International Association of Insurance Supervisors
Liquidity risk management - IAIS publishes application paper on ICPs - 29 June 2020
The International Association of Insurance Supervisors (IAIS) has published an application paper on liquidity risk management. In particular, the paper provides guidance to supervisors on the application of liquidity risk management standards in the Insurance Core Principles (ICPs) and the Common Framework for the supervision of internationally active insurance groups (ComFrame). IAIS consulted on a draft version of the application paper in November 2019.
The guidance specifically relates to ICP standards 16.8 and 16.9 and ComFrame 16.9.a to 16.9.d and relates to:
- the application of liquidity risk management measures in a proportionate way and how supervisors can tailor requirements;
- the elements of more detailed risk management processes contained in ICP standard 16.9 (regarding liquidity stress testing, maintaining a portfolio of unencumbered highly liquid assets, a contingency funding plan and submitting liquidity risk management reports); and
- the integration of liquidity risk into insurers’ enterprise risk management (ERM) frameworks.
IAIS application paper on liquidity risk management
European Commission
Solvency II - European Commission publishes consultation - 1 July 2020
The European Commission has published a consultation reviewing key elements of the prudential framework for insurance and reinsurance companies in the EU under the Solvency II Directive (2009/138/EC). The Commission states that the consultation aims to complement the 2020 Solvency II review, which is currently being undertaken by the European Insurance and Occupational Pensions Authority (EIOPA). EIOPA is expected to provide its final technical advice to the Commission in December 2020.
In particular, the consultation seeks stakeholders’ views on four broad themes:
- long-termism and the sustainability of insurers’ activities, including on the role played by insurers in the wider economy and incentives for insurers to make investments in small and medium-sized enterprises (SMEs);
- the scope of Solvency II and the extent to which authorities should use proportionality in applying its requirements;
- improving consumers’ trust, deepening the single market in insurance services and enhancing policyholder protection and financial stability. This theme covers issues relating to cross-border supervision, preventing and addressing insurance failures and insurance guarantee schemes (IGSs); and
- emerging risks and opportunities that may need to be addressed by the EU framework, including climate-related risks and sustainable finance, digitalisation and cyber risks.
The consultation period closes on 21 October 2020.
The Commission has also published for consultation an inception impact assessment on the 2020 Solvency II review, providing an overview of the initiative and a preliminary assessment of expected impacts. The deadline for comments on the inception impact assessment is 26 August 2020.
The Commission intends to adopt related legislative proposals by Q3 2021.
European Commission consultation on key elements of Solvency II
European Commission inception impact assessment on its review of Solvency II
European Commission consultation roadmap
Press release
UK Parliament
Pension Schemes Bill 2019-21 - report stage in the House of Lords - 30 June 2020
The Pension Schemes Bill 2019-21 has completed its report stage in the House of Lords. The Bill contains a number of proposals, including: (i) enhancing the Pensions Regulator’s information-gathering and enforcement powers; (ii) a legislative and regulatory framework for collective defined contribution pension schemes and measures on the funding of defined contribution schemes; (iii) supporting the legislative and regulatory framework for pension dashboards; and (iv) amendments to the Pension Protection Fund compensation rules.
The House of Lords made four amendments to the Bill at the report stage, including:
- requiring Secretary of State notices to Collective Defined Contribution scheme trustees to include a report on fairness;
- ensuring that a pensions dashboard service does not include a provision for financial transaction activities;
- requiring the Money and Pensions Service (MaPS) to provide a pensions dashboard service to deal with information from occupational and personal pensions schemes and to include state pension information in the pensions dashboard service; and
- ensuring that open and active schemes which receive regular, significant cash contributions are treated differently to closed schemes.
A date for the Bill’s third reading in the House of Lords has yet to be scheduled.
Press release: House of Lords votes on Pension Schemes Bill 2019-21 at report stage
Webpage
Prudential Regulation Authority
PRA Consultation Paper CP5/20 - Solvency II technical information: The PRA’s proposed approach to the publication at the end of the transition period - June 2020
The PRA has published a Consultation Paper (CP5/20) setting out its proposed approach to the publication of technical information under the Solvency II Directive (2009/138/EC) at the end of the Brexit transition period.
The PRA proposes that:
- its published technical information would be derived by adopting the same technical methodologies embodied within EIOPA’s technical information as at the end of the transition period, with some limited exceptions;
- the criteria that would be used to determine the PRA's relevant currencies to publish would be based on the relative materiality of technical provisions denominated in each currency, and the currencies for which firms have volatility adjustment (VA) or matching adjustment authorisation;
- at the end of the transition period, the PRA would use EIOPA’s VA reference portfolios to calculate the VA in effect at that time. From 31 March 2021, under the current timetable for the completion of the transition period, the PRA would derive VA reference portfolios using the same technical approach as EIOPA, save for in three specific areas where the PRA’s approach would differ; and
- it will publish technical information on its website in a similar format to EIOPA's technical information.
