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Response to consultation on first batch of EIOPA advice on Solvency II review

Insurance Europe has responded to a European Commission consultation on the first batch of advice that it received from the European Insurance and Occupational Pensions Authority (EIOPA) on the upcoming review of Solvency II.

While acknowledging the good progress EIOPA had made towards achieving the goals of the review, Insurance Europe said that additional work is required in several areas for the review to achieve its aims.

For instance, regarding the loss-absorbing capacity of deferred taxes (LAC DT), Insurance Europe stressed that by reporting on the various methods currently applied across Europe and on their impact, EIOPA had fully delivered on its mandate and no further action was necessary. However, Insurance Europe added that the analysis carried out by EIOPA on the drivers of the LAC DT does not provide a complete picture of the issues and that caution should be used when drawing conclusions from it.

While welcoming the simplified approaches that were introduced, Insurance Europe said it does not support EIOPA’s views that only prescribed simplification methods listed in the legal texts were permitted. In addition, Insurance Europe stressed that, in contrast to EIOPA’s opinion, it believes EIOPA is entitled to address the level of mass lapse risk.

Insurance Europe also welcomed EIOPA’s work on the extension of the look-through approach to related undertakings. However, it recommended that additional work is required to ensure that the application of the look-through approach can be implemented in a proportionate manner.

On reducing reliance on external credit assessment institutions (ECAIs) in the standard formula, Insurance Europe welcomed EIOPA’s work to find alternatives through a simplification to part of the Delegated Regulation. However, Insurance Europe warned that an overly prudent approach to allowing the use of this simplification may make it unworkable in practice.

Regarding the treatment of guarantees, exposure guaranteed by a third-party and exposures to regional governments and local authorities (RGLAs), while supporting a number of EIOPA’s proposed changes, Insurance Europe advised caution when harmonising the list of qualifying RGLAs between the banking and insurance regulations. It believes this may introduce an overly granular and rigid approach to determining the equivalence between RGLAs and central governments.

Published 4 September 2017