Review of Illiquid liabilities and analysis of potential implications: Information Request

EIOPA's work stream on illiquid liabilities

One of the most debated issues before the Solvency II implementation and still nowadays is the treatment of long-term insurance business. In particular, it has been discussed whether the risks of long-term insurance business and the associated investments backing those long-term insurance business are adequately reflected. To account for the specificities of long-term insurance business with guarantees, the LTG package was introduced and is currently assessed in a dedicated review process within an EIOPA Project Group ("LTG Review PG"). Furthermore, to explore any new evidence on the features of liabilities, especially concerning their illiquidity characteristics, a dedicated EIOPA Project Group on "Illiquid Liabilities" was set up. The illiquidity characteristics of liabilities may contribute to the ability of insurers to mitigate short-term volatility by holding assets throughout the duration of the commitments, even in times of market stress.

The Illiquid Liabilities PG will primarily gain more insight into these aspects and is therefore also dealing with selected parts of the Call for Information from the EU Commission. This Call was sent to EIOPA in April 2018 and requires EIOPA to submit a report by December 2019. It asks EIOPA, amongst others, to provide data on the liquidity of undertaking's insurance liabilities and information on the asset management of insurers.

Main goals of the Project Group on Long-term Illiquid Liabilities:

  • Identify criteria of liquidity characteristics for the liabilities and a measure for insurers' ability to invest over the long term and decide the timing of buying and selling;
  • Explore the link between the characteristics of liabilities and the management of insurers' assets;
  • Analyse whether the current treatment in the regulatory regime appropriately addresses the risks associated with the long-term nature of the insurance business.

Timeline

Date​ Timeline
April 2018EIOPA receives a request for information from the European Commission on asset and liability management

​29 October - 7 December 2018

​EIOPA issues a Request for Feedback on Illiquid Liabilities

16 December 2019        Submission of a report to the European Commission

 

EIOPA is also considering whether to issue a possible request for information early 2019. The timeline will be updated as needed.