Amendments to the Solvency II Standard Formula calculation methodology have been approved and are now in force.
On the 18 June 2019, Commission Delegated Regulation (EU) 2019/981 (the Amending Regulation see here), which amends the Solvency II Delegated Regulation ((EU) 2015/35), was published in the Official Journal of the EU. This Amending Regulation sets out a number of changes to elements of the standard formula solvency capital requirement (SCR) calculation.
The majority of the changes consulted on and subsequently proposed by EIOPA in February 2018 have been accepted by the Commission with the exception of the proposed change to the method of calculating interest rate risk. These proposed changes were set out in articles published February 2018 (see Feb 2018 SCR) and July 2018 (see July 2018 SCR).
The Commission has expressed its intention that these amendments will make investments in unlisted equity and unrated debt (meeting certain conditions) more attractive. The criteria which must be met before long-term equity investments can receive a lower capital charge have also been relaxed. As a result of these changes, firms may want to review their appetite for investing in these asset categories.
A number of simplifications have also been introduced which should be reviewed by firms to establish whether they are proportionate and appropriate for use.
Most of the changes will apply from 8 July 2019, although changes to the calculation of the loss-absorbing capacity of deferred taxes and non-life and health premium and reserve risk are deferred to 1 January 2020.