International Association of Insurance Supervisors
Aggregation Method - IAIS publishes consultation on draft criteria - 15 June 2022
The International Association of Insurance Supervisors (IAIS) has published a consultation on the draft criteria that will be used to assess whether the US’s aggregation method (AM) provides comparable outcomes to the Insurance Capital Standard (ICS). The IAIS began developing the draft comparability criteria in April 2021, following agreement in March 2021 on the definition of ‘comparable outcomes’ and ‘high-level principles’ to inform the draft criteria.
The consultation aims to gather perspectives and technical input, in particular to assist in the development of specific scenarios for the sensitivity analysis envisaged in the draft criteria for high-level principle 1. The IAIS is also seeking feedback on considerations for determining the representativeness of the non-life insurance sample.
The IAIS explains that this is a key milestone in the comparability assessment project and marks further progress of its 2017 agreement on the implementation of ICS version 2.0, including a unified path to convergence of group capital standards in furtherance of its ultimate goal of a single ICS that achieves comparable outcomes across jurisdictions.
The deadline for responses is 15 August 2022. Following consideration of stakeholder feedback, the IAIS will finalise the criteria, which are planned for adoption in the fourth quarter of 2022. The criteria will then be used to assess whether the AM provides comparable outcomes to the ICS in the third quarter of 2022.
Public Consultation on the draft criteria that will be used to assess whether the Aggregation Method provides comparable outcomes to the Insurance Capital Standard
Explanatory note on the draft criteria for the Aggregation Method comparability consultation
Consultation questions
Webpage
Press release
European Parliament
Solvency II - ECON publishes draft report on proposed amending Directive - 10 June 2022
The European Parliament’s Economic and Monetary Affairs Committee (ECON) has published a draft report (dated 6 June 2022) (2021/0295(COD)) on the proposal for a Directive amending the Solvency II Directive (2009/138/EC) as regards proportionality, the quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision. ECON published a working document on the proposal in March 2022.
The proposed amendments are described in an explanatory statement, grouped under a number of broad headings:
- proportionality: the proposed amendments would exclude a number of small insurance undertakings from the scope of the proposed Directive and introduce higher thresholds in the definition of “low-risk profile undertakings”;
- the use of Level 1 and Level 1 legislation: the amendments would provide more detail in the Directive itself, rather than in Delegated Acts, in relation to: (i) the risk-free interest rate curve; (ii) the risk margin; (iii) the volatility adjustment; and (iv) long-term equity investments; and
- cooperation between supervisors: The rapporteur, Markus Ferber proposes amendments which would make collaboration and information exchange between home and host supervisors mandatory.
Mr Ferber notes that “there is little evidence to suggest that insurance undertakings are systematically underestimating sustainability risks” and therefore cautions that any amendments related to sustainability and social risks could lead to viable and sustainable businesses becoming ‘un-insurable’ or ‘un-investable’ for no good reason.
ECON I Draft Report: on the 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 (2021/0295(COD))
Council of the European Union
Solvency II - Council of the EU publishes final compromise text of proposed amending Directive - 16 June 2022
The Council of the European Union (the Council) has published the final council presidency compromise text (dated 2 June 2022) (9676/22) on the proposed Directive amending the Solvency II Directive (2009/138/EC) as regards proportionality, the quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision (2021/0295(COD)). The European Parliament’s Economic and Monetary Affairs Committee (ECON) published a draft report (dated 6 June 2022) on the proposed amending Directive on 10 June 2022.
The Council has also published a note (dated 14 June 2022) (10221/22) from the General Secretariat of the Council, recommending that the Council adopt the text set out in the compromise text as its general approach, ahead of negotiations with the European Parliament.
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 (2021/2095(COD)) (9676/22)
‘A’ Item Note (10221/22)
European Insurance and Occupational Pensions Authority
Open insurance - EIOPA publishes feedback statement - 15 June 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has published a feedback statement on its January 2021 discussion paper on ‘open insurance: accessing and sharing insurance-related data’.
Respondents to the discussion paper noted the potential of open insurance to improve pricing practices and transparency and suggested that open insurance would allow supervisors to access real-time data and help identify poor advice and monitor automatic compliance. Most respondents agreed with the benefits of open insurance identified in the consultation as well as the potential risks, including security and misuse of data, the question of exclusions due to data or technological illiteracy, discrimination against certain consumers as well as concerns about consumers’ informed consent.
