Consultation on the revision of the Solvency II Guidelines on Contract Boundaries and Valuation of Technical Provisions

The European Insurance and Occupational Pensions Authority (EIOPA) launched two consultations today on the revision of the Solvency II Guidelines on contract boundaries and the valuation of technical provisions, in place since the implementation of Solvency II in 2016.

As part of the 2020 review of Solvency II, EIOPA identified several divergent practices regarding the implementation and supervision of calculation of technical provisions. In order to ensure a convergent application of Solvency II and its delegated regulation in this area the revision of the existing guidelines is required in addition to the improvements identified in the Opinion on the Solvency II 2020 review.

Consultation paper on the revision of the Guidelines on contract boundaries of insurance and reinsurance contracts

The Guidelines on contract boundaries promote a consistent application of an insurance or reinsurance contract boundary. A contract boundary specifies whether the additional cover arising from policyholders’ options is regarded as existing or future business.

The new and amended guidelines provide further detailed guidance on the already existing requirements. They focus on the unbundling of an insurance and reinsurance contract and the assessment whether a financial guarantee or a cover has a discernible effect on the economics of the contract. In particular, the new guidance focuses on the aim of unbundling, ensuring that one contract has the same treatment regardless whether it is sold as one contract or as two independent contracts where both are equivalent in terms of risk.

EIOPA invites stakeholders to respond to the survey until 12 November 2021.

Consultation paper on the revision of the Guidelines on Valuation of Technical Provisions

The Guidelines on valuation of technical provisions aim to increase consistency and convergence of professional practice for all types and sizes of undertakings across the EU Member States and to support undertakings in calculating their technical provisions under Solvency II.

In the new and amended guidelines, EIOPA clarifies that where contracts with material options and guarantees exist, undertakings are expected to use a valuation method that captures the time value of these contracts. Guidelines addressing expert judgement, a key component of the calculation of technical provisions, are proposed based on the existing Guidelines on the use of internal models, which were already applicable for technical provision valuation purposes.

EIOPA invites stakeholders to respond to the survey until 12 November 2021.

Next steps

EIOPA will consider the feedback received, publish a final report on the consultation and submit the Guidelines for adoption by its Board of Supervisors.