Results of EIOPA Long-Term Guarantee Assessment

EIOPA Press Release:

The European Insurance and Occupational Pensions Authority (EIOPA) has published today its Technical Findings on the Long-Term Guarantee Assessment (LTGA). EIOPA conducted the assessment at the request of the Trialogue parties (the European Parliament, the European Commission and the Council of the EU) as input to the political discussions on finalisation of the Omnibus II Directive. The LTGA tested the so-called Long-Term Guarantee package - a set of potential measures aimed at ensuring an appropriate supervisory treatment of long term guarantee products, under volatile and exceptional market conditions.

EIOPA concluded that the final Long-Term Guarantee package to be included in the Solvency II framework should fulfil a number of principles in order to ensure a high degree of policyholder protection, as well as effective supervisory process:

- Alignment with the Solvency II framework and the economic balance sheet concept;
- Full consistency and comparability in order to enhance the single market;
- Efficient linking of all the three pillars (quantitative basis, qualitative requirements and enhanced reporting and disclosure);
- Proportionality and simplicity;
- Adequate treatment of transitional issues.

On the basis of the assessment and the outlined principles, EIOPA supports the inclusion of some of the measures tested: Extrapolation, “Classical” Matching Adjustment, Transitional measures and Extension of the Recovery Period, with slight amendments to provide the right incentives for sound risk management.

EIOPA advises to exclude the so-called Extended Matching Adjustment on the basis that it would not provide sufficient policyholder protection and would be unduly difficult to supervise. In addition, the Counter-Cyclical Premium was judged to be likely to have an adverse financial stability impact due to the way it would be triggered, as well as the perverse impacts on undertakings’ solvency requirements that it generated.

As a consequence, EIOPA advises to replace the CCP with a simpler, more predictable measure, the Volatility Balancer, which would deal with the unintended consequences on undertakings’ capital requirements of short-term volatility.

EIOPA further recommends that the impact of the application of the measures on the solvency position of individual undertakings be publicly disclosed as part of the normal disclosure process.

EIOPA’s Technical Findings on the Long-Term Guarantee Assessment and all the relevant documentation can be accessed here.