EIOPA macroprudential approach to the low interest rate environment in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) published today a potential macroprudential approach to the low interest rate environment in the Solvency II context.
The aim of this publication is to contribute to the discussion on the possible need to develop a macroprudential framework in the insurance sector to promote financial stability in a Solvency II environment.
The following three objectives to be targeted by supervisory authorities in the current low interest rate environment are addressed:
1. Increasing the resilience of the insurance sector.
2. Limiting risky behaviour of insurers collectively ‘searching for yield’.
3. Avoiding procyclicality (i.e. fluctuation in line with the trend in the economic cycle).
For each of these three objectives EIOPA defines a set of instruments that are either part of or compatible with Solvency II.
Furthermore, short- and medium-term actions that EIOPA and national supervisors can undertake in order to address the low interest rate environment are described.
Click here to access the publication.
Background
For already several years, EIOPA and national supervisors have been devoting high attention to the low interest rate risk with the aim to understand and monitor its implications. A series of sequential actions have been taken at the European level. In 2013, EIOPA published an Opinion on Supervisory Response to a Prolonged Low Interest Rate Environment. In the 2014 Insurance Stress Test EIOPA included a low yield module and carried out a Low Interest Rate Environment Stocktaking Exercise, which was disclosed together with the stress test results. The low interest rate environment and its impact has also been examined in several EIOPA Financial Stability Reports.
In the upcoming 2016 Insurance Stress Test EIOPA will further analyse the impact of the low interest rate environment.
Furthermore, EIOPA will also monitor and ensure the consistent application of Solvency II.