2015/35).
The proposed Regulation reflects EIOPA’s advices, including its suggested modifications to the design of the interest rate risk sub-module. The letter refers to EIOPA’s continued investigation on the treatment of illiquid liabilities and related investments. As the Commission proposes to reduce the capital charge for a portfolio of long-term liquidity investments backing long–term liabilities by 22%, EIOPA calls on the Commission to post-pone making such an amendment to the Solvency II Delegated Regulation until it has taken account of the outcome of EIOPA’s analysis.
EIOPA raises practical concerns regarding the Commission’s proposal to modify the general provisions on the relevant risk-free interest rate term structure. In particular, the proposed definition of a “substantial change” is, in their view, too wide and could affect market consistent valuation of technical provisions.
Separately, the Commission has published feedback that it has received from various interested stakeholders on its recent consultation, including Insurance Ireland and Insurance Europe, both of whom argue that the Commission’s failure to reassess the risk margin cost of capital represents a missed opportunity as the 6% cost of capital, a key element of its calibration, is too high.
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.