Financial Services Regulation and Compliance - Insurance May 2021
Understanding the future of insurance – Central Bank of Ireland Survey Results published
On 13 May 2021, the Central Bank of Ireland (the CBI) published the results of a survey of insurance firms (93 life, non-life and reinsurance insurers) on the firms' exposures to and preparedness for emerging risks, climate risks and cyber underwriting risks. The survey, titled – "Understanding the future of insurance" gives an insight into the risk management practices of the insurance sector. The CBI notes in the publication that further steps are needed to fully incorporate and embed climate and emerging risks within insurance firms' risk frameworks.
The publication also outlines the CBIs approach and notes that firms should expect increased supervision and intervention in the three risk areas identified. In particular, the publication highlights the establishment of a centralised climate change unit focused on developing the CBI's own capabilities in this space.
Amendment of the EU Insurance and Reinsurance Regulations
On 17 May 2021, the European Union (Insurance and Reinsurance) (Amendment) Regulations 2021 (S.I. No. 240/2021) were signed by Minister of Finance, Paschal Donohoe. These regulations amend the European Union (Insurance and Reinsurance) Regulations 2015 (S.I. No. 485/2015 – the Solvency II Regulations) and take effect from 30 June 2021.
The amendments are concerned with the relationship between the CBI and the European Insurance and Occupational Pensions Authority (EIOPA). They focus on improving the exchange of supervisory information and the establishment of a cross-border platform to facilitate such information sharing. Cooperation in this manner is intended to support entities operating on a freedom of services or freedom of establishment basis from Ireland.
ESA’s Joint Board of Appeal dismisses appeal by Societatea de Asigurare-Reasigurare City Insurance SA against EIOPA
On 3 May 2021, the Joint Board of Appeal of the European Supervisory Authorities (ESAs) published their decision to unanimously dismiss the appeal brought by Societatea de Asigurare-Reasigurare City Insurance SA (Societatea) against the European Insurance and Occupational Pensions Authority (EIOPA). The appeal concerned a balance sheet review (BSR) exercise of the Romanian insurance sector conducted by the Romanian Financial Supervisory Authority with the support of EIOPA. More specifically, the appeal considered the extent to which Societatea can challenge EIOPA's role and involvement in the BSR exercise via the appeal mechanism provided for under Article 60 of the EIOPA Regulation.
EIOPA calculation of volatility adjustments
On 5 May 2021, EIOPA published updated representative portfolios for calculation of the volatility adjustments to the relevant risk-free interest rate term structures for Solvency II. Publication of risk-free interest rate term structures is undertaken on a monthly basis and ensures consistent calculation of technical provisions across Europe.
EIOPA publishes Solvency II technical information
On 5 May 2021, EIOPA published updated technical information on the symmetric adjustment of the equity capital charge for Solvency II and technical information for Solvency II relevant risk free interest rate term structures. The technical information is provided for a reference period up to end April 2021 in both cases.
Risk Dashboard: European insurers' risk levels remain broadly stable
On 6 May 2021, the European Insurance and Occupational Pensions Authority (EIOPA) published a risk dashboard summarising the main risks and vulnerabilities in the European insurance sector. The dashboard is based on the Q4 2020 Solvency II financial stability and prudential reporting of 81 insurance groups and 2,463 solo insurance undertakings.
The dashboard notes that insurers' exposures to macro risks remain high while exposure to other risk categories remain at medium level and European supervisors expect credit risks to increase over the next 12 months, reflecting concerns over corporate indebtedness. Solvency positions for life insurers improved while it deteriorated slightly for non-life insurers and insurers’ profitability improved due to positive market performance. However overall, insurers’ profitability remains lower than at pre-COVID levels.
The dashboard also notes that insurance risks remain at medium level and market perceptions remain at medium level with an increasing trend. As a whole, during the first quarter of 2021, the insurance sector (both life and non-life) underperformed in the stock market.
EIOPA launches its 2021 insurance stress test
On 7 May 2021, EIOPA launched its 2021 stress test for the European insurance market. The stress test, developed in co-operation with the European Systemic Risk Board, will focus on a prolonged COVID-19 scenario in a 'lower for longer' interest rate environment. The 2021 exercise includes 44 European (re)insurance undertakings. It aims to assess the resilience of participants to various capital and liquidity shocks and consider potential remedial actions. The stress test results are due for publication in December 2021.
INSURANCE LEGISLATIVE UPDATE
Consumer Insurance Contracts Act 2019 – Provision Commencing September 2021
The remaining provisions of the Consumer Insurance Contracts Act 2019 will commence in September 2021. These provisions will have an impact on how insurers enter into contracts with consumer. For further information please see our article on the provisions commencing in 2021 which can be read here.
For more information on these topics please contact any member of A&L Goodbody's Insurance & Reinsurance team.
Date published: 4 June 2021