RESULTS OF EIOPA LONG-TERM GUARANTEES ASSESSMENT

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:
https://eiopa.europa.eu/consultations/qis/insurance/long-term-guarantees-assessment/index.html
(Link:
https://eiopa.europa.eu/consultations/qis/insurance/long-term-guarantees-assessment/index.html
)


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