Council of the European Union
Solvency II and IRRD - Council of the EU publishes Progress Report - 4 January 2022
The Council of the European Union (the Council) has published a Progress Report dated 16 December 2021 on its work on the European Commission’s (the Commission) package of insurance reforms. In September 2021, the Commission adopted legislative proposals for a Directive containing amendments to the Solvency II Directive (2009/138/EC) (2021/0295(COD)) (Solvency II amending Directive) and an Insurance Recovery and Resolution Directive (2021/0296(COD)) (IRRD), as highlighted in the Council’s ‘I’ Item Note (14759/1/21) (2021/0295(COD)) published alongside the Progress Report.
In the progress report, the Council sets out details of work undertaken on the proposals during the Slovenian Presidency of the Council:
- Solvency II amending Directive: the Presidency drafted a number of compromise text proposals on three chapters: (i) proportionality; (ii) reporting and disclosure; and (iii) quality of supervision. The texts of these proposals have not yet been published; and
- IRRD: several topics emerged where further work to reach a compromise would be needed, including: (i) the definition of minimum market coverage; (ii) the approach to resolution financing; (iii) the interplay with national bankruptcy proceedings; and (iv) the role of the European Insurance and Occupational Pensions Authority (EIOPA).
Council of the EU: Note: Proposal for a Directive of the European Parliament and of the Council amending Directive 2009.138/EC as regards proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision. Proposal for a Directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC. EU/2017/1132 and Regulations 1094/2010/EU and 648/2012/EU - Progress Report (14760/21)
‘I’ Item Note
European Insurance and Occupational Pensions Authority
Stress testing - EIOPA publishes Report on 2021 EU-wide insurance sector stress test - 17 December 2021
The European Insurance and Occupational Pensions Authority (EIOPA) has published a Report on the 2021 insurance stress test, in which 43 European insurance groups representing 75% market coverage based on consolidated group assets took part and which launched in May 2021.
The stress test assessed the sector’s resilience to a prolonged COVID-19 scenario in a ‘lower for longer’ interest rate environment. The exercise encompassed the regular capital and solvency assessment conducted in line with the framework in the Solvency II Directive (2009/138/EC) and also, for the first time, the assessment of the pre- and post-stress liquidity position of the participants over a 90 day time-horizon. For both components, the participants were allowed to apply reactive management actions for the first time and 19 participants took advantage of this.
The prescribed shocks were modelled on prevailing risks to the financial system and were deemed to be severe but plausible. They included a so-called ‘double-hit’ effect where the risk-free rate and risk premia move in diverging directions, complemented by a set of insurance specific shocks stemming from the outbreak of the pandemic.
Overall, the stress test showed that EU insurers can maintain their financial health even in harsh economic conditions. At no point did participants report a post-stress asset position in which their commitments to policyholders would have been jeopardised. The long-term guarantee (LTG) measures under the Solvency II Directive helped absorb part of the severe but plausible shocks, limiting the drop in participants' solvency ratio. However, the stress test also revealed that a section of the market still relies heavily on transitional measures, which, unlike LTGs, are to be phased out by 2032. EIOPA advises firms to take concrete steps toward reducing their dependence on temporary measures that were put in place to smooth the transition to the Solvency II regime.
EIOPA and national competent authorities will analyse the results to gain a deeper understanding of the sector's risks and vulnerabilities. EIOPA will assess the need for recommendations on relevant concerns identified in the exercise and intends to call on legislators to consider making disclosures of individual results a legal requirement.
EIOPA 2021 Insurance Stress Test Report (EIOPA-BoS-21/552)
Factsheet
Q&As
Press release
LEIs - EIOPA publishes revised guidelines - 20 December 2021
The European Insurance and Occupational Pensions Authority (EIOPA) has published revised guidelines for national competent authorities (NCAs) on the use of legal entity identifiers (LEIs), with the aim of facilitating and further promoting their use. LEIs are unique 20-character alpha-numeric codes that enable clear and unambiguous identification of legal entities under NCA supervision, and include information about an entity's ownership structure.
Notably, the scope of the guidelines, which address the need to have an LEI and identify the legal entities that should have an LEI, has been broadened. Branches established in the EEA and belonging to insurance or reinsurance undertakings with a head office in a third country, and relevant insurance, reinsurance and ancillary insurance intermediaries operating cross-border business are now included.
