Insurance

Issue 1152 / 24 March 2022

European Insurance and Occupational Pensions Authority

2021 EU-wide insurance sector stress test - EIOPA publishes recommendations - 21 March 2022

The European Insurance and Occupational Pensions Authority (EIOPA) has published its recommendations to national competent authorities (NCAs) under article 21(2)(b) of the EIOPA Regulation (1094/2010/EU). This follows the findings of EIOPA’s 2021 Insurance Stress Test, published in December 2021.

The recommendations are grouped into three different subject matters: (i) identified vulnerabilities (recommendations 1-3); (ii) availability of actions to manage adverse conditions (recommendations 4 and 5); and (iii) an individual undertaking-specific recommendation (recommendation 6).

The stress test exercise focused on a prolonged COVID-19 scenario in a ‘lower for longer’ interest rate environment and evaluated its impact on the capital and liquidity position of the entities in scope. The scenario identified a set of market and insurance shocks specifically constructed to reflect the EIOPA and ESRB assessment of prevailing systemic risks to the financial system at that point in time.

EIOPA 2021 Insurance Stress Test Recommendations (EIOPA-BoS-22/123)

Webpage

Financial Conduct Authority

Operational resilience in the insurance sector - FCA publishes webpage - 24 March 2022

The FCA has published a new webpage on operational resilience for insurance firms. This follows the FCA’s Policy Statement (PS21/3) on operational resilience published in March 2021, alongside the PRA’s operational resilience Policy Statement (PS7/21) and the Bank of England’s policy documents for financial market infrastructure firms.

The website covers:

  • actions for insurance firms: as set out in in PS7/21, by 31 March 2022, in scope firms must have: (i) identified their important business services; (ii) set impact tolerances for the maximum tolerable disruption and carried out mapping and testing to a level of sophistication necessary to do so; and (iii) identified any vulnerabilities in their operational resilience. The FCA expects all in-scope firms to address any remaining gaps or shortcomings in their operational resilience frameworks, and meet all obligations under the FCA’s rules, by 31 March 2025;
  • firms that are in scope: this includes all Solvency II insurers and insurance intermediaries that meet the definition of an enhanced scope Senior Managers and Certification Regime firm (firms whose size, complexity and potential impact on consumers or markets warrant more attention). EEA firms and overseas firms are not in scope;
  • examples of good practice across the FCA’s sample of 47 firms: these include: (i) considering possible harms at each point of the customer journey, including purchasing, and amending and renewing a policy, as well as the ability to make a claim or a complaint; and (ii) providing carefully calibrated tolerances with accompanying rationales and possible alternatives; and
  • areas for improvement across the FCA’s sample of 47 firms: these include: (i) failing to identify important business services that would reasonably be expected for the firm's business model or including internal or irrelevant businesses services; and (ii) selecting extremely short impact tolerances (without recognising their practicality) or extremely long impact tolerances (by ignoring the reputational and other consequences of operational disruption).

Webpage: Operational resilience insights for insurance firms