The European Insurance and Occupational Pensions (EIOPA) and the Central Bank of Ireland (Central Bank) have both noted the progressively difficult conditions facing (re)insurers in the immediate future. The challenges go beyond organisational issues concerning the protections of employees and customers and extend into the more complex areas of navigating volatile and challenging market conditions.
EIOPA published a statement on actions to mitigate the impact of COVID-19 on the European insurance sector on 17 March 2020.
The key considerations are summarised as follows:
(Re)insurers must be able to continue to provide services to their clients and implement any necessary measures to ensure business continuity.
EIOPA has asked national competent authorities (NCAs) to be flexible about the timing of supervisory reporting and public disclosures for “end 2019” and published a recommendation dealing with this on 20 March which we touch on below.
EIOPA will also limit its consultations and requests for information from the industry to the elements that are essential to assess and monitor the impact of COVID-19 in the market.
EIOPA has also extended the deadline of the Holistic Impact Assessment for the 2020 review of Directive 2009/138/EC (Solvency II) to 1 June 2020.
Solvency and capital requirements
EIOPA has specified that the sector is well capitalised and able to withhold severe shocks, based on recent stress testing.
EIOPA points out that the Solvency II framework includes a number of tools that can be used to mitigate risks and impacts to the sector. EIOPA and national competent authorities should stand ready to implement these tools, if and when necessary, in a coordinated manner, to ensure that policyholders remain protected and financial stability is safeguarded and following this, on 2 April 2020, EIOPA issued a statement on dividend distributions and variable remuneration policies in the context of COVID-19.
EIOPA statement - dividends and remuneration
EIOPA has urged the temporary suspension of all discretionary dividend distributions and share buy backs by (re)insurance companies aimed at remunerating shareholders. This suspension should be reviewed as the financial and economic impact of the COVID-19 starts to become clearer.
EIOPA also expects (re)insurers to review their current remuneration policies, practices and rewards and to ensure that they reflect prudent capital planning and are consistent with, and reflective of, the current economic situation. In this context, the variable part of remuneration policies should be set at a conservative level and should be considered for postponement.
Irish (re)insurers that consider themselves legally required to pay-out dividends or large amounts of variable remuneration should explain the underlying reasons to the Central Bank.
EIOPA’S recommendations – reporting deadlines
On 20 March, EIOPA published Recommendations on Supervisory Flexibility Regarding the Deadline of Supervisory Reporting and Public Disclosures (the Recommendations) and the Central Bank is adopting these.
The Recommendations allow for delays in the following upcoming reports which will be due for submission in the next few weeks:
Annual reporting relating to year-end 31 December 2019, or year-end after that date but before 1 April 2020, should be delayed by 8 weeks for the Quantitative Reporting Templates, with some exceptions, with a 2-week delay in the submission of the templates
Quarterly reporting referring to Q1 2020-end occurring on 31 March 2020, or after that date but before 30 June 2020, should be delayed by a week in the submission of the Q1-2020 Quantitative Reporting Templates and the Quarterly Financial Stability reporting, with exceptions
The Solvency and Financial Condition Report referring to year-end occurring on 31 December 2019, or year-end after that date but before 1 April 2020, should be delayed by 8 weeks, with some exceptions, with a 2-week delay in the submission of the templates
On 27 March, the Central Bank issued an industry letter to insurance undertakings outlining its expectations of them in light of the COVID-19 emergency.
In summary, the Central Bank reminds insurance firms of the challenges faced by consumers and requests firms to implement consumer focused solutions on policy payment breaks, rebates and claims.
(Re)insurers are also asked to provide an interpretation of the contract that is most favourable to the consumer where issues arise. Further, (re)insurers are asked to take responsibility for the manner in which claims arising from COVID-19 are determined.
(Re)insurers will be expected to take proper measures to ensure the continued delivery of services and to prevent any disruption for consumers. They are also expected to act in a consumer-centric manner and have robust procedures in place for policies and claims impacted by COVID-19.
There will likely be an increased focus on the ability of (re)insurers to handle increased volumes of claims under travel insurance, business disruption and health insurance policies.
EIOPA says that it will continually monitor the situation and will take or propose to EU institutions any measures necessary to mitigate the impact of market volatility to the stability of the insurance sector in Europe and safeguard the protection of policyholders.
If you would like to discuss any of the points highlighted, please contact a member of the Financial Regulation team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.