The revised guidelines apply from 1 July 2022 and repeal and replace the existing guidelines, which were published in October 2014.
EIOPA Guidelines on Legal Entity Identifier (EIOPA-BoS-2021/456)
Impact assessment (EIOPA-BoS-2021/481)
Resolution table (EIOPA-BoS-21-482)
Webpage
Press release
Prudential Regulation Authority
Solvency II Review - PRA publishes Policy Statement PS29/21 - 17 December 2021
The PRA has published a Policy Statement (PS29/21) on Phase 1 of its review of reporting requirements under the UK’s Solvency II regime. The Policy Statement follows the PRA’s Consultation Paper (CP11/21) on the matter, published in July 2021.
Respondents welcomed the PRA’s proposals to remove selected reporting requirements and expand the application of modification by consent to waive quarterly reporting requirements. However, some also asked for the implementation date to be brought forward earlier than proposed and suggested a further reduction to the reporting frequency proposed regarding the minimum capital requirement (MCR) templates. In light of these suggestions, the PRA has:
- brought forward by one quarter the implementation date of the Technical Standards instrument and the PRA Rulebook instrument in relation to reporting requirements set out in CP11/21, to 31 December 2021;
- brought forward the effective date of the updated supervisory statements (SS11/15, SS40/15, SS41/15 and SS44/15) and updated Statement of Policy (SoP), to 17 December 2021;
- reduced the reporting frequency of templates S.28.01 and S.28.02 from semi-annual to annual for all firms, and made consequential amendments to the Technical Standard instrument, SS11/15 and SS44/15 to align the PRA’s expectations with this change;
- amended Rule 4.1 of the Minimum Capital Requirement Part of the PRA Rulebook; and
- corrected minor formatting and typographical errors identified in SS11/15.
Alongside the Policy Statement, the PRA has also published the final versions of its Instruments, updated Supervisory Statements, updated SoP and modification by consent.
PRA Policy Statement: Review of Solvency II: Reporting (Phase 1) (PS29/21)
Webpage
Financial Conduct Authority
Consumer redress scheme - FCA publishes statement and Dear CEO letter on consumer redress scheme for British Steel Pension Scheme members - 22 December 2022
The FCA has published a statement on a potential consumer redress scheme for the British Steel Pension Scheme (BSPS), together with a related Dear CEO letter.
In the statement, the FCA announces that its Board has asked for a consultation to be prepared on a redress scheme under section 404 of the Financial Services and Markets Act 2000 for former BSPS members who transferred their pensions out of the BSPS on the basis of advice. Subject to the Board's final approval of the consultation documents, the FCA expects to consult by the end of March 2022.
A redress scheme would be limited to BSPS transfer advice. Firms which advised on BSPS transfers would be required to review their advice. If the advice was unsuitable and resulted in a financial loss for former BSPS members, the firms would be required to provide compensation.
The letter has been sent to the CEOs of firms who gave pension transfer advice to BSPS members between 1 March 2017 and 31 March 2018. It sets out the actions the FCA expects these firms to take with immediate effect, including:
- maintaining adequate financial resources: firms that have, or are likely to have, redress liabilities relating to advice provided to BSPS members should consider the effect of the liabilities on their solvency and, if necessary, seek the advice of an insolvency professional. They must not enter a solvent liquidation or apply to dissolve the firm without notifying the FCA in advance;
- retaining assets for a potential redress exercise: relevant firms should retain assets to ensure they can meet the costs of carrying out a review and compensating customers for any unsuitable advice;
- not trying to avoid their responsibilities: firms should not apply to cancel their authorisation without first discussing their plans with the FCA; and
- continuing to progress any existing FCA-required past business reviews and engage with the FCA in any ongoing enforcement or supervisory work connected to the BSPS.
The FCA will contact firms in early 2022 to confirm its understanding of the BSPS business written by them and their potential exposures to BSPS liabilities. It warns that it will take such action as it deems necessary if any firm attempts to avoid redress liabilities.
FCA statement on British Steel Pension Scheme Redress
Dear CEO letter: British Steel Pension Scheme: Consideration of a consumer redress scheme
