Long-term guarantee measures [EU]
The European Commission’s proposals are:
Article 77a (Extrapolation of the relevant risk-free interest rate term structure) is amended to require that the extrapolation takes into account, where available, information from financial markets for maturities where the term structure is extrapolated. The resulting new extrapolation method is phased in linearly over a period running until 2032, during which insurers will have to disclose the impact of the new extrapolation method without phasing in.
Article 77d (Volatility adjustment to the relevant risk-free interest rate term) is amended. New cases of using the volatility adjustment will become subject to supervisory authorisation. Furthermore, a higher percentage of 85% of the risk-adjusted spread is taken into account in the volatility adjustment. To mitigate the risk that the volatility adjustment compensates beyond the losses on investments from an increase in credit spreads, an undertaking-specific ‘credit-spread sensitivity ratio’ is introduced. Finally, the country component of the volatility adjustment is replaced with a macro volatility adjustment for Member States whose currency is the euro in order to mitigate the impact of spread crises at country level while avoiding cliff edge effects. These changes are complemented by amendments to Article 122 (Calibration standards) which introduce safeguards where an internal model takes into account the effect of credit spread movements on the volatility adjustment (“dynamic volatility adjustment”).
Article 106(3) (Calculation of the equity risk sub-module: symmetric adjustment mechanism) is amended to allow the symmetric adjustment to the equity risk to increase or decrease capital charges by a maximum of 17%, instead of 10%.
Article 138 (Non-compliance with the Solvency Capital Requirement) is amended to ensure that EIOPA, instead of national supervisory authorities, consults the ESRB before declaring an exceptional adverse situation.
A grandfathering provision replaces Article 304(2) (Duration-based equity risk sub-module) the use of which should no longer be approved.
Article 308c (Transitional measure on the risk-free interest rates) and Article 308d (Transitional measure on technical provisions) are amended. New approvals of the use of those transitional measures are restricted to a closed list of circumstances. In addition, insurers using those measures will have to disclose the reasons for the use, as well as an assessment of their dependency on the measures and disclose the measures taken or planned to reduce their dependency on the transitional measures.
Amendments to Article 77e (Technical information produced by the European Insurance and Occupational Authority), Article 86 (Delegated acts and regulatory and implementing technical standards) and Article 111 (Delegated acts and regulatory and implementing technical standards concerning Articles 103 to 109) are amended to align the empowerments for delegated and implementing acts with the changes outlined above. In addition, the amendments to Article 86 introduce a new empowerment for delegated acts on asset eligibility criteria in the context of the matching adjustment.