The European Systemic Risk Board (ESRB) published a report on macroprudential provisions, measures and instruments for insurance. The report serves as an input to ongoing Solvency II discussions on strengthening the regulatory framework for (re)insurers from a macroprudential perspective. It complements work undertaken by the European Insurance and Occupational Pensions Authority (EIOPA).
The ESRB considers the following elements promising for the creation of a macroprudential toolkit to target systemic risks for (re)insurers:
- power for authorities to impose entity-based and/or activity/behaviour-based market-wide capital increases and dividend restrictions in situations where insurance market developments could generate systemic risk;
- power for authorities to intervene in exceptional circumstances, such as when policyholders terminate their insurance policies in large numbers;
- symmetric capital requirements that help dampen procyclical behaviour during downturns and prevent the build-up of sectoral vulnerabilities during upturns;
- liquidity requirements for insurers with a vulnerable liquidity profile;
- instruments to target bank-like activities to ensure cross-sectoral consistency of macroprudential policy.
The ESRB states that further work on these options should take into account international developments and changes in current regulation and determine the appropriate level of legislation. According to the ESRB, while the implementation of these options (which should not be considered formal recommendations) at the EU level would provide all authorities with the necessary tools and flexibility to address a wide range of systemic risks, some modalities could differ across jurisdictions to reflect differences in national (re)insurance markets.
Insurance Europe’s response to the ESRB’s report on “Macroprudential provisions, measures and instruments for insurance”. The response will now be shared with the ESRB and other relevant stakeholders.
Insurance Europe response to the ESRB report on macroprudential measures in insurance.pdf