There was no strong agreement among respondents on next steps. Accordingly, EIOPA will continue to monitor legislative developments in this area and notes several relevant initiatives, including the European single access point proposal, the Data Act proposal, and proposals for a new open finance framework as signalled in the Commission’s digital finance strategy, published in September 2020.
EIOPA Feedback Statement: Discussion paper on open insurance: accessing and sharing insurance-related data (EIOPA-BoS-22-297)
Webpage
Press release
Solvency II - EIOPA consults on the advice on the review of the securitisation prudential framework - 15 June 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper in response to the European Commission’s (the Commission) Call for Advice (CfA) on the securitisation prudential framework in Solvency II. The consultation paper seeks views from stakeholders on the main components of the CfA, and includes a questionnaire for data collection.
Through the CfA, the Commission is seeking advice from EIOPA (and other members of the Joint Committee of the European Supervisory Authorities) on assessing performance of the rules on capital requirements (for banks and (re)insurance undertakings) and liquidity requirements (for banks) relative to the framework’s original objective of contributing to the sound revival of the EU securitisation market on a prudent basis.
EIOPA considers that the current framework is fit for purpose and the evidence is not sufficient to justify a change in the calibration for securitisation which meets the simple, transparent and standardised securitisation (STS securitisation) criteria. To respond to EIOPA’s consultation paper, stakeholders are invited to fill in an online questionnaire by 13 July 2022. For the purpose of the review of the framework, the Commission would need to receive EIOPA’s advice by no later than 1 September 2022.
EIOPA: Consultation Paper on the Advice on the Review of the Securitisation Prudential Framework in Solvency II
Press Release
Prudential Regulation Authority
Solvency II Review - PRA launches data collection exercise - 8 June 2022
The PRA has launched a data collection exercise (DCE) on the matching adjustment (MA) and fundamental spread calibration (FS) reforms to further support the review of the Solvency II (2009/138/EC) regime. This follows the publication of HM Treasury’s consultation on the Solvency II review, and the PRA’s statement and discussion paper (DP2/22) on ‘Potential Reforms to Risk Margin and Matching Adjustment within Solvency II’, all published in April 2022. DP2/22 included an annex setting out the evidence which informed the PRA’s current view that reform to the FS is required, and provided the details of the PRA's initial thinking on a possible new design for the FS.
The PRA notes that the DCE should not be taken as an indication of any preferred course of action for Solvency II reform and is intended to complement its quantitative impact study on the Solvency II Review.
The DCE will cover three main areas:
- phase 1: a qualitative view of firms’ current asset valuation methods;
- phase 2: valuation methods for each individual asset in the MA asset and liability data template; and
- phase 3: quantitative impacts of the proposed base FS methodology design, solvency capital requirement impacts (quantitative and qualitative) under various specifications, as well as qualitative questions covering phasing-in considerations.
Selected UK insurance firms have been asked to respond to phase 1 by 21 July 2022, phase 2 by 1 August 2022, and phase 3 by 12 September. Participation in the DCE is voluntary, but strongly encouraged. The PRA welcomes responses from other firms that wish to participate.
Review of Solvency II: 2022 Data Collection Exercise (DCE)
Updated webpage: Review of Solvency II: Quantitative Impact Study
Solvency II Review - PRA publishes speech - 14 June 2022
The PRA has published a speech delivered by Charlotte Gerken, PRA Executive Director, Insurance, at the JP Morgan European Insurance Conference. Ms Gerken talks about the goals of competitiveness and productive investment, and the impact these are having on the review of the Solvency II (2009/138/EC) regime, noting that changes to regulations for UK insurers could help to achieve these goals. She comments as follows:
“To put the review in context, though: the core framework underlying the Solvency II regime and its principles are broadly fit for purpose, and are in line with existing and emerging international standards. The review does not involve tearing it up and starting again – not least because of the substantial sums invested by industry in the last decade in adopting it.”
However, the review does give an opportunity to deal with those areas of Solvency II that “are not working as well as they could”. She goes on to discuss investment flexibility, including proposed reforms relating to assets with prepayment risk and/or that are subject to construction risk, which could unlock further opportunities for productive investment in matching adjustment portfolios. She also focuses on the valuation of liabilities and process improvements.
