Answers to the European Commission on the ... - Eiopa - Europa

eligibility criteria, or principles, and/or a list of eligible asset classes. 77
In a combined approach, <strong>to</strong> be eligible, an asset must be both listed as
eligible and meet <strong>the</strong> principles. One possible way <strong>to</strong> achieve this is <strong>to</strong>
determine principles at <strong>the</strong> directive level, whereas a list of potentially
eligible asset classes could be specified in implementing measures.
9.126 The list of eligible asset classes should be mainly positive (i.e. any
asset that is listed is potentially eligible; everything else is not). The
list should be easy <strong>to</strong> apply and update. The principles used <strong>to</strong>
construct <strong>the</strong> list should be clear and concise.
Principles for eligible assets
9.127 Future IAIS standards on assets covering technical provisions should
be considered as a starting point for determining asset eligibility.
9.128 The following principles for asset eligibility are presented as a starting
point for fur<strong>the</strong>r elaboration:
• an asset portfolio is acceptable only if and <strong>to</strong> <strong>the</strong> extent that <strong>the</strong>
assets can be realised before <strong>the</strong> liabilities need <strong>to</strong> be met. That
is, <strong>the</strong> assets covering <strong>the</strong> technical provisions and <strong>the</strong> capital
requirement should be able <strong>to</strong> generate an expected net cash
flow (asset income less liability outgo) that is always positive;
• in order for an asset <strong>to</strong> be admissible its value needs <strong>to</strong> be
ascertainable; and
• intangibles should be excluded.
9.129 CEIOPS will need <strong>to</strong> consider <strong>the</strong> practicability of <strong>the</strong>se principles and
whe<strong>the</strong>r additional requirements would be necessary. It is envisaged
that currently eligible asset classes should be compatible with any
principles that are developed. But a new approach <strong>to</strong> asset eligibility
should enable greater flexibility for supervisors <strong>to</strong> recognise innovative
asset types.
List of eligible asset classes
9.130 CEIOPS advises using <strong>the</strong> current list of eligible asset classes as a
starting point.
9.131 One precondition of extending <strong>the</strong> list with a new asset class is <strong>the</strong>
possibility of a risk charge in <strong>the</strong> SCR standard formula <strong>to</strong> address <strong>the</strong>
risks of that class.
9.132 CEIOPS suggests that <strong>the</strong> updating procedure for revising <strong>the</strong> list is
kept as simple as possible, in order <strong>to</strong> secure a list that reflects current
financial markets and does not unnecessarily restrain innovation.
9.133 Fur<strong>the</strong>r analysis is needed <strong>to</strong> decide what conditions should be placed
on derivatives <strong>to</strong> be included as eligible assets.
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