On 15 October 2019, the European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper seeking input on its opinion setting out technical advice for the 2020 review of the Solvency II framework, which had been requested by the European Commission (EC). EIOPA opines that whilst Solvency II works well overall, evolutionary improvements can be made in several areas, including long-term guarantees, macro-prudential issues, and technical framework improvements. Most importantly from an investment perspective, this last areas covers considerations and proposals for the calibration of market risks under the Solvency Capital Requirement (SCR) standard formula. This paper focuses on this aspect of the consultation, and it summarizes EIOPA’s key considerations for potential improvements of the market risk SCR module affecting all investments of an insurance company.

With regard to equities, EIOPA was asked by the EC to conduct a comprehensive review of the equity risk sub-module, and in particular to assess the appropriateness of the design and calibration of the risk charges for all equity investments that are subject to a reduced capital charge of 22%. This includes duration-based equity investments but also strategic equity investments and long-term equity investments for which EIOPA has not yet provided any calibration. Figure 1 summarizes the equity risk charges adopted by the EC and those charges initially advised by EIOPA or its predecessor institution CEIOPS. In general, EIOPA does not see any need for re-calibration of those capital charges for which they already have provided a calibration. Hence, suggested changes in the consultation paper relate to long-term equity investments and strategic equity investments.

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