The EU’s insurance supervisor, the European Insurance and Occupational Pensions Authority (EIOPA), has published the results of its assessment of measures to deal with long-term guarantees in the forthcoming Solvency II regulatory regime for insurers.
The key concern, highlighted by the quantitative impact study that was carried out back in 2009, is that the Solvency II framework — in its current form — does not correctly assess the available capital or required capital for insurance companies offering long-term guarantees backed by long-term assets. This is because the long-term perspective of insurance can reduce or eliminate insurers’ exposure to short term market volatility, while the current version of Solvency II incorrectly assumes that insurers are always affected by all market volatility.
The importance of addressing this issue has been widely recognised. It has been raised by such bodies as the Bank for International Settlements, the OECD, the IMF and the Group of 30 consultative group. They, along with the insurance industry, have voiced concerns that if appropriate solutions are not found, the ability of insurers to continue to offer long-term guarantees and their role as long-term investors and providers of financial stability during volatile markets could be at risk.