Ms Gerken notes that simultaneous reform of both the risk margin and the matching adjustment can correct a potential distortion in the current regulatory framework resulting in life insurers retaining less and less insurance risk, but acquiring additional credit risk, including counterparty credit risk.
Speech by Charlotte Gerken: Competitiveness and productive investment: What parts do they play in the reform of insurance regulation?
Financial Conduct Authority
Supervision of personal and commercial lines insurance intermediaries - FCA publishes portfolio letter - 13 June 2022
The FCA has published a portfolio letter (dated 25 May 2022) which it has sent to the boards of personal and commercial lines insurance intermediaries, outlining its supervisory strategy for these firms. It sets out the FCA’s view of the key risks of harm in the general insurance intermediary sector, outlines the FCA’s expectations, and provides an overview of the FCA’s strategy and its programme of work across certain areas, including in relation to:
- pricing practices and value for money: the FCA expects firms to have fully implemented the rules on pricing practices set out in its May 2021 policy statement (PS21/11), alongside an oversight framework that ensures continuous compliance and the consideration of customer outcomes;
- product oversight and governance: manufacturers should identify their target market for products and ensure that distribution methods are appropriate. The FCA also stresses that intermediaries that are product distributors need to understand the intended value of products and ensure that their distribution arrangements are consistent with providing fair value to the customer; and
- client assets and orderly wind-down: the FCA expects firms that hold client money to have rectified the issues identified in its July 2021 Dear CEO letter on maintaining adequate client money arrangements. The FCA also expects firms to maintain up-to-date wind-down plans, specific to their business and operating models, with appropriate triggers for action, and to adopt a prudent approach to the management of their financial resources.
Additional topics covered in the letter include: (i) diversity and inclusion and ESG considerations; (ii) the Senior Managers and Certification Regime; (iii) cyber threats and operational resilience; (iv) regulatory responsibilities; (v) oversight of appointed representatives; and (vi) post-sale verification. The FCA also refers in the letter to the recent findings published in its thematic review (TR22/1).
The FCA will continue to engage with personal and commercial lines insurance intermediaries in 2022 and 2023 through its planned programme of work. It will write to their boards again towards the end of 2023 to provide an updated view of the key risks these firms pose, the extent to which they are being mitigated, and the FCA’s updated supervisory plans.
Portfolio letter: FCA Supervisory Strategy for Personal and Commercial Lines Insurance Intermediaries (P&CLII)
Supervision of Lloyd’s and London market insurance intermediaries - FCA publishes portfolio letter - 13 June 2022
The FCA has published a portfolio letter (dated 25 May 2022) which it has sent to the boards of Lloyd’s and London market insurance intermediaries (and managing general agents) (LLMIs) outlining its supervisory strategy for these firms. Key themes addressed in the letter include:
- product suitability and price transparency: the FCA expects firms to have implemented the rules on product governance set out in its May 2021 policy statement (PS21/5), which became effective on 1 January 2022. It also expects firms to consider the value products deliver for consumers during the product development and review process, and to take appropriate action when products that do not provide fair value are identified. Manufacturers should identify their target market for products and ensure that distribution methods are appropriate. The FCA expects senior managers and boards to be fully engaged on issues related to value and pricing;
- uncertainty over insurance cover due to ambiguous contract terms: the FCA expects firms to have robust product governance arrangements in place which meet its rules to ensure that irrespective of a firm’s position within the distribution chain, customers receive insurance products that deliver when they are needed;
- culture: diversity and inclusion and non-financial misconduct: the FCA expects firms to be able to show how they are working towards having a diverse workforce at all levels and an inclusive culture. It expects high standards of character, probity, and fitness and propriety from those who operate in the financial services industry; and
- financial and operational resilience: the FCA will continue to contact firms where it considers that there is an enhanced risk of failure. It expects firms to have adopted a prudent approach to the management of financial resources, overseen by senior management, and to ensure that they maintain an up-to-date wind-down plan. The FCA also expects firms that hold client money to have rectified the issues identified in its July 2021 Dear CEO letter on maintaining adequate client money arrangements.
The FCA will continue to engage with LLMI firms over the next two years through its planned programme of work. It will write to firms again in 2024 to provide its updated view of the key risks LLMI firms pose, the extent to which these risks are being mitigated, and the FCA’s updated supervisory plans.
Portfolio letter: FCA Supervisory Strategy for Lloyd’s and London Market Insurance Intermediaries (and Managing General Agents) (LLMI)
