Review of specific items of the Solvency II standard formula by the European Commission

Written by Dirk Vangeneugden 30 January 2017

When the Delegated Acts were implemented, the EC expressed its intention to review specific items of the Solvency II standard formula before December 2018.

In this context, in a call for advice in July 2016, EIOPA has been requested to provide technical advice by 31 October 2017 (partial advice can be submitted earlier). More specifically, in 2015, the European Commission launched a call for evidence on the EU regulatory framework, and 50 respondents from the insurance sector participated. Based on that input, the following areas were considered for further reflection:

  • proportionate and simplified application of the requirements;
  • removal of unintended technical inconsistencies;
  • removal of unjustified constraints to financing.

As part of this process, EIOPA launched a project dedicated to this review and particularly, in December 2016, issued a “Discussion paper on the review of specific Items in the Solvency II Delegated Regulation” , aimed at engaging in a dialogue with stakeholders on items within the scope of the review. The discussion paper places each question of the Commission in its context and then raises a series of questions on each issue for the stakeholders to answer. It broadly covers the various issues raised by the European Commission but adds a significant issue to the list: the calibration of the SCR Interest, since EIOPA believes that the current calibration may no longer be appropriate and might underestimate the risk significantly.

In light of the feedback received (end date March 3, 2017), EIOPA will develop consultation papers on its advice to the European Commission in the course of 2017.

The above 2 documents already give a good overview of what might change in Solvency II in the very near future. Several areas/issues/items mentioned might have an important impact on the SCR (and MCR) ratios of Belgian insurance undertakings (and therefore likely on their strategic risk and capital decision-making processes) and/or on the processes currently in place to produce the Solvency II quantitative information.

Also, the Solvency II Directive (through the Omnibus II Directive) requires a review of the LTG measures and the measures on equity risk by 1 January 2021. This review consists of the following elements:

  • an annual report from EIOPA on the impact of the application of the LTG measures and the measures on equity risk for the attention of the European Parliament, the Council and the Commission;
  • an EIOPA opinion on the assessment of the application of the LTG measures and the measures on equity risk for the attention of the Commission;
  • based on the opinion submitted by EIOPA, a report (accompanied, if necessary, by legislative proposals) on the impact of the LTG measures and the measures on equity risk to be submitted by the Commission to the European Parliament and to the Council

The first annual report (the 2016 EIOPA report) was released in December 2016.

This document provides interesting data on the use of LTG measures by insurance undertakings, particularly the number of undertakings applying the measures and their impact on the SCR ratios of these undertakings, often disclosed per country.

Any questions? Don’t hesitate to contact Vincent Vroman or Olivier Dozin.