European Insurance and Occupational Pensions Authority issues recommendations and best practices after peer review of stochastic valuation supervision

The European Insurance and Occupational Pensions Authority (EIOPA) published the results of a peer review assessing how national supervisors oversee insurers’ use of stochastic valuation for products with material options and guarantees. The review concludes with recommended actions for certain National Competent Authorities (NCAs), where needed, and a set of best practices intended to support more consistent supervision across Europe. The peer review reflects increasing use of stochastic valuation, typically based on simulation techniques, as deterministic approaches may not capture the time value of options and guarantees across different economic environments. Twenty-one Member States participated, with 14 assessed on both the supervision of identifying options and guarantees requiring stochastic valuation and the supervision of their valuation, and seven assessed on valuation only. Seven NCAs received recommendations to strengthen identification of relevant options and guarantees and to monitor their materiality over time, while six NCAs were advised to develop specific national guidance and/or further develop supervisory activities relating to stochastic valuation. Best practices were identified across implementation of the regulatory framework, supervision of identification and valuation, and supervisory tools used by NCAs.