Insurance Europe has raised concerns over the European Insurance and Occupational Pensions Authority (EIOPA) draft advice to the European Commission on its 2018 review of Solvency II, stating the interest rate risk and proposals on the Loss Absorbing Capacity of Deferred Taxes (LAC DT) may not be feasible economically.
The insurance body said; “unfortunately, EIOPA does not seem to have even considered if the current levels of the risk margin are reasonable or even possible, and in line with the intended purpose of the risk margin concept.
“Such an analysis on whether the current risk margin is appropriate should be provided to the Commission, which is interested in whether the current methods and assumptions of Solvency II work as intended.”
Insurance Europe remains skeptical over EIOPA’s decision to work on reviewing the calibration for interest rate risk, on its own initiative and without a mandate from the Commission – stating “all changes relating to interest rates should be considered together, and as part of the 2020 review.”
Insurance Europe also raised concerns over draft advice suggestions towards a one-size-fits all approach to regulation, over fears that ““convergence” would lead to all supervisors applying the most prudent and restrictive approach, irrespective of local market characteristics, conditions and risks, and arguing that the regulatory body appears to favour “simplistic and arbitrary” limits insurance firms across all markets.
“Such an approach defeats the risk-based nature of the framework and risks making the framework significantly more conservative than it already is.
“The industry further believes that EIOPA should provide in its advice an overall impact assessment of its proposals, as opposed to a solo assessment per area of review.
“Assessing the various proposals on an isolated/individual level cannot represent a reliable basis for assessing if and how the overall impact would support the objectives of Solvency II, as well as the balance between simplicity and risk-sensitivity, the overall burden and costs on the industry. All these elements of impact were in fact requested by the Commission in its call for advice.
“The industry believes that the current EIOPA proposals would have implications for Europe’s long-term growth and the Commission should be appropriately informed and advised by EIOPA in such areas,” Insurance Europe stated.
