Financial Services Regulation and Compliance - Insurance Jul 2021
First Employers’ Liability, Public Liability and Commercial Property Insurance Report of the National Claims Information Database published
On 14 July 2021, the Central Bank of Ireland (CBI) published the first issue of the Employers' Liability, Public Liability and Commercial Property Insurance Report (the report) of the National Claims Information Database (NCID). The report details data on premiums, other income, claims, settlement costs and settlement channels for the respective insurance sectors. The objective of the report is to increase transparency across these complex areas of insurance with a view to informing decision making at Government level. Going forward, the report will be published on an annual basis.
NCID FAQs (updated 13 July 2021)
On 13 July 2021, the CBI published updated NCID frequently asked questions (FAQs). The NCID is a repository of information on the cost of non-life insurance claims. The FAQs demonstrate the broadened scope of the NCID which now includes data in respect of private motor insurance, employers' liability, public liability and commercial property insurance. The scope of the data collected can be expanded and additional types of insurance can be included in due course.
CBI Review of Differential Pricing in the Private Car and Home Insurance Markets
On 20 July 2021, the CBI published its final consultation paper on the review of differential pricing in the private motor and home insurance sector (CP143). The proposals in CP143 include a ban on price walking (the practice where customers are charged higher premiums relative to the expected costs the longer they remain with an insurance provider), a requirement to disclose new business discounts, a requirement to annually review pricing policies and the introduction of a requirement for consent to be given in the context of automatic renewals. The consultation is open until 22 October 2021.
New Decision on the collaboration of the insurance supervisory authorities of the Member States in the EEA
On 30 June 2021, the European Insurance and Occupational Pensions Authority (EIOPA) amended its decision on the collaboration of the insurance supervisory authorities of the Member States in the European Economic Area (EEA). The new Decision (EIOPA-BoS-21-234) applies from 1 July 2021 and repeals the 2017 Decision (EIOPA-BoS-17/013). The new decision takes into consideration the requirements of the Solvency II Directive, the recommendations to EIOPA from the peer review on collaboration, and EIOPA’s own experience in the implementation of the 2017 decision. The new decision is important for achieving consistent supervisory practices to enhance consumer protection across the European Union.
EIOPA further contributes to sustainable finance
On 8 July 2021, EIOPA published three climate change related publications as part of its activities on sustainable finance. The first report, a pilot dashboard for the natural catastrophe protection gap, maps the insurance gaps for European natural catastrophes. The dashboard identifies areas at risk, the causes of climate-related insurance gaps and the mitigation steps that "at risk" regions should take. The second report, a methodological paper for integrating climate change in underwriting risk capital charge of the Solvency II standard formula, sets out the steps that undertakings should take in order to re-assess and potentially recalibrate modelling in light of climate change risk. The third report, a report on non-life underwriting and pricing in light of climate change, explores reinsurers' contributions to climate change and mitigation where such reinsurers insure climate change-related risks.
EIOPA publishes monthly technical information
On 5 July 2021, EIOPA published the following monthly information:
- technical information on the relevant risk free interest rate term structures (RFR) with reference to the end of June 2021
- technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of June 2021
- updated representative portfolios for the calculation of the volatility adjustments to the relevant risk-free interest rate term structures for Solvency II
EIOPA reports on key financial stability risks in the European insurance and pension sectors
On 6 July 2021, EIOPA published its 2021 financial stability report. The report notes that the economic uncertainties resulting from the pandemic continue to impact the insurance sector; the report highlights increased unemployment rates and corporate credit downgrades as examples of economic uncertainties. In addition, the report confirms that the reinsurance sector was also exposed to unprecedented uncertainty.
EIOPA acknowledges that the Solvency II regime resulted in the insurance sector being overall well prepared to deal with the stresses of the COVID-19 pandemic. However, EIOPA emphasised the importance of ongoing risk assessment and, on that basis, EIOPA is currently running an EU-wide insurance stress testing exercise to assess the potential future impact of the ongoing pandemic. The report also contains two thematic articles – the first considers the impact of EU-wide insurance stress tests on equity prices and systemic risk and the second discusses the interaction between climate change and insurance coverage.
