LTG Symposium

LTG Symposium introduction

11 Sept 2012

The treatment of long-term guarantees (LTG) offered in products such as annuities remains key to the successful implementation and application of Solvency II. It raises questions about market consistent valuation of assets and liabilities and has far reaching implications for long-term investment in the wider economy. This is a complicated problem, which by all accounts, has no simple solution.

In June 2012 a group of leading academics published an article, which acknowledges the case for adjusting the rules, but strongly criticising the underlying principles of the measures under proposal. The Solvency II Wire LTG Symposium brings together authors from the insurance industry, actuarial profession and the regulator to respond to the article and discuss the problem from the point of view of their respective professions.

Gideon BenariGideon Benari
Countercyclical regulation in Solvency II: Merits and flaws

23 June 2012

Academic article questioning the rationale and economic soundness of some of the LTG measures currently being considered for Solvency II.
Authors: Rym Ayadi, Jon Danielsson, Roger Laeven, Antoon Pelsser, Enrico Perotti & Mario Wüthrich (originally published on VOX.EU).
Solvency II must work in practice as well as theory

12 Sept 2012

Olav Jones, Deputy Director General, Insurance Europe
presents an insurance industry perspective on the treatment of LTG for Solvency II.
Olav JonesOlav Jones

Achieving the right balance

13 Sept 2012

An actuary's perspective from Seamus Creedon, Solvency II Project Manager, Groupe Consultatif. Seamus CreedonSeamus Creedon
A macro-prudential perspective

14 Sept 2012

Two members of the European Systemic Risk Board (ESRB), Francesco Mazzaferro, Head of ESRB Secretariat, and Jeroen Brinkhof, member of ESRB Secretariat reflect on the macro-prudential impact of the proposed package of LTG measures. Francesco MazzaferroFrancesco Mazzaferro
Jeroen Brinkhoff
Response to industry comment

5 Oct 2012

Dr Enrico Perotti, University of Amsterdam, DNB and CEPR, is the co-author of both the article which is the subject of the current symposium, as well as an academic article published in March 2011 calling the use of the illiquidity premium into question. In his response to the symposium he emphasises the need to base the solution to the LTG problem on sound economic principles. Enrico PerottiEnrico Perotti

LTG Symposium: related articles

Related articles offer additional commentary and technical details to the symposium.

A number of articles are republished here with the authors' permission.

Gideon BenariGideon Benari
A fixed UFR – a costly mistake?

16 October 2013

This article argues that as the Solvency II Extrapolation became yet another political bargaining chip in the Omnibus II negotiations, an important technical debate about improving the extrapolation method was left behind. Using evidence from Japan and the USA it demonstrates that we are now left with a flawed approach. Paul Fulcher
Beware of excessive LTG measures

24 August 2013

Critics of the EIOPA Long-Term Guarantees Assessment say the proposed measures do not provide enough capital relief for the insurance industry. But this article argues that more consideration must be given to the systemic implications of such relief – especially if it is to be given on a permanent basis. Sven Giegold MEP
The ramifications of extrapolations

24 April 2013

The low yield environment and a market consistent approach to regulation has exposed the balance sheet of many insurers and pension schemes offering long dated guarantees. The problem is particularly acute where the duration of assets and liabilities is mismatched, and solutions are now being sought to modify the valuation method of these long-dated liabilities to address the problem. The article discuss the potential implications of these modifications. Ross Evans
Neal Hegeman
Emily Penn
Conflicting objectives led to Solvency II LTG ‘mess’

24 March 2013

This article argues that the original commitment to value-at-risk and counter-cyclicality are contradictory and have produced the complex mess we now know as the Long-term Guarantees package. Paul FulcherPaul Fulcher
An actuarial view of market consistency

First published
6 December 2012

This paper, originally published by Groupe Consultatif on 6 December 2012, purely reflects an actuarial view about the implicit assumptions and consequences of a market consistent valuation framework. It does not state an opinion about whether market consistency is a bad or good concept, nor does it recommend to use or not to use market consistency as a principle for regulation. Groupe Consultatif
A prudential regulatory issue at the heart of Solvency II

First published
31 March 2011

Article published by a group of academics representing the full academic panel at a workshop on Solvency II organized by the Dutch Central Bank with EIOPA and EU insurance regulators in March 2011.
Challenges to discounting liabilities for Solvency II

First published
25 June 2012

Summary of high-level debate held at CEPS in June 2012. Gideon Benari
Liquidity premium and illiquidity premium in the insurance context

First published
12 May 2011

An explanation of the principle of the illiquidity premium used to discount liabilities in the QIS 5 exercise. Gideon Benari
On the role of the liquidity premium in the regulation of insurers

First published
18 March 2011

White Paper prepared by Christian Laux at the Center for Financial Studies for a “Workshop on Liquidity Premium in Solvency II: Conceptual and Measurement Issues,” at DNB Amsterdam in March 2011. Although the proposal to introduce a “liquidity premium” in Solvency II has been updated, the discussion of the concept of a liquidity premium and the subsequent comparison to the banking sectors in the comment is still instructive for the debate. Christian Laux

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