This week, reports on recent UK and EU regulatory developments of interest to insurers and their intermediaries.
- Review of Solvency II effective value test parameters: PRA statement
- Use of LEIs: EIOPA consults on revised guidelines
- IDD: EIOPA completes analysis of national general good rules
Following a seasonal break, the next update will be published on 19 April 2021.
Review of Solvency II effective value test parameters: PRA statement
The UK Prudential Regulation Authority (PRA) has published a statement setting out the findings from its review of the minimum deferment rate, which is one of the effective value test (EVT) parameters relating to the UK implementation of the Solvency II Directive.
The PRA has decided to retain the minimum deferment rate used in the EVT at 0.5% per annum, following an analysis of long-term real interest rates at a range of long-term tenors from 10 to 30 years and having taken into account current market conditions. It also confirms that the volatility parameter to be used has not been reviewed and remains unchanged at 13% per annum.
The deferment rate parameter specified in the statement applies from 31 March 2021. Firms that have elected to use a minimum deferment rate of 0% to conduct the EVT before 31 December 2021 may continue to do so.
The EVT is a diagnostic tool to monitor compliance with Solvency II requirements relating to the calculation of the matching adjustment benefit where liabilities are matched by restructured equity release mortgages. Details of its calculation are set out in the PRA supervisory statement on Solvency II and illiquid unrated assets (SS3/17). The minimum deferment rate parameter and the volatility parameter are two of the inputs used to calculate the EVT. Further information on these parameters is set out on a PRA webpage.
The PRA expects to review the minimum deferment rate twice a year and to publish an updated value confirm the prior value, by the end of March and September each year. It expects to review and update or confirm the volatility parameter once per year, by the end of September.
Use of LEIs: EIOPA consults on revised guidelines
The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper on revised guidelines on the use of the legal entity identifier (LEI). EIOPA intends to revise its existing guidelines, published in October 2014, on the use of the LEI as a unique identification code for the supervision of the insurance and occupational retirement provision sectors. The deadline for responses is 30 June 2021.
IDD: EIOPA completes analysis of national general good rules
EIOPA has announced that it has completed its analysis of all published general good rules on registration and professional and organisational requirements that could potentially be non-compliant with the Insurance Distribution Directive (IDD).
EIOPA notes that some national competent authorities (NCAs) have implemented actions to ensure compliance with the IDD by:
- removing registration and organisational requirements that are under the exclusive competence of a home member state (for example, provisions requiring incoming insurance intermediaries to hold a specific diploma before engaging in insurance distribution in a host member state);
- clarifying that registration and organisational requirements are only imposed on domestically registered insurance intermediaries; and
- indicating specific general good provisions rather than referring to a collection of national legislation.
A table with information about adjustments made to general good rules in different member states has also been published.