Solvency II came into force on 1 January 2016. There have been ongoing changes to the detailed rules since their introduction. This was planned from the outset with certain powers given to the European Insurance and Occupational Pensions Authority (EIOPA) to review methodology and assumptions over time, as well as a specific milestone for the European Commission (EC) to review elements of the Standard Formula in 2018, followed by a more holistic review of the entire rulebook by 2021.

This series of research papers charts some of the most material changes that have been made since the implementation of Solvency II as well as looks forward to potential changes that have already been highlighted by the EC and EIOPA. These changes could have significant impacts on individual companies and therefore firms may need to reassess their capital management strategies.

Our research seeks to assess the potential impact of the various changes on companies’ capital positions across various European markets, and examine possible capital management solutions and strategic initiatives which could be adopted following the introduction of rule changes. Insights from this research should appeal to a broad range of undertakings across both direct-writing life insurers and life reinsurance business.

Note: This series of research papers reflects updates to the Solvency II regulatory framework known as of February 2019, including the EC’s proposed amended Delegated Regulation published on 9 November 2018 (the so-called “2018 Interim Review”). On 11 February 2019 the EC issued a Call for Advice to EIOPA regarding the “2020 Full Review” of the Solvency II framework. At Milliman, we will shortly be publishing a summary of the contents of the Call for Advice.

Part 1: Extrapolation of the risk-free rate curve

By Karl Murray, Eamonn Phelan and Bridget MacDonnell

In the opening edition, we firstly revisit the rules in specifying the risk-free rate term structure, which forms a fundamental part of the calculation of Technical Provisions (TPs). We look in detail at changes to the Ultimate Forward Rate (UFR) in particular.

Part 2: Revisiting the Volatility Adjustment—A sometimes overlooked risk mitigant

By Karl Murray and Eamonn Phelan

In the second edition, we will look at another fundamental part of the specification of risk-free rates used in liability valuation, the Volatility Adjustment (VA).

Part 3: Updates to the Delegated Regulation

By Karl Murray and Eamonn Phelan

In the third and final edition, we will analyse elements of the Standard Formula review that took place across 2018 with the EC publishing its final proposed amendments to the Delegated Regulations in November 2018. These changes are expected to become effective in 2019.

Coming soon