European Insurance and Occupational Pensions Authority
COVID-19 - EIOPA publishes supervisory statement on Own Risk and Solvency Assessment - 19 July 2021
The European Insurance and Occupational Pensions Authority (EIOPA) has published a supervisory statement on Own Risk and Solvency Assessment (ORSA) in the context of COVID-19, which is addressed to national competent authorities (NCAs). Every insurer and reinsurance undertaking must conduct an ORSA under Article 45 of the Solvency II Directive (2009/138/EC).
In the supervisory statement, EIOPA indicates that ORSA is designed and considered as an important and effective tool for risk management. Carrying out an ORSA under the current circumstances is intended to provide insight into the potential impact of COVID-19 on an undertaking’s risk profile to support decision-making by its administrative, management or supervisory body. In addition, the ORSA promotes the identification and effective management of an undertaking’s risks to ensure it has sufficient capital to absorb possible losses and help steer its business through periods of adversity.
The statement focuses on the supervision of undertakings’ internal processes that are necessary for a good quality ORSA and guides undertakings through supervisory expectations as a result of COVID-19. It covers three main areas: (i) ORSA as a management tool; (ii) timing of the regular ORSA and ad-hoc ORSAs; and (iii) scenarios used in the ORSA.
EIOPA notes that, while the statement specifically addresses the COVID-19 situation at the time of its publication, the recommendations are applicable to any similar situation with the necessary adaptations.
Supervisory statement on ORSA in the context of COVID-19 (EIOPA-BoS-21/323)
Resolution of comments on public consultation (EIOPA-BoS-21/327)
Feedback statement (EIOPA-BoS-21/328)
Impact assessment (EIOPA-BoS-21/313)
Press release
2021 strategic approach to conduct of business supervision - EIOPA publishes paper - 22 July 2021
The European Insurance and Occupational Pensions Authority (EIOPA) has published a paper setting out its 2021 strategic approach to a comprehensive risk-based and preventive framework for conduct of business supervision at EU level. Its strategy continues to emphasise:
- driving supervisory convergence in practical conduct of business supervision, including in relation to the Insurance Distribution Directive (EU) 2016/97 (IDD), the Regulation on Packed Retail and Insurance-based Investment Products (1286/2014/EU) (PRIIPs) and the Pan-European Personal Pension Product Regulation ((EU) 2019/1238) (PEPP);
- assisting in developing new tools to promote more effective conduct supervision; and
- further enhancing market monitoring and conduct risk assessment.
EIOPA has also identified adequate product design (including by way of close monitoring of product oversight and governance) as one of its supervisory priorities.
Paper: EIOPA’s conduct of business supervision strategy (EIOPA-BoS-21/281)
Webpage
Prudential Regulation Authority
Transitional measures on technical provisions relief for insurers - PRA publishes statement - 19 July 2021
The PRA has published a statement on transitional measures on technical provisions (TMTP) relief for insurers.
Under the Solvency II Regulations (SI 2015/575), firms are permitted to carry out a recalculation of the transitional measure provided they present sufficient evidence to the PRA of a material change in risk profile. In its Supervisory Statement on maintenance of TMTP under Solvency II (SS6/16), the PRA states that risk profile changes that may trigger a recalculation include changes in operating conditions, such as a change in interest rates, or market prices of other financial assets, leading to revised market risk exposures.
The PRA indicates that it has been monitoring market conditions since the previous biennial TMTP calculation in December 2019 and has also considered whether changes in market conditions since then can reasonably be considered to have been sustained. In the PRA’s view, recent movements in risk free rates (RFR) meet the threshold for a material change in risk profile as set out in SS6/16.
The PRA indicates it is willing to accept applications from firms to recalculate TMTP as at 30 June 2021. In their applications the PRA expects firms to:
- be able to demonstrate that a material change in risk profile has occurred – in the period up to 31 July 2021, the PRA considers that it would be reasonable for a firm to take a forward-looking view that encompasses how the risk profile is expected to evolve as a result of the GBP RFR transition to SONIA; and
- use firms’ existing TMTP calculation methodology in order to expedite the application process.
The PRA states that any applications received at this time would be in addition to the expected biennial TMTP recalculation on 31 December 2021.
PRA statement on the recalculation of the Transitional Measure on Technical Provisions
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Solvency II - PRA updates QIS webpage and publishes related Dear CEO letter on data gathering - 20 July 2021
The PRA has updated its Solvency II (2009/138/EC) Review quantitative impact study (QIS) webpage with the QIS materials and has published a Dear CEO letter from PRA Executive Director, Insurance, Charlotte Gerken, introducing the QIS and setting out the PRA’s thinking on the risk margin and the matching adjustment.
The PRA has invited several firms to participate in the QIS exercise. These firms are asked to prioritise their resources to complete the exercise, and to engage in the exercise and provide feedback or queries within the next few weeks. Other UK regulated firms may participate if they wish.
In relation to the risk margin, the PRA’s letter explains that there is a strong case for making the risk margin less sensitive to interest rates but there are still decisions to be made about how a reformed version should be designed and calibrated. Firms have been asked to provide the PRA with some ‘input data’ so that it can do its own modelling of a range of possible designs and calibrations, and balance sheet data based on two alternative risk margin structures. The PRA is gathering data under different economic scenarios to help it model future potential policy options through the cycle.
In relation to the matching adjustment, the PRA is gathering data on two alternative possible design variations. These variations would recognise more explicitly the risk profile of individual assets and make more allowance for the credit risk premium within asset returns, while still recognising the aim of the matching adjustment and preserving its valuable stabilising effects.
The deadline for submitting responses to the QIS is 20 October 2021.
QIS Webpage
Dear CEO Letter: Gathering data for the Solvency II Review
Dear CEO Letter Webpage
Financial Conduct Authority
COVID-19 - travel insurance - FCA updates expectations of general insurance firms - 19 July 2021
The FCA has updated its webpage on its expectations of general insurance firms in relation to COVID-19 and their provision of travel insurance. The FCA states that it expects firms to take account of the changes to the travel landscape in their marketing, sale, design and monitoring of travel insurance products and to consider their regulatory requirements given the changing market.
Its focuses on four areas:
- Communication: firms should not use terminology that customers might not understand. It has seen firms advertising and selling insurance products that have “coronavirus cover” or “enhanced COVID-19 cover” – these terms do not have a commonly understood meaning and can reflect very different types of cover depending on the insurance product being provided;
- Sale standards: firms should provide existing and prospective customers with clear information and ensure they have a clear understanding of the extent that travel products will protect them against COVID-19 related risks so they can make informed decisions. Such information needs to include the policy’s main benefits, limitations, conditions and exclusions and include those relating to COVID-19, regardless of the sophistication of the customer and whether they have previously bought a travel policy from the firm. Where exclusions are in place, they should be sufficiently clear so that customers understand the impact and circumstances in which the policy will not pay out;
- Demands and needs: the FCA expects firms to only offer customers travel insurance that meets their demands and needs; and
- Product governance: the FCA states that firms manufacturing new insurance products, or making significant adaptations to existing products, must apply a product approval process under its product governance rules before marketing or distributing that product. Where firms are making changes to an existing product, including adding any material exclusions from cover, they must consider whether these changes are significant enough to trigger the product approval process. The FCA considers that a change to an existing product to exclude the insurer’s liability for risks relating to COVID-19, either in whole or in part, is likely to amount to a significant adaptation of the insurance product.
Updated webpage: Insurance and coronavirus (COVID-19): our expectations of firms
See the Beyond Brexit section for an item regarding an FCA consultation paper on PRIIPS and post-Brexit divergences.
