The European Insurance and Occupational Pensions Authority (EIOPA) has launched a public consultation on the methodological framework for stress-testing Institution for Occupational Retirement Provision (IORPs).
The methodological framework for stress-testing IORPs sets out rules, guidance and possible approaches to support future stress test exercises.
The discussion paper aims to create an “active dialogue” between supervisors, industry, consumer associations and academics.
EIOPA has proposed a ‘toolbox approach’, consisting of relevant analytical tools and approaches designed to capture the characteristics of both defined benefit (DB) and defined contribution (DC) IORPs.
It stated that, given the blurring line between DB and DC IORPs, having a toolbox of common methodological principles and guidelines that was agreed upon beforehand could “greatly facilitate” the stress test process and guide “effective deployment” of instruments.
The tools can be divided into three categories: balance sheet tools, projection tools and surveys.
Balance sheet tools allow the valuation of assets and liabilities at a certain point in time, with EIOPA noting it was also possible to consider security and benefit adjustment mechanisms with balance sheet tools.
Projection tools were included to project future, expected incoming and outgoing cashflows, which, depending on the scheme, may include investment returns, (un)conditional benefits or protection mechanisms over time.
Finally, surveys can be used to gather other kinds of additional information.
“Applying EU-wide stress tests on the different national IORP sectors requires to deploy analytical tools that can be applied in a consistent and meaningful way to all scheme types,” EIOPA noted.
“This is important to understand the effects of an adverse market development on the IORP sector, fairly reflecting on the different characteristics, which need to be addressed in the analysis of the stress test results.”
The consultation is open until 22 September 2021.
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