EPPARG responds to EIOPA consultation on the 2020 Review of Solvency II

EPPARG, the European Pensions and Property Asset Release Group, has responded to the Consultation Paper on the 2020 Review of Solvency II launched by EIOPA, the European Insurance and Occupational Pensions Authority. Solvency II provides the framework for insurance regulation in Europe.

In its response, EPPARG highlighted concerns that the proposals made by EIOPA in respect of the Solvency II matching adjustment could stifle the growth of the equity release market in Europe.

Specifically, EPPARG considers that the provisions which deal with the matching adjustment would benefit from further clarification to provide that, in line with the definition of the fundamental spread, the allowance for financial guarantees in the matching adjustment should be based on the long term expected impact of the guarantee to a hold to maturity investor.

If this clarification is not made, in EPPARG’s view, the matching adjustment available on restructured lifetime mortgages may need to be adjusted to reflect the theoretical fair valuation of the no-negative-equity-guarantee (“NNEG”).  Whilst including an allowance for the NNEG based on its theoretical fair valuation may be appropriate when deriving the fair value of lifetime mortgages, EPPARG does not believe that it is an appropriate measure to test the level of matching adjustment available on restructured lifetime mortgages.

EPPARG will continue to follow the Solvency II Review and to engage with EIOPA as appropriate as the process continues over the coming months.