18 July 2013

Insurance Europe: Key messages on the EIOPA report on the LTGA

The European insurance industry fully supports the objectives of Solvency II, which are to introduce harmonised, risk-based regulation that ensures very high levels of customer protection, to encourage good risk management and to support a strong and efficient insurance industry. However, there are some vital issues that must be resolved before the Solvency II framework is ready to be implemented and will achieve these objectives.

The main challenge has been to find solutions to assess the available and required capital for insurance companies offering long-term guarantees backed by long-term assets. This long-term perspective to investments can support the stability of financial markets, in particular in periods of market turmoil, and reduces the effects of a market downturn. At the same time, this long-term perspective can reduce or eliminate the effect of exposure to short-term market volatility of bond-like assets on insurers’ balance sheets. This is because insurers can avoid being forced sellers and hold assets over the long-term or to maturity. The measures applied in Solvency II must reflect this and methodologies to implement these measures must avoid introducing unnecessary volatility.

As confirmed by the 14 June EIOPA report on the long-term guarantees assessment (LTGA), it is vital that any solutions to reflect the long-term nature of insurance are implemented in the right way. Insurance Europe recognises that progress has been made during the LTGA. In particular, it sees positive development in the fact that EIOPA confirms the need for a package of measures including the Volatility Balancer, the Classic Matching Adjustment, Extrapolation, transitional measures and an extension of the recovery period.

However the EIOPA proposals do not fully address the underlying issues and concerns, particularly the volatility and pro-cyclical incentive features of Solvency II. We set out below the changes needed to the design and the calibration of the EIOPA proposals in order to make them workable.

Without changes to design and calibration of the proposed measures, an important opportunity to finalise a regime which achieves its goals would be missed out.

Insurance Europe remains committed to supporting efforts to correct the outstanding problems with Solvency II and to finalising the regime as soon as possible.

Please click on link below for detailed concerns regarding the design and calibration of the EIOPA and EC proposals.

Key messages

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