Opinion on the use of risk mitigation techniques by insurance undertakings
On 12 July 2021, EIOPA published its opinion on the use of risk mitigation techniques by insurance undertakings. Since the implementation of Solvency II, new risk mitigation techniques such as new reinsurance structures have appeared in the European market and some existing ones have gained more relevance. EIOPA reiterates that risk mitigation techniques are efficient tools for (re)insurance undertakings. The opinion sets out recommendations for national supervisory authorities in supervising these risk structures. The opinion also clearly outlines that national supervisory authorities are expected to coordinate their approach in the assessment of such structures, if they are multi-jurisdictional in nature, to ensure a harmonised approach.
Supervisory statement on supervisory practices and expectations in case of breach of the SCR
On 12 July 2021, EIOPA published a supervisory statement on supervisory practices and expectations in case of breach of the solvency capital requirement (SCR). The statement aims to promote supervisory convergence where SCR breaches arise – for instance where non-compliance occurs, similar supervisory approaches should be followed across the EEA to ensure there is adequate protection for similarly placed policyholders and beneficiaries. In particular, the supervisory statement notes the importance of a recovery plan in case of an SCR breach.
Consultation on the revision of the Solvency II Guidelines on Contract Boundaries and Valuation of Technical Provisions
On 14 July 2021, EIOPA launched consultations on the revision of Solvency II Guidelines on contract boundaries and the valuation of technical provisions. Both consultations are open until 12 November 2021.
Regarding the revision of Solvency II Guidelines on contract boundaries, the guidelines continue to recommend consistent contract boundary practices. They also focusing on unbundling of contracts and ensuring that a contract is treated the same regardless of whether it was initially sold as a single contract or two separate contracts. Regarding the valuation of technical provisions, the guidelines promote consistency in the approach taken by undertakings in calculating their technical provisions under Solvency II. They also clarify that where contracts with material options and guarantees exist, insurance undertakings are expected to use a valuation method that captures the appropriate time value of these contracts. EIOPA will consider any feedback received regarding both consultations before publishing its final reports.
Supervisory statement on the ORSA in the context of COVID-19
On 19 July 2021, EIOPA published a supervisory statement on the Own Risk and Solvency Assessment (ORSA) in the context of the COVID-19 pandemic. The statement aims to foster supervisory convergence with regard to the ORSA and outlines EIOPA's expectation that all undertakings should include a pandemic scenario in their ORSA. While the statement is focused on the COVID-19 pandemic, EIOPA has noted that the recommendations are applicable to any similar situation with the necessary adaptations.
EIOPA consults on the amendments of supervisory reporting and disclosure requirements
On 23 July 2021, EIOPA launched a consultation on the amendments of supervisory reporting and disclosure requirements under Solvency II. EIOPA outlines that the purpose of the review is to ensure the supervisory regime remains fit for purpose and proposes amendments to the reporting requirements. The main amendments are based on a report on quantitative reporting templates published by EIOPA together with the opinion on the 2020 Solvency II review. Other proposals include simplification of quarterly reporting, elimination of some reporting templates and new thresholds to promote better risk-based and proportionate reporting requirements.
EIOPA expects its proposals to reduce reporting costs, include emerging risk data within the reporting requirements while also streamlining the entire reporting process. The consultation is open until 17 October 2021.
EIOPA consults on the approach to the supervision of run-off undertakings
On 23 July 2021, EIOPA launched a consultation on the supervisory statement on the supervision of run-off undertakings. EIOPA acknowledges that the acquisition of run-off portfolios and run-off undertakings by other insurance undertakings has increased in recent years and such activity has attracted interest from private equity investors. The supervisory statement sets out EIOPA's expectations for the supervision of run-off undertakings and, in particular, the expectations for their supervision in the context of portfolio transfers, acquisitions of qualifying holdings, mergers as well as on-going supervision. The consultation is open until 17 October 2021.
The Supervisory Framework: A European view of the Insurance Market
On 27 July 2021, EIOPA published a speech by Executive Director of EIOPA, Fausto Parente, discussing the main regulatory concerns for the European insurance market. The key priorities highlighted in his speech include fairness, product oversight and governance, digitalisation, cyber risk, climate change and sustainable finance. Fausto Parente noted that is all the more important that EIOPA and national supervisors maintain a forward-looking approach in order to identify significant trends in time that can influence the market and consumers and trigger initiatives in a timely manner.
For more information on these topics please contact any member of A&L Goodbody's Insurance & Reinsurance team.
Date published: 9 August 2021