On 15 June 2012, the European Insurance and Occupational Pensions Authority (EIOPA) released the draft technical specifications for a quantitative impact study (QIS) in relation to its review of the Directive on the activities and supervision of institutions for occupational retirement provision (IORPs). This review proposed a Solvency II-style approach, including the use of a holistic balance sheet, in order to create a harmonised prudential regime for IORPs in line with stated aims of “encouraging cross border activity of IORPs, allowing IORPs to benefit from risk based supervision while ensuring regulatory consistency between and within sectors and to modernise the prudential regulation for IORPs that operate DC schemes”.

While the document draw heavily on the latest Solvency II specifications, it states that it recognises that these have been “elaborated upon and modified to account for the differences between IORPs and insurance undertakings”.

The impact study will only look to assess the impact of EIOPA’s advice on valuation and security mechanisms on the financial requirements for IORPs providing defined benefit or hybrid schemes at a level required for future Level 1 legislation. As such, the specifications do not include details of areas such as the confidence level required for SCR calibrations (as this is seen to be a political issue), or technical advice that would form part of Level 2 implementing measures, except where this is required to test the practical implementation of a holistic balance sheet. Technical items included for this purpose include:

• Methodologies to value technical provisions;
• The determination of the risk free interest rate;
• The risks to be included in the calculation of the SCR and their accompanying stresses and correlations in the standard formula.

The consultation on the draft technical standards is open until 31 July 2012 with the QIS expected to be conducted between the beginning of October and mid December 2012.

Copies of the draft technical specifications are available on EIOPA’s website (link).

Copies of Solvency II summary papers, together with copies of papers on other topics published by Milliman, can be found on our website: http://uk.milliman.com/perspective/

We look forward to hearing from you if you have any questions or comments on this briefing or any other aspect of Solvency II.

Please contact your usual Milliman consultant for more information.

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