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Commission welcomes EIOPA report on Long-Term Guarantee Assessment for insurance sector

European Commission - IP/13/547   14/06/2013

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European Commission

Press release

Brussels, 14 June 2013

Commission welcomes EIOPA report on Long-Term Guarantee Assessment for insurance sector

The European Insurance and Occupational Pensions Authority (EIOPA) today published a report assessing a possible package of measures to facilitate the provision of insurance products with long-term guarantees under the new Solvency II insurance regulatory regime. The Council, the European Parliament and the Commission mandated EIOPA with producing this study in 2012, in order to provide a basis for a political agreement on Omnibus II (see IP/11/49). The European Commission welcomes the publication of this report.

Internal Market and Services Commissioner Michel Barnier said: "The Commission trusts that the Council and Parliament will use this very good report and its findings as a basis for an urgent agreement on Omnibus II and show pragmatism and willingness to compromise. The insurance sector needs Solvency II to be applied as soon as possible, since the existing Solvency I regime is outdated and provides insufficient security, and the long-term guarantee package is the only major remaining hurdle."

Background

The Solvency II Directive, introducing a modernised risk-based regulatory regime for the insurance sector in the EU, was adopted in 2009 (see IP/07/1060 and IP/09/621). However, the current environment of low interest rates and low asset values, which developed largely after the adoption of Solvency II, is challenging for insurers offering long-term guarantees (mainly life insurers), and requires some adaptations to the Solvency II requirements.

Therefore, before Solvency II can be applied, a package of measures for insurers issuing products with long-term guarantees (the LTG package) needs to be incorporated in the regime. This is to be done via a draft Directive known as “Omnibus II”, currently in discussion in Council and Parliament. Due to the complexity and diversity of the types of insurance products offered across the EU involving long-term guarantees, finalising the LTG package has proved challenging. It was for this reason that the co-legislators and the Commission mandated EIOPA to test several options for the different measures in the LTG package.

EIOPA has published its report today, with clear conclusions on the different measures of a possible LTG package, which will require a number of components in order to function effectively in all the EU Member States. The conclusions can be found in the report and the press release on EIOPA’s website: www.eiopa.europa.eu.

The key elements evaluated by EIOPA include:

  • A matching adjustment

  • An extended version of the matching adjustment

  • A countercyclical premium

  • Extrapolation of the long-term interest rate

  • Two different transitional measures

  • Extension of the recovery period

  • A new element, called “volatility balancer”, building on the results for the other elements, particularly the countercyclical premium.

The Commission considers that the findings of the report, along with the Commission’s own report on it, which will shortly be available, should form the basis for discussions to enable a deal to be found on Omnibus II, on which trilogues will restart very shortly. In light of European Parliament elections next May, an agreement on Omnibus II is sought this autumn.

Notes for editors:

The European Insurance and Occupational Pensions Authority (EIOPA) was established on 1 January 2011 as a result of the reforms to the structure of supervision of the financial sector in the European Union. EIOPA is part of the European System of Financial Supervision consisting of three European Supervisory Authorities, the National Supervisory Authorities and the European Systemic Risk Board.

Solvency 2 is a Directive adopted in 2009, but not yet applicable (the date of application currently scheduled is 1 January 2014, but this may be subject to change), introducing a risk-based insurance prudential and supervisory regime for the EU and replacing the 14 insurance and reinsurance directives currently in place.

Omnibus 2 is a draft Directive proposed by the Commission in 2011 intended to adapt the Solvency II Directive implementing measures to the new architecture introduced in the Lisbon Treaty (2009) and the new financial supervision measures introduced in Regulation 1094/2010 establishing the European Insurance and Occupational Pensions Authority. More importantly, it proposes a package of measures to facilitate the provision of insurance products with long-term guarantees under Solvency 2.

Long-term guarantees are included in insurance products, usually life insurance and some kinds of health insurance, and offer a guaranteed return or pay-out to the policyholder over a fixed period of time. This requires insurers to invest the premiums in assets which provide a return to the insurer sufficient to meet those guarantees.

Contacts :

Chantal Hughes (+32 2 296 44 50)

Carmel Dunne (+32 2 299 88 94)

Audrey Augier (+32 2 297 16 07)


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