EIOPA I NSURANCE AND R EINSURANCE S TAKEHOLDER G ROUP
IRSG C OMMENTS ON EIOPA NON PUBLIC CONSULTATION ON RISK FREE RATE METHODOLOGY AND RELATED
ISSUES
[J
ULY
2015]
EIOPA-IRSG-15-21
The IRSG welcomes the opportunity to comment on the limited range of methodological issues which are the subject of EIOPA-CP-15-005 (issued to interested stakeholders only). These general comments are to provide context for our specific comments within the consultation template
(attached).
The role of EIOPA as publisher of the term structures of risk-free rates for all EEA and selected non-EEA currencies together with associated matching adjustment and volatility balancer parameters is central to the effective operation of Pillar 1 of the new harmonised regime. The underlying objectives are economic in terms of sustaining high and harmonised levels of policyholder protection consistent with sustained stability of the system of (long-term) insurance and these objectives have been (sometimes imperfectly) expressed in legislation with which EIOPA is obliged to comply.
Regarding the specific topics of the methodology covered in this consultation:
• On the Cost of Downgrade methodology, the IRSG supports the current approach (approach 1) as it best meets the objectives of providing good risk management incentives and expectations of stability and replicability.
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EIOPA I NSURANCE AND R EINSURANCE S TAKEHOLDER G ROUP
IRSG C OMMENTS ON EIOPA NON PUBLIC CONSULTATION ON RISK FREE RATE METHODOLOGY AND RELATED
ISSUES
[J
ULY
2015]
• Specifically on the UFR, the IRSG highlights that the need for stability is essential in the public interest, and as such:
- The current level and methodology for the UFR should be maintained at the start of Solvency II, and there should be no changes until at least the review of the Delegated Acts.
- Any future revision to the methodology should be consistent with Omnibus
II and the intentions of the long-term guarantee assessment (LTGA) as agreed by co-legislators.
- Should there be any change within a certain tolerance in the level of the
UFR, EIOPA should: o Ensure that any change should be accompanied by an impact assessment and a consultation with stakeholders. o Ensure that any changes are gradual with a smoothing transitional period to prevent abrupt changes. o Communicate this change to the undertakings well in advance.
• While the IRSG agrees with EIOPA’s DLT assessment detailed in the consultation paper, EIOPA should also consider other important non-EEA currencies.
The IRSG commends strongly the EIOPA commitment to transparency and replicability reflected in its publication on 15 July of the beta version of the
MATLAB code which it envisages using to perform necessary calculations.
Such transparency and replicability are crucial to allowing firms to build the underlying methodologies into internal models, into the planning systems used to steer their activities and much more. The IRSG continues to strongly encourage EIOPA to share any further additional material which has not previously been shared with the industry, which aid transparency and replicability of the methodology.
The specific subjects of CP 15-005 are a major subset of those where ambiguity or differences of interpretation of legislation have caused stakeholders to question EIOPA’s published calculations during the current preparatory phase. In the view of the IRSG such issues need to be viewed against the background of trying to achieve the objectives of the Solvency 2 regime in the context of the present economic and financial climate and we have reflected this context in our comments where appropriate.
Finally, the IRSG urges EIOPA to confirm the legal status of the RFR methodology, and the accompanying technical document where it is documented.
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