SOLVENCY 2 IN COVID-19 TIMES
Pending further clarifications of the LTEI rules, EIOPA climbed down … on the deadlines for publication of regulatory QRT reports.
After having obtained in March 2019, a revision of the equity shock rates by the creation of a new long-term share class – called LTEI for Long term equity investment – benefiting from a lightened shock of 22%, France and the Netherlands, still expect to obtain new concessions from EIOPA in 2020
The situation of European insurers is very difficult. They are subject to high shock rates for equity investment and have difficulty digesting the persistence of low or negative interest rates on bonds.
European states still want lower shock rates so that insurers can invest more in corporate capital and be able to finance the economy, especially with an environment of negative rates for bonds.
EIOPA undertook a public consultation between 15/09/2019 and 15/01/2020 to prepare the 2020 solvency review 2. An impact study must be carried out Q2 2020, EIOPA must send its opinion to the European Commission for June 2020.
At this stage of the consultations EIOPA is camping on its positions, it does not intend to yield more on the equity risk rate. Completely right on that and the current Coronavirus crisis proves it because the reserves made by European insurers to comply with pillar 1 of solvency 2 allow them to withstand the shock.
EIOPA recommends, however, that so-called strategic actions should be included in the LTEI provided that it is not an intra-group investment. For interest rate risk, EIOPA intends to modify the standard formula taking account of negative rates.
No radical change expected from EIOPA to the chagrin of European insurers who denounce a glaring delay in the financing of the economy especially compared to American or Chinese competitors.
Two very divergent points of view: on the one hand EIOPA seeks to minimize the risk taken by insurers to secure capital in the event of a shock and on the other hand insurers who seek to optimize their investments in a context of interest rates negative.
EIOPA has shown some flexibility, however, by recommending that the European prudential supervisory authorities “temporarily” extend the deadlines for mandatory reporting.
This “flexibility” should allow European (re) insurers to “concentrate their efforts on monitoring and evaluating the impact of the coronavirus and ensuring the continuity of their activity in these difficult times”, writes EIOPA
French insurers had obtained an additional period of one week for the transmission of QRTs and reports for the first quarter of 2020 (with the exception of the statement relating to transactions in derivatives which benefited from a period of 4 weeks). A limited time because this information is “of paramount importance, both for insurance and reinsurance organizations, prudential groups and the supervisor,” said the ACPR.
ALA ENNAIFER
SOLIAM BUSINESS EXPERT