The consultation period closes on 30 September 2020. The proposed implementation date for the proposals is the end of the transition period, 11 pm on 31 December 2020.
PRA Consultation Paper CP5/20 – Solvency II technical information: The PRA’s proposed approach to the publication at the end of the transition period
Draft Statement of Policy: The PRA’s proposed approach to the publication of Solvency II technical information at the end of the transition period
Webpage
Financial Conduct Authority
COVID-19 - FCA publishes its expectations of travel insurance firms when handling consumer complaints and refund requests - 29 June 2020
The FCA has updated its webpage containing information for firms to set out its expectations of travel insurance firms when handling consumer claims and refund requests in response to COVID-19.
Where consumers have two potentially valid avenues of redress against regulated firms (for example, from an insurer and a credit provider), there is nothing preventing an insurer, credit provider or other regulated firm from settling the claim in full and, where appropriate, seeking to claim back from the other firm involved. Firms can agree a convention with other providers about how these such arrangements might work efficiently without having a negative impact on consumers. The FCA notes: “Historically, who you contact first to get a refund has not been a significant issue and has not come to our attention. But given the current strain on the travel market and the current practices that exist, the complexity involved in getting a refund has become clearer. Given this we will be consulting in the coming weeks on new guidelines, so that in future the choices for you will be clearer”.
The FCA has also updated the travel insurance section of its webpage on its expectations of general insurance firms to explain that, when selling a policy, firms are required to propose cover that is consistent with a customer’s demands and needs. It expects firms to ask customers questions to establish an individual customer’s demands and match the products they are offered to these.
FCA webpage on information for firms in response to COVID-19
FCA webpage on its expectations of general insurance firms in response to COVID-19
FCA webpage on obtaining a refund and claiming on insurance in light of COVID-19
COVID-19 - FCA updates webpage on its High Court BI insurance test case - 30 June 2020
The FCA has updated its webpage on the progress of its High Court test case, which seeks a declaratory judgment about the meaning and effect of the wording of certain business interruption (BI) insurance policies with a view to resolving contractual uncertainties about the validity of BI insurance claims in the wake of COVID-19.
The FCA has updated the webpage to publish an Order made during the second case management conference on 26 June 2020, which sets out various directions as to how the test case will proceed. The FCA has made available a draft provisional transcript of the first and second case management conferences, and will publish the final approved transcript as well as the court order when they are available.
FCA webpage on its High Court test case on the validity of BI insurance claims in light of COVID-19
COVID-19 - FCA updates its webpage for general insurance firms regarding MOT extensions and expiry dates - 30 June 2020
The FCA has also updated its webpage on its expectations of general insurance firms in light of the Department for Transport’s announcement that MOT expiry dates for cars, vans or motorcycles will be extended by 6 months due to COVID-19 if the MOT was due between 30 March 2020 and 31 July 2020. An MOT certificate will not be extended if a vehicle’s MOT expires on or after 1 August 2020, in which case an MOT must be booked as usual.
Given this additional guidance, the FCA expects motor insurers to continue to provide cover for consumers’ car, motorcycle or van insurance due to their temporary situation, in line with government policy resulting in drivers not being able to receive (and not needing) a new MOT certificate. This includes ensuring that customers are able to shop around for their insurance at renewal.
FCA webpage on its expectations of general insurance firms in response to COVID-19
Recent Cases
Joint appeal against decision in Re Prudential Assurance Company Ltd, [2019] EWHC 2245 (Ch) - 29 June 2020
The Prudential Assurance Company Limited (PAC) and Rothesay Life plc (Rothesay) have updated their websites on their joint appeal against the decision of the High Court in Re Prudential Assurance Company Ltd [2019] EWHC 2245 (Ch) to indicate that the appeal is now expected to be heard in October 2020. A revised date is yet to be confirmed by the Court of Appeal. The appeal was originally scheduled to be heard on 7 July 2020.
As previously reported in this Bulletin, pursuant to section 111(3) of FSMA 2000, at first instance Snowden J declined to exercise his discretion to sanction a scheme under Part VII of FSMA 2000 to transfer a £12 billion portfolio of approximately 370,000 annuity policies from PAC to Rothesay.
Both PAC and Rothesay lodged a joint notice of appeal against the decision on 30 September 2019.
Rothesay Life plc webpage
Prudential Assurance Company Ltd webpage
Re Prudential Assurance Company Limited [2019] EWHC 2245 (Ch)
Please see the Banking and Finance section for an item on the PRA’s ‘Dear CEO’ letter setting out its expectations of firms in relation to the management of climate-related financial risks.
