While welcoming the recent adoption and publication of the revised Regulatory Technical Standards (RTS) for the Packaged Retail Investment and Insurance Products (PRIIPs) Regulation, the European insurance industry believes that several clarifications are required in the Level 3 measures.
These clarifications are essential to ensure that the industry can appropriately implement the various provisions of the PRIIPs regulation and thereby benefit from a high degree of legal certainty. The areas requiring attention include:
Credit risk: Provisions in the rejected RTS allowed for automatic allocation to credit risk measure 2, under three conditions. However, the wording of these conditions is not sufficiently clear and does not provide the legal certainty that insurers under Solvency II fulfil these conditions.
Therefore, Level 3 should clearly set out that the credit risk measure should be assigned as 2 where the PRIIP is manufactured by an insurer that is compliant with the provisions of Solvency II.
Closed business: Insurers still face a high degree of legal uncertainty as to whether a key information document (KID) will be needed for closed business products. The Commission stated during the July public hearing that closed book products are out of the scope of the regulation, including when top-ups and/or switches (including the increase of premiums and fund additions) are made. However, no legal certainty through a clear statement in the RTS has been added.
Level 3 should therefore clarify that manufacturers should not develop a KID for closed business, including when existing contractual options are exercised, as the KID is a pre-contractual information document as mentioned in the PRIIPs Regulation.
Treatment of annuities: For the annuities that are in the scope of the PRIIPs Regulation, it remains unclear how the RTS apply, given the particular characteristics of such products. Therefore, Level 3 should clarify how the RTS apply for the annuities that are in the scope of the PRIIPs Regulation.
For the full list of areas covered, please see the full position paper here.