How does Solvency II fit into EIOPA’s strategic priorities?

On 19 November 2014, European Insurance and Occupational Pensions Authority (EIOPA) held its 4th Annual Conference in Frankfurt. At the conference, Gabriel Bernardino, chairman of EIOPA, about what he feels EIOPA’s priorities are for the future and how he feels EIOPA will achieve these.

During EIOPA’s 1st Annual Conference in 2011, Bernardino promised that EIOPA would be fully committed to Solvency II. Three years down the line and we are able to see that he has kept to his word and after much speculation and many delays Solvency II is scheduled to be implemented on 1 January 2016.

Implementing Solvency II

Bernardino accepts that Solvency II is by no means faultless but it is a landmark that he and EIOPA will always be linked to. The main challenge that EIOPA faces is implementing Solvency II consistently throughout the EU. Bernardino believes that the success of Solvency II will be very much dependent on how well this uniform completion is executed.

EIOPA hopes to achieve this uniformity through issuing Technical Standards and Guidelines. Technical Standards will be used to define forms, templates and procedures for particular areas of Solvency II whilst Guidelines will be used to provide the consistent application that EIOPA feels is critical. EIOPA has been proactive with fulfilling its commitments and has submitted its first set of Technical Standards and also completed the public consultation of the first set of Solvency II Guidelines. In early 2015 EIOPA plans to publish even more technical standards and guidelines that will include the risk free interest rate term structures that firms will need to use to calculate technical provisions.

Bernardino also spoke about reinforcing participation in the colleges of supervisors, conducting peer reviews, and issuing opinions addressed to national competent authorities (NCAs). Additionally, EIOPA will continue to develop appropriateness indicators and benchmarking via its centre of expertise in internal models. EIOPA has not explicitly described what these appropriateness indicators will be; however they sound similar to the PRA’s early warning indicators. Emphasis was placed on each factor being successful individually in order for the whole of Solvency II implementation being successful.

EIOPA believes that it will be able to enhance supervision across the EU if it is granted with these additional powers:

  • being the centralised oversight role in on-going monitoring of internal models
  • it should be given more scope to challenge feedback on supervisory practices to the NCA’s

Low interest rate environment

An additional point was raised which has been a hot topic for EIOPA recently; this is the low interest rate environment that is being experienced across Europe. This is considered to be one of the most important risks for insurers impacting both liabilities and assets, and encourages a ‘search for yield’ environment. EIOPA hopes that change of investment strategies taken on by insurers will be accompanied with insurers ensuring that they understand any additional risks they may be exposing themselves to.

Other points raised by Bernardino

Gabriel Bernardino also covered in his speech how EIOPA will help deliver adequate, safe and sustainable pensions to EU citizens and what EIOPA will continue to ensure that the consumer is always protected. Bernardino stressed that consumer protection was at the forefront of EIOPA’s priorities.

Our comments

Solvency II made up the largest section of Bernardino’s speech which is expected with the Solvency II implementation date approaching fast. EIOPA is likely to encounter obstacles when implementing something truly consistent however it is aware of this and appears to be taking preventive action via its Technical Standards and Guidelines. 2015 will be a pivotal year for both EIOPA and EU insurers in determining how efficiently and successfully Solvency II is implemented in time for 1 January 2016!