International Association of Insurance Supervisors
Corporate and risk governance - IAIS publishes report on its peer review of supervisors’ observance with ICPs - June 2020
The International Association of Insurance Supervisors (IAIS) has published a report setting out the aggregate assessment results and observations from its peer review of supervisors’ mandates and powers in relation to corporate and risk governance. The peer review, which included 70 participating authorities, covered the application of Insurance Core Principles (ICPs) 4 (Licensing), 5 (Suitability of persons), 7 (Corporate governance) and 8 (Risk management and internal controls).
In summary, all participants assessed themselves as ‘observed’ or ‘largely observed’ in respect of ICP 4 and 98% considered themselves ‘observed’ or ‘largely observed’ in respect of ICP 5. In relation to ICPs 7 and 8, 93% considered themselves ‘observed’ or ‘largely observed’, with the remaining participants indicating partial observance. Full and detailed results by ICP and jurisdiction are available in Annex 4.
IAIS report on its peer review of supervisors’ corporate and risk governance in relation to ICPs 4, 5, 7 and 8
LIBOR transition - IAIS publishes report addressing supervisory and risks - 9 July 2020
The IAIS has published a report addressing the supervisory challenges associated with the transition away from the use of the London Interbank Offered Rate (LIBOR) from an insurance perspective. The report shares the findings and recommendations from a survey of IAIS members on the supervisory challenges and risks associated with benchmark reform and LIBOR transition.
Among other things, the report states that a distinct feature of benchmark transition risk in the insurance sector is that insurers may be exposed on both sides of their balance sheet, for example on the asset side through investments linked to LIBOR and, on the liability side, through regulatory valuation methodologies that reference benchmark rates.
IAIS report on supervisory challenges and risks associated with LIBOR transition
Press release
European Parliament
COVID-19 - European Parliament publishes written answer on its impact on the 2020 Solvency II review - 3 July 2020
The European Parliament has published an answer from Valdis Dombrovskis (Vice President of the European Commission) to a query regarding the European Commission’s 2020 review of the Solvency II Directive (2009/138/EC) and the impact of COVID-19 on the European insurance sector. Mr Dombrovskis explains that:
“Despite the extreme market events linked to the COVID-19 pandemic that have severely hit insurers’ balance sheets, the insurance sector has remained overall healthy with solvency positions above the regulatory requirements. This is largely due to the robustness and prudence introduced by the Solvency II framework and has revealed the capacity of the sector to absorb the current extreme economic environment without negative consequences for policyholders and risks for financial stability. So far, the Commission has not identified urgent issues that would require the adoption of short-term exceptional amendments to the … framework”.
Some key aspects of the Solvency II framework, including the risk margin, the volatility adjustment and the prudential treatment of equity investments, will be addressed in the Solvency II review, as planned. EIOPA’s Technical Advice to the Commission for the Solvency II review has been postponed to December 2020.
European Parliament written answer on the impact of COVID-19 on the 2020 Solvency II review
European Insurance and Occupational Pensions Authority
COVID-19 - EIOPA publishes statement clarifying its expectations on product oversight and governance requirements - 8 July 2020
The European Insurance and Occupational Pensions Authority (EIOPA) has published a statement clarifying its expectations of firms in relation to product oversight and governance requirements in light of COVID-19. In particular, EIOPA asks insurance manufacturers to identify products whose main features, risk coverage or guarantees have been materially affected by the COVID-19 pandemic; if such products no longer offer value to customers, insurers should assess whether there is a risk of possible unfair treatment. The assessment should be based on a medium to long-term outlook, to take into account product lifecycles. Where firms identify the possibility of unfair treatment, EIOPA expects proportionate remedial measures to be implemented.
EIOPA statement clarifying its expectations of firms regarding product oversight and governance requirements in light of COVID-19
Press release
Prudential Regulation Authority
COVID-19 - PRA publishes statement on the application of the matching adjustment - 7 July 2020
The PRA has published a statement on the application of the matching adjustment during the COVID-19 pandemic. The PRA considers that the matching adjustment has functioned as intended throughout the COVID-19 crisis, but has nonetheless identified areas where it may be useful to provide clarifications to ensure consistency in firms’ interpretation of PRA policy.
The statement covers the following issues: (i) management of the matching adjustment portfolio; (ii) eligibility; (iii) calculation of the matching adjustment; and (iv) the impact of the limits or caps used in insurers’ internal models to calculate the matching adjustment on the solvency capital requirement (SCR).
The statement should be read in conjunction with Supervisory Statement (SS) 3/17 ‘Solvency II: Illiquid and unrated assets’, SS7/18 ‘Solvency II: Matching adjustment’, SS8/18 ‘Solvency II: Internal models - modelling of the matching adjustment’ and SS1/20 ‘Solvency II: Prudent person principle’. The PRA also suggests that where views of prospective risks are affected by COVID-19, requiring a change in internal models, firms should refer to the expectations set out in SS12/16 ‘Solvency II: changes to internal models used by UK insurance firms’.
PRA statement on the application of the matching adjustment in light of COVID-19
Webpage
Financial Conduct Authority
COVID-19 - FCA updates webpage on its High Court BI insurance test case with Reply to defences - 3 July 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 following COVID-19. Several court-related documents have now been published, including the FCA’s reply to the insurers’ defences. The FCA has also published several other documents including its amended particulars of claim, amended defences by Royal & Sun Alliance Insurance plc and the court’s ruling from the first case management conference, held on 16 June 2020.
FCA webpage on its High Court test case on the validity of BI insurance claims in light of COVID-19
Pensions Dashboard Programme
Pensions Dashboard Programme - PDP publishes call for input on data standards - 6 July 2020
The Pensions Dashboard Programme (PDP) has published a call for input on proposed data standards, as set out in two working papers published by the PDP in April 2020. The two working papers explore the breadth and depth of coverage that dashboards could show. The PDP is now seeking input from consumer advocates, pension providers and schemes and other parties with an interest in pensions dashboards on the assumptions set out in the working papers, to help it prepare initial data standards.
The deadline for comments is 31 August 2020.
Pensions Dashboard Programme call for input on data standards
Webpage
Please see the Brexit section for an item on the FCA’s statement on the application of EIOPA’s Guidelines on outsourcing to cloud service providers post-Brexit.
