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Insurers comment on EIOPA’s work on IBOR transitions, call for clarity on treatment of risk-free rates

Insurance Europe has published its response to EIOPA’s discussion paper on the impact of IBOR transitions on Solvency II risk-free rates (RFR).

Insurance Europe welcomes EIOPA’s work on IBOR transitions, which represents a significant opportunity to better enable the insurance industry to move away from IBOR-based swaps in markets where alternative reference rates are being adopted. 

In markets where the transition is already in progress, there is an urgent need for clarity on how EIOPA’s RFR will be amended to reflect the transition away from IBOR rates. At present, the lack of clarity from EIOPA creates an obstacle to the transition as insurers are unlikely to be willing to meaningfully transition their asset exposures away from IBOR-based swaps until they can fully understand and measure the transition risks.

However, in some markets, such as the euro market, it is unknown if and when the transition away from IBOR rates will occur. For these markets, it is too early to assess if a common transition approach across the EU is optimal.

In developing its approach, EIOPA should seek to maintain the level of liability valuations by ensuring that the market data used to calculate the RFRs are appropriately adjusted for credit risk.

Published 30 June 2020