Insurance regulatory news, December 2020 # 3

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Recent regulatory developments of interest to insurers and their intermediaries. See also our General regulatory news in the Related Materials links.

Contents

  • 2021 priorities for supervising insurance firms: PRA Dear CEO letter
  • Solvency II: PRA delays approach for external auditors on matching adjustment
  • COVID-19: FCA update on business interruption insurance test case
  • COVID-19: FCA consults on guidance on proving presence of COVID-19 in BI insurance claims
  • Lloyd's ESG report
  • IDD: EIOPA report on NCA administrative sanctions and other measures
  • Solvency II 2020 review: EIOPA opinion
  • Climate-change related transition risks: EIOPA sensitivity analysis
  • COVID-19: IAIS 2020 global insurance market report

Following a seasonal break, the next update will be published on 11 January 2021

2021 priorities for supervising insurance firms: PRA Dear CEO letter

The UK Prudential Regulation Authority (PRA) has published a Dear CEO letter it has sent to insurance firms setting out its supervisory priorities for 2021. The priorities set out in the PRA's letter fall under the following headings:

  • financial resilience and credit risk;
  • LIBOR transition;
  • operational resilience;
  • financial risks arising from climate change; and
  • changes in PRA responsibilities following end of EU withdrawal transition period.

In addition, the PRA continues to see strong governance at firms as underpinning progress in meeting its expectations.

Solvency II: PRA delays approach for external auditors on matching adjustment

The PRA has updated its webpage on its consultation paper on Solvency II and its expectations for the work of external auditors on the matching adjustment (CP11/20) to announce a delay to the proposed effective date set out in paragraph 1.12 of CP11/20. The PRA confirms that any finalised approach will not be effective for audits of the Solvency and Financial Condition Reports (SFCRs) with a 31 December 2020 reporting date.

CP11/20 closed on 30 October 2020 and the delay to the proposed effective date considers feedback from respondents, including in relation to the impact of COVID-19. The PRA is notifying firms of the delay to provide clarity and certainty for auditors and firms in relation to the audits of December year-end SFCRs.

COVID-19: FCA update on business interruption insurance test case

On 15 December 2020, the Financial Conduct Authority (FCA) updated its webpage on the business interruption (BI) insurance test case to advise that the Supreme Court has informed the FCA that it will not be able to hand down judgment before January 2021.

COVID-19: FCA consults on guidance on proving presence of COVID-19 in BI insurance claims

On 11 December 2020, the FCA published for consultation draft guidance on proving the presence of COVID-19 BI insurance claims.

This guidance is intended for policyholders, insurers (including managing agents at Lloyd's) and insurance intermediaries. It relates to proving the presence of COVID-19 in relation to non-damage BI losses arising from UK government action in response to the pandemic for the purpose of making a claim under an insurance contract that was in force during those events and that requires the policyholder to prove the presence of COVID-19 within a particular area around their premises. The guidance is based on the High Court's judgment and declarations and in the context of insurers' obligations under the FCA's rules to handle claims fairly. It sets out types of evidence and methodologies that policyholders may use, together with links to further useful information for policyholders.

The deadline for responses to the consultation is 18 January 2021. The FCA intends for the guidance to have effect as soon as it is issued in final form and to cease to have effect on 31 December 2021, as the FCA expects that all claims to which the guidance could be relevant would have been resolved by that date.

The FCA states that if the Supreme Court judgment on the BI insurance test case affects the contents of the draft guidance, it will amend the guidance accordingly.

Lloyd's ESG report

Lloyd's has published its first environmental, social and governance (ESG) report, which details its ambitions to fully integrate sustainability into all of Lloyd's business activities. The report builds on Lloyd's existing ESG work and highlights ongoing work to drive culture change across the Lloyd's market.

IDD: EIOPA report on NCA administrative sanctions and other measures

The European Insurance and Occupational Pensions Authority (EIOPA) has published a report which provides an overview of the administrative sanctions and other measures imposed by national competent authorities under the Insurance Distribution Directive (IDD). EIOPA is required to publish the report annually under Article 36(2) of the IDD, and this first report covers the period from the application of the IDD on 1 October 2018 until the end of 2019.

Solvency II 2020 review: EIOPA opinion

EIOPA has published an opinion it has submitted to the European Commission on the 2020 review of the Solvency II Directive. From a prudential perspective, EIOPA's view is that overall the Solvency II framework is working well. However, it identifies some areas of concern which the review should address and which EIOPA details in its report.

Alongside the opinion, EIOPA has published a factsheet, background analysis and annex, and impact assessment. In addition, to complement the proposals set out in the opinion, EIOPA has published a report and annex covering the individual quantitative reporting templates at solo and group level, to give stakeholders a full view of the future reporting and disclosure requirements.

Climate-change related transition risks: EIOPA sensitivity analysis

EIOPA has published a report containing its sensitivity analysis of climate-change related transition risks in the investment portfolio of European insurers. The report outlines current holdings of corporate bonds and equity that can be related to key climate-policy relevant sectors such as fossil fuel extraction, carbon-intensive industries, vehicle production and the power sector. It also quantifies potential climate-change related transition risks and presents information about possible impacts on these investments as economies transition away from fossil fuel-dependent energy production and carbon-intensive production.

While the overall impact on the balance sheets of the insurance sector is counter-balanced both by investments in renewable energy and the fact that insurers' portfolios are generally well diversified, EIOPA is working with national supervisors and expects insurers to follow up on the risks identified.

COVID-19: IAIS 2020 global insurance market report

The International Association of Insurance Supervisors (IAIS) has published its 2020 global insurance market report, which discusses the impact of the COVID-19 pandemic on the global insurance sector from a supervisory perspective.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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