consultation on Supervisory Statement the use of risk mitigation techniques by insurance and reinsurance undertakings

EIOPA consults on the reporting of costs and charges of IORPs and the risk management by IORPs providing defined contribution schemes

The European Insurance and Occupational Pensions Authority (EIOPA) launched today two consultations on risk assessment by Institutions for Occupational Retirement Provisions (IORPs) providing defined contribution (DC) schemes and the supervisory reporting of costs and charges by IORPs.

Draft Opinion on the supervisory reporting of costs and charges of IORPs

This consultation paper sets out the draft Opinion on the supervisory reporting of costs and charges of IORPs. Considering that costs and charges can have a detrimental impact on future retirement income and/or sponsor contributions, a transparent and comprehensive view of all costs and charges is essential for IORPs, social partners and supervisors.

The draft Opinion sets out expectations on the supervisory reporting of costs and charges of IORPs, using a proportional and risk-based approach. It provides a generic classification of all costs to be reported to national supervisors, including templates, both for supervisors to collect cost information from IORPs and to assist IORPs to collect cost information from investment managers. Moreover, principles are provided for the compilation of the cost information. Most notably the look-through principle, meaning that not only direct investment costs have to be reported but also indirect costs at the level of investment managers.

The draft Opinion also provides guidance on the supervisory use of the cost data. National supervisors are expected to assess the efficiency of IORPs, affordability for sponsors and the value for money offered to members and beneficiaries, not considering the costs in isolation, but in conjunction with risk and return characteristics. The results of such benchmarking exercises should feed into the supervisory review process and the regular dialogue with the IORPs’ management boards.

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Draft Opinion on the supervision of risk assessment by IORPs providing DC schemes

The first consultation paper sets out the draft Opinion on the supervision of risk assessment by IORPs providing DC schemes. Considering the ongoing shift from defined benefit (DB) to DC pension provision, a risk-sensitive supervisory approach to DC risk management is necessary to ensure that risks borne by DC IORPs and members and beneficiaries are appropriately managed and supervised. The draft Opinion provides guidance on the supervision of long-term risk assessment by DC IORPs, applying a risk-based and proportionate approach. It focuses on two aspects of DC risk management: - Firstly, the use of quantitative elements in operational risk management, supplementing the guidance in the existing Opinion on the supervision of the management of operational risks faced by IORPs. Secondly, the use of projections of future retirement income in assessing long-term risks from the perspective of members and beneficiaries, also in interaction with the establishment of their risk tolerance and the design of investment strategies.

EIOPA invites stakeholders to provide feedback on both consultation papers by completing the surveys by 22 July 2021 and expects to publish the final Opinions in the fourth quarter of 2021 together with feedback statements on the consultation responses of stakeholders.

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Background

The two draft Opinions are addressed to national competent authorities as defined in Article 6(8) of the IORPII Directive. EIOPA is mandated by Article 29(1)(a) of its Regulation to issue supervisory Opinions to foster a  consistent and effective application of supervisory practices across the European Union.