Following its mammoth 800-page October consultation paper, on Monday 2 March 2020, the European Insurance and Occupational Pensions Authority released an information request for National Supervisory Authorities. This information request is intended to feed into EIOPA’s final opinion to the European Commission on the 2020 review of Solvency II, which is due in June 2020. 

Although EIOPA declares in the technical specification that its “position as reflected in this information request is not final”, the request does perhaps hint at EIOPA’s current thinking.  Three important areas that EIOPA is testing are:

• Risk Margin – EIOPA has asked firms to report the impact of applying a “tapering approach” that was first suggested by the Association of British Insurers. This approach will reduce the size of the risk margin, possibly materially so, for firms with long-term liabilities.
• Risk-free rates – Firms are to demonstrate the impact of using an alternative risk-free rate term structure, which has been calculated using an alternative extrapolation method. This may reduce the value of very long-term sterling-denominated liabilities.
• Volatility adjustment – EIOPA’s request asks firms to use an alternative calculation approach for the VA which takes into account features of firms’ ALM strategy. This may increase the VA from 15bps up to 33bps for some firms.

In this newsflash, we look at these elements in more detail, along with a selection of the other proposals that EIOPA’s is seeking to test, providing comments on some of the potential impacts on firms.  We have focussed on life insurers and have not considered the impact on non-life firms.

If you’d like to discuss any element of the information request in more detail, please get in touch.

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