EIOPA to strengthen financial stability of pensions sector

The European Insurance and Occupational Pensions Association (EIOPA) will focus on strengthening the financial stability of the pensions sector over the next three years.

Publishing its, Single Programming Document 2021-2023 including Annual Work Programme 2021, Guiding EIOPA towards a New Normal, the regulator set out its plans for the next few years with the impact of Covid-19 firmly on its radar.

“The adverse impact of Covid-19 will further require EIOPA to assess structural changes in the insurance and pension area. The developing recession will negatively affect corporate sector profitability, resulting in rating downgrades, increased defaults and higher unemployment,” it stated in the report’s foreword.

It warned that financial markets will “likely remain excessively volatile” and the “high interconnectedness of insurers with banks could further support spill-overs of risks from the different economic sectors to insurers and pension funds”.

“These factors may lead to materialisation of risks on insurers’ and pensions’ balance sheet with a substantial lag and high uncertainties. Continued crisis management and adaptation will be an integral part of EIOPA’s work in 2021 and beyond - with UK withdrawal from the EU adding additional complexity,” it stated.

Therefore, its third strategic objective is “Strengthening the financial stability of the insurance and occupational pensions sectors”. It stressed that early identification and communication of risks, followed by timely implementation of preventative measures are essential to ensure the stability of the insurance and occupational pensions sectors, particularly in the post-Covid 19 era.

It plans to “further enhance” its core risk analysis products and risk identification toolkit such as stress tests, financial stability reports and risk dashboards. It plans to increase the time between stress tests to allow for comprehensive follow-ups of findings, whilst conducting focused analyses/studies in the interim. In addition, it will focus on integrating enhanced pension data to improve the core financial stability of products.

As well as strengthening the financial stability of the sector, EIOPA is will also continue its work on its Pan-European Personal Pension Product (PEPP), which it said is an important element of the Capital Markets Union (CMU).

“Some areas of the PEPP regulation may require supervisory guidance to ensure convergence and promote high quality criteria of the PEPP. EIOPA will serve as a central hub for PEPP registration and cooperation with NCAs on supervisory matters following the PEPP Regulation becoming applicable in 2021,” it stated.

EIOPA has already delivered several draft regulatory technical standards (RTS) to the European Commission, relating to the PEPP key information document (KID), the PEPP Benefit Statement and the cost cap for the Basic PEPP. In will now support national implementation of the conduct of business aspects, maintaining and regularly monitoring the overall framework.

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