EIOPA published the second paper of a series of three with the aim of contributing to the debate on systemic risk and macroprudential policy. The first paper was published on 6 February (https://www.slaspo.sk/23699). With this paper series EIOPA aims to ensure that an extension of the debate on systemic risk to the insurance sector reflects the industry’s specific nature and seeks to develop a European view on systemic risk before the IAIS finalises its activities-based approach (ABA).
The second paper includes the following:
- An identification of the most relevant instruments/measures in Solvency II that have a direct macroprudential impact;
- a description of the way in which each tool works;
- mapping of the tool against a source of systemic risk;
- an initial/preliminary assessment of the impact of such tools, to the extent possible with the existing information.
The tools with macroprudential impact that are identified and further analysed in this paper are essentially the long-term guarantees measures and measures on equity risk introduced in the Solvency II directive, the design of which has a direct macroprudential impact, i.e.:
- Symmetric adjustment in the equity risk module
- Volatility adjustment
- Matching adjustment
- Extension of the recovery period
- Transitional measure on technical provisions
EIOPA’s preliminary assessment shows that, in addition to ensuring sufficient loss absorbency capacity and reserving, the Solvency II tools identified contribute to another operational objective, namely, limiting procyclicality. These tools seek to address the risk of collective behaviour by insurers that may exacerbate market price movements. It is mentioned that the tools may also have limitations from a macroprudential perspective.
The full paper is available here : https://eiopa.europa.eu/Publications/Reports/Solvency%20II%20tools%20with%20macroprudential%20impact.pdf