|
The following three objectives to be targeted by supervisory authorities in the current low interest rate environment are addressed:
For each of these three objectives European Insurance and Occupational Pensions Authority (EIOPA) defines a set of instruments that are either part of or compatible with Solvency II.
To address the first objective, the following could be considered:
Regarding the second objective – limiting risky behaviour as insurers collectively “search for yield” – the implementation of the Solvency II requirements could limit such risky behaviours. Due to the fact that Solvency II is a risk sensitive framework, increased riskiness of an investment portfolio should generally lead to higher capital requirements.
Lastly, on the need to avoid procyclicality, the paper touches upon the series of measures such as the volatility adjustment, the matching adjustment or the extension of recovery period that were designed, among other things, to address the issue of procyclicality.
Furthermore, short- and medium-term actions that EIOPA and national supervisors can undertake in order to address the low interest rate environment are described.