EPFSF Lunch Event on 17 October 2017 on 'Review of the Macroprudential Toolkit in Europe'

EPFSF lunch event on 17 October 2017 on 'Review of the Macroprudential Toolkit in Europe'

Speaking notes Debora Iannuzzi

Head of Solvency II, Group Risk Management at Zurich Insurance Company

To define what the role of the macro-prudential supervision for insurance would/could be, a few aspects need to be considered.
First of all, Solvency II is young and is currently under review. Before discussing additional measures, we must focus on the implementation of the regulation currently in force, make sure it works as micro prudential measure and review to which extent it may already address macro prudential goals. Any new measures would be costly, would come on top of the very costly implementation of Solvency II, in exchange of a potentially small additional benefit.
The insurance sector plays a very subordinate role to systemic risk in general. The core business of an insurance is of long term nature and its investment strategy is very risk averse, predominantly constituted by bonds and predominantly bonds held to maturity. This is a business that not only does not pose systemic risk, but rather brings stability to the economy in times of crisis.
If there is any non-core business that is of more speculative nature, this would bevery specific and identifiable. As specific risks require specific measures, the micro-prudential regulation, or a relatively small extension of it, could already address them.
Measures such as judgmental capital buffers would not be appropriate. We must rather foster a risk aware culture that models the risks correctly, embedding them in the capital calculations. Any macro-prudential measures must recognise the long term view of the insurance business and minimise cyclical behaviours and artificial volatility. SII does already have elements of this nature: Long term guarantee measures (volatility adjustment, matching adjustment) and the symmetric adjustment for equities; the ORSA in itself, with its mid term view and scenario analysis, can be seen as a macro prudential requirement.
To conclude, macro-prudential supervision for insurance, if at all needed, needs to be a) specific to insurance and b) specific to those secondary risk drivers that could be channelled by insurance. If there are aspects of financial stability that go beyond the current regulation, these have to be discussed in the context of the 2020 review of Solvency II.