16 December 2016

EIOPA publishes the first report on long-term guarantees and measures on equity risk

It is first annual Report on Long-Term Guarantees Measures (LTG) and Measures on Equity Risk in particular on their use and impact on the financial position of insurers. A series of similar reports until 2021 is part of the overall review of Solvency II as foreseen in the Solvency II Directive.

With this report European Insurance and Occupational Pensions Authority (EIOPA) analyses the impact of the extrapolation of risk-free interest rates, the matching adjustment, the volatility adjustment, the extension of the recovery period in case of non-compliance with the Solvency Capital Requirement, the transitional measure on the risk-free interest rates and the transitional measure on technical provisions. The measures are intended to limit procyclicality and to help facilitating a smooth transition to the new regulatory framework of Solvency II providing companies with the necessary time to adapt, in particular in a challenging macro-economic environment.

The results of the report show that: 

• 901 insurance and reinsurance undertakings in 24 countries with a European market share of 69 % used at least one of the measures.  
• 852 undertakings with a European market share of 61% used the volatility adjustment.
• 154 undertakings with a European market share of 24% applied the transitional on technical provisions.
• 38 undertakings with a European market share of 16% used the matching adjustment.
• The transitional on risk free interest rate was used by six undertakings and the duration-based equity risk sub-module by one undertaking. 

The report concludes that the Long-Term Guarantees Measures have a significant impact on the own funds and capital requirements of insurers. Own funds would be lower by 107 billion euro and capital requirements higher by 50 billion euro if these measures were not applied for the insurers that participated in EIOPA’s 2016 Insurance Stress Test.

Press release

Full report

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