Insurance

Issue 1168 / 14 July 2022

European Insurance and Occupational Pensions Authority

Differential pricing practices - EIOPA publishes consultation paper - 11 July 2022

The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper on its draft supervisory statement on differential pricing practices in non-life insurance lines of business. For the purposes of the supervisory statement, EIOPA defines ‘differential pricing practices’ as those pricing techniques where consumers with a similar risk and cost of service are charged different premiums for the same insurance product (with the same terms and conditions), for reasons other than risk or cost of service.

The supervisory statement sets out:

  • examples of differential pricing practices that are considered to lead to unfair treatment of consumers (including increasing the price of the insurance product at the renewal stage based on the customer’s low propensity to shop around, which is known as ‘price walking’);
  • expectations regarding how insurance manufacturers’ governance measures should ensure that these practices do not unfairly affect consumers; and
  • expectations regarding how national competent authorities should supervise the obligation to ensure differential pricing practices do not lead to unfair treatment of consumers.

The deadline for responses is 7 October 2022.

EIOPA Consultation Paper: on Supervisory statement on differential pricing practices in non-life insurance lines of business

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Press release

UK Government

Draft Pensions Dashboards Regulations 2022 - DWP publishes government response to consultation - 14 July 2022

The Department for Work & Pensions (DWP) has published the government’s response to the January 2022 consultation on the draft Pensions Dashboards Regulations 2022 (the draft Regulations). The draft Regulations set out the requirements to be met by pensions dashboard service providers and by trustees or managers of relevant occupational pension schemes in Great Britain.

Respondents to the consultation provided constructive feedback on how the draft Regulations could be improved. The government has adopted amendments to the draft Regulations and has identified further areas where engagement is needed. Overall, the government remains fully committed to making pensions dashboards happen at the earliest opportunity.

Government response: Draft Pensions Dashboards Regulations 2022

Updated webpage

Press release

Prudential Regulation Authority

Solvency II Review - PRA publishes speech - 8 July 2022

The PRA has published a speech by Sam Woods, the Bank of England’s deputy governor for prudential regulation and the PRA’s CEO, on the status of the ongoing review of the UK Solvency II regime.

In the speech, Mr Woods focuses on proposals to reform matching adjustment (MA) requirements, and the PRA’s aim to put the MA on what it sees as a more sustainable footing. Mr Woods reflects on negative reactions to the proposed MA reforms from industry, while dismissing any suggestion that UK reforms to insurance regulation should not address MA, as he considers that would leave the regime seriously unbalanced.

Mr Woods identifies three key issues with the current MA regime:

  • the way insurance companies currently calculate expected income does not recognise the uncertainty that arises from using past returns and losses in that calculation;
  • the amount of future losses firms are required to expect on their assets is based too heavily on the historical performance of corporate and government bonds; and
  • the regime makes no allowance for the possibility that falling asset prices are due to some new information that indicates future losses will be higher than expected, or at least that uncertainty over future losses has increased.

However, Mr Woods states the PRA has an open mind on how the issues identified can be tackled, stating that it may well be the case that the one model the PRA has laid out could be improved upon.

Mr Woods also rejects any suggestion that the UK should simply align with the EU’s version of Solvency II as it evolves. He notes that MA is very little used in the EU in general, and that the EU therefore has no need to consider the sorts of changes the PRA is proposing. Mr Woods also comments that the EU has had to tighten its regime in one area (relating to euro-denominated liabilities) that has no effect in the UK, and that net capital released for EU insurers as a result of EU proposals is significantly lower than those proposed in the UK when scaled for market size.

Speech by Sam Woods: Solvency II: Striking the balance

ISPVs - PRA publishes Consultation Paper (CP10/22) on updates to authorisation and supervision - 12 July 2022

The PRA has published a consultation paper (CP10/22) on proposed changes to the PRA’s approach to authorising and supervising Insurance Special Purpose Vehicles (ISPVs) operating short tail, wholesale, general insurance structures in the UK. The proposals would result in changes to the PRA’s Supervisory Statement on the ‘Authorisation and supervision of insurance special purpose vehicles’ (SS8/17) and aim to support the development of the UK ISPV regime.

The proposed changes are as follows:

  • changing the legal opinion expectation for non-English law governed contracts, so that such an opinion would not be generally expected, especially for ‘standard’ applications (applications with no bespoke issues or non-standard clauses);
  • clarifying that, for a standard application, a single individual with the relevant skills and experience could hold or perform more than one of the three required Senior Management Function (SMF) roles for an ISPV. For ‘complex’ applications, the three SMF roles may need to be held by separate individuals, but this will be assessed on a case-by-case basis.
  • clarifying that multiple cedants can cede risk through a single contract to a single cell, in limited circumstances;
  • clarifying that, in relation to standard applications, ‘quantifiable risks’ should capture, at the least, insurance risk, material risk, operational risk, and asset risk which may exist in the ISPV; and
  • clarifying that, for standard applications, applicants are no longer expected to submit the full suite of written policies in relation to the system of governance that a firm has to maintain, to the PRA. The PRA retains the right to ask for detailed policies, if deemed necessary.

The PRA proposes that the earliest implementation date for the changes would be 30 November 2022, or one week after the final changes are published in a policy statement.

The deadline for responses is 11 October 2022.

PRA Consultation Paper: Insurance Special Purpose Vehicles: Further updates to authorisation and supervision (CP10/22)

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