EUROPE – The European Insurance and Occupational Pensions Authority (EIOPA) has recommended the introduction of an Own Risk and Solvency Assessment (ORSA) and a Key Information Document (KID) within the revised IORP Directive, for which it will also develop new methodologies this year to further assess the holistic balance sheet (HBS).
EIOPA chairman Gabriel Bernardino, addressing the Terminsstart Pension Conference in Stockholm last week, said the authority would carry out a work programme this year, aiming to improve methodologies for assessing the HBS after a first quantitative impact study highlighted the potential difficulty of introducing such a tool.
In his speech, Bernardino said the programme would be based on EIOPA's own timelines and allow "sufficient time" for stakeholders' input.
"Our goal is to present to the new composition of the European Commission a number of further technical proposals for a European risk-based prudential regime that appropriately reflects the specific reality of pension funds," he said.
Bernardino's comments come two months after he pointed out at a closed-door event in Brussels that the HBS within the revised IORP Directive was not "a dead-end street" in spite of the Commission's decision earlier this year to postpone pillar one of the same directive.
Bernardino went on to thank Sweden, saying the Nordic country was the only EU member state taking part in the QIS with sufficient financial assets to cover pension liabilities and the solvency capital requirement.
"Pension funds showed on average even a substantial surplus over the solvency capital requirement of 13% of liabilities," he said.
"Of course, an important reason for these positive outcomes is that Sweden already imposes a prudential regime that is market-consistent and risk-based, by using the quarterly Traffic Light stress test."
According to Bernardino, the Swedish performance "illustrates" that a future European regulatory regime should be, first, market-consistent to ensure a comparable and realistic assessment of pension funds' financial situation and, second, risk-based to provide IORPs with the right incentives for managing risks.
Additionally, the EIOPA chairman recommended the introduction of an ORSA tool within the second pillar, as well as a KID as part of the third pillar of the revised Directive, as the Commission is expected to release a legislative proposal for these two pillars this autumn.
However, in a previous interview with IPE, Dave Roberts and Mark Dowsey, senior consultants at Towers Watson in the UK, warned pension funds against the introduction of an ORSA tool.
"Even though EIOPA said in the past that only a 'diluted' version of ORSA might be needed for pension funds, now that pillar one of the revised IORP Directive has been dropped – at least temporarily – the authority and Brussels could adopt a much less steep approach," Roberts said.
According to him, Brussels currently has two options: either sticks with the original version of a 'light' ORSA, which would not include any capital rules, or strengthen the ORSA and introduce solvency capital requirements.
In its September issue, IPE reported on the Commission and EIOPA's plans to design the second and third pillars of the revised IORP Directive, mentioning the likely introduction of an ORSA and a KID.
The full article is available here.