European Insurance and Occupational Pensions Authority
IRRD - EIOPA publishes staff paper on proposed Directive - 6 July 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has published a staff paper (EIOPA-22/636), which provides an overview of the European Commission’s (the Commission’s) legislative proposal for an Insurance Recovery and Resolution Directive (2021/0296(COD)) (IRRD). The Commission adopted the legislative proposal for the IRRD in September 2021.
The staff paper explores the rationale behind the IRRD proposal, including the 2007-8 global financial crisis, the occurrence of insurance failures and near misses, and the lack of harmonisation in recovery and resolution practices across EU Member States. It also provides an overview of the main elements of the IRRD proposal and outlines the following expected benefits:
- one single framework across the EU, which seeks to minimise the potential impact on policyholders and maintain the stability of the system as a whole in case of insurance failure;
- preventive planning as a fundamental element of the framework with the underlying idea that crisis prevention is less expensive and more effective than crisis management;
- the appointment of resolution authorities with specialised knowledge of insurance undertakings and the resolution process;
- clear conditions for resolution and adequate safeguards in line with international standards;
- a broad range of proposed resolution tools providing authorities with flexibility to reach an optimal solution in any situation; and
- resolution colleges addressing the need for cooperation and coordination among authorities, which will ensure a successful resolution process, particularly in cross-border cases.
EIOPA welcomes the Commission’s proposal for the IRRD in light of its preventative approach, the fact that it addresses all relevant building blocks for a recovery and resolution framework, and its focus on cooperation and coordination among authorities. Although there are several technical issues that could be subject to debate, EIOPA is generally in agreement with the proposal, which is fully aligned with international standards. EIOPA therefore believes that the main elements of the IRRD proposal should be retained during the negotiation process.
Under the IRRD proposal, EIOPA will have new responsibilities, including: (i) developing guidelines, regulatory technical standards and implementing technical standards; (ii) establishing a Resolution Committee in which all heads of the RAs are represented; (iii) taking part in the resolution colleges; and (iv) promoting resolution convergence.
EIOPA Staff Paper: Overview of the proposal for an insurance recovery and resolution directive (EIOPA-22/636)
Contract boundaries and technical provisions valuations - EIOPA publishes revised guidelines - 6 July 2022
EIOPA has published revised guidelines on contract boundaries and on the valuation of technical provisions. Both sets of guidelines were originally published in February 2015. The revisions follow EIOPA’s July 2021 consultations, as well as its 2020 review of Solvency II (2009/138/EC). That review identified divergent practices and the need for additional guidance in both these areas.
The revised guidelines on contract boundaries introduce certain additions and amendments; in particular, they consider whether a cover or financial guarantee has a discernible effect on the economics of a contract and the unbundling of contracts.
The revised guidelines on the valuation of technical provisions contain new provisions relevant to the valuation of best estimate. These include: (i) the use of future management actions and expert judgment; (ii) the modelling of expenses; (iii) the valuation of options and guarantees by economic scenarios generators; and (iv) modelling of policyholder behaviour. EIOPA has also made certain clarifications around the calculation of expected profits in future premiums.
The revised guidelines are designed to be compatible with the high-level guidance included in the 2015 guidelines. That said, EIOPA recommends reassessing existing contract boundaries when the revised guidelines come into force.
The revised guidelines apply from 1 January 2023.
EIOPA Revised Guidelines on Valuation of Technical Provisions
EIOPA Revised Guidelines on Contract Boundaries
Prudential Regulation Authority
Solvency II - PRA publishes statement on recalculation of the transitional measure on technical provisions - 6 July 2022
The PRA has published a statement on the recalculation of the transitional measures on technical provisions (TMTP) relief for insurers.
Under the Solvency II Regulations (SI 2015/575), firms are permitted to carry out a recalculation of the transitional measure provided they present sufficient evidence to the PRA of a material change in risk profile. In its Supervisory Statement on maintenance of TMTP under Solvency II (SS6/16), the PRA states that risk profile changes that may trigger a recalculation include changes in operating conditions, or a change in interest rates or market prices of other financial assets, leading to revised market risk exposures.
The PRA notes that it has been monitoring market conditions since the previous biennial TMTP calculation in December 2021. In its view, recent movements in risk free rates meet the threshold for a material change in risk profile, as set out in SS6/16.
The PRA is willing to accept applications from firms to recalculate TMTP as at 30 June 2022. It expects firms to discuss, in advance of an application, any proposal for simplifications to methodologies. In their applications, the PRA also expects firms to:
- be able to demonstrate that a material change in risk profile has occurred; and
- use their existing TMTP calculation methodology to expedite the application process.
PRA statement on the recalculation of the Transitional Measure on Technical Provisions (TMTP)
Solvency II - PRA publishes Policy Statement (PS6/22) on definition of an insurance holding company - 7 July 2022
The PRA has published a Policy Statement (PS6/22) setting out its approach to interpreting and applying the definition of ‘insurance holding company’ for the purposes of the Group Supervision Part of the PRA Rulebook. In so doing, the PRA seeks to set out its approach to distinguishing an insurance holding company from a mixed-activity insurance holding company. The Policy Statement follows the PRA’s Consultation Paper (CP17/21) on its proposed approach, published in September 2021. It amends the Glossary Part of the PRA Rulebook and updates the PRA’s Supervisory Statement (SS9/15), ‘Solvency II: group supervision’.
The FCA is proceeding with the guidance largely as consulted on, with changes to allow for supervisory discretion, and to give greater clarity to and address issues raised in feedback in certain areas.
The PRA has delayed the proposed implementation date to 12 months from the publication of the Policy Statement. The changes to the Glossary Part of the PRA Rulebook and the expectations set out in SS9/15 will therefore come into effect on 7 July 2023.
PRA Policy Statement: Solvency II: definition of an insurance holding company (PS6/22)
PRA Rulebook: Glossary (Solvency II) Amendment Instrument 2022 (PRA2022/5)
Updated PRA Supervisory Statement: Solvency II: Group supervision (SS9/15)
See the Asset Management section above for an item on the FCA’s Discussion Paper (DP21/4) on Sustainable Disclosure Requirements and its proposed sustainable investment labelling regime.