ESRB publishes two reports on macroprudential aspects of insurance

17 August 2017

The European Systemic Risk Board (ESRB) has published two reports which serve as input into ongoing discussions on strengthening the prudential framework for insurers. The report on regulatory yield curves and macroprudential consequences proposes changes to the derivation of the risk-free yield curves that are used to determine the value of insurers’ liabilities under Solvency II. The proposed set of changes would increase the resilience of the insurance sector. The report on recovery and resolution for the insurance sector advocates a harmonised recovery and resolution framework for insurers across the EU. Such a framework would ensure that failures in the insurance sector could be managed in an orderly way.

The ESRB is of the view that a greater part of the Solvency II risk-free yield curves should be derived using market-based inputs. It suggests considering any of the items below or a combination thereof, taking into account that their joint implementation might require more fundamental changes to the derivation of the Solvency II risk-free yield curve:

  • extension of the Last Liquid Point (LLP) for the euro regulatory risk-free yield curve;
  • extension of the convergence period (from the LLP to the Ultimate Forward Rate);
  • extrapolation of the curve, in part, with reliable market data.

The ESRB is also of the view that an effective recovery and resolution (RR) framework would reduce risks to financial stability from a failure in the insurance sector. It advocates the development of such a framework for insurers across the EU, based on the following proposals:

  • coverage of the whole insurance sector, including primary insurers and reinsurers of all sizes and business models, while taking account of proportionality;
  • recognition of financial stability and policyholder protection as equally relevant objectives;
  • expansion of the existing RR toolkit to enable authorities to address failing insurers with greater flexibility;
  • consideration of how resolution should be funded.

These policy considerations should not be understood as formal ESRB warnings or recommendations, as defined by Article 16 of the ESRB Regulation.[1]

For media queries, please contact Uta Harnischfeger, tel.: +49 69 1344 6321.

[1] Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (OJ L 331, 15.12.2010, p. 1).