Financial Services Regulation and Compliance - Insurance Apr 2022

Domestic

CBI Response to Pearse Doherty, T.D. on Business Interruption Insurance, published 12 April 2022

This month, the Central Bank of Ireland (CBI) responded to Pearse Doherty, T.D.'s e-mail of 26 January 2022 regarding Business Interruption Insurance (BII). The CBI explained that it continued to engage with insurers to ensure that all valid BII claims were being handled promptly and that compensation was being paid where appropriate. On insurers' treatment of wage subsidies and other deductions from BII claim settlement amounts, the CBI advised Deputy Doherty that, similar to UK insurers, Irish insurers had deducted State supports which were directly attributable to a specific business expense, but did not deduct those that are not directly attributable to a specific overhead. The CBI also referred to the recent FBD High Court test case, noting that the ultimate approach taken by insurers in Ireland will depend on the final outcome of the case regarding quantum.

European

EIOPA - Consultation Paper – Draft Guidelines on the integrating of the customer’s sustainability preferences in the suitability assessment under the Insurance Distribution Directive

EIOPA invited stakeholders on 13 April 2022 to give feedback on its draft guidelines on the integration of customer sustainability preferences in the advice process under the Insurance Distribution Directive 2016/97 (IDD) before 13 May 2022 (. The draft guidelines were produced under Commission Delegated Regulation (EU) 2021/1257 which amends the IDD (the CDR). The draft guidelines seek to promote a coherent application of the CDR across Member States and to ensure that insurance products are correctly marketed to consumers in line with their sustainability preferences. The guidelines explain the concept of "sustainability preferences" of consumers, and how insurers can more closely align product offerings with consumers' needs. The consultation period is relatively short, as EIOPA intends to finalise the draft guidelines by 2 August 2022 – the application date of the CDR.

EIOPA finalises revision of its Guidelines on Contract Boundaries and the Valuation of Technical Provisions

As a result of divergent practices identified by EIOPA in its 2020 review of Solvency II, EIOPA published, on 21 April 2022, revised guidelines on contract boundaries and the valuation of technical provisions. The revised guidelines introduce new and amend current guidelines relevant for the determination of contract boundaries and the valuation of technical provisions. For contract boundaries, this includes guideline revisions regarding the assessment of whether a financial guarantee has a discernible effect on the economics of the contract and the unbundling of contracts. For the valuation of technical provisions, this includes guideline revisions regarding the modelling of expenses, the valuation of options and guarantees and modelling of policyholder behaviour. The revised guidelines will be applicable from 1 January 2023, unless otherwise decided by National Competent Authorities.

EIOPA looks into costs and past performance of insurance and pension products

EIOPA published its fourth report on costs and past performance of insurance and pension products on 5 April 2022. From an insurance perspective, the report examined a sample of 760 insurance-based investment products, and notably included analysis on a limited sample of products with sustainability features for the first time. Trends identified in the report included a shift to hybrid and unit-linked products from more traditional profit participation products in 2020 - likely encouraged by the COVID-19 pandemic and low interest rates. In tandem, the report found that average returns for unit-linked and hybrid products were higher than profit participation products, and while higher risk products typically generated higher returns, low risk products generated very low or even negative returns.

EIOPA – Data Collection on the Prudential Treatment of Climate-Related Adaptation Measures in Non-Life Insurance

After a recent pilot exercise on climate change adaption in non-life underwriting and pricing, EIOPA has announced a data collection to determine whether there is a possibility for a dedicated Pillar 1 treatment of climate-related adaption measures in Solvency II's standard non-life underwriting risk formula. The data collection will look at how climate-related adaption measures influence premium risk. Undertakings will be contacted by National Competent Authorities to participate in the data collection. The data collection will close on 1 June 2022.

EIOPA calls for changes to stress test disclosure regime

EIOPA published its opinion on the disclosure by insurers of individual stress test results on 12 April 2022. Currently, EIOPA communicates the results of European Union-wide stress test exercises assessing the resilience of the European insurance industry on an aggregated basis. EIOPA's opinion proposes a change to Solvency II to allow EIOPA to disclose the results of individual undertakings with the aim of enhancing market discipline, increasing participants’ commitment and contributing to a level playing field among insurers and across the financial sector.

Speech by Petra Hielkema (7 April 2022): Investing for the future in a low-yield and high-uncertainty environment

In a keynote speech delivered on 7 April 2022, the Chair of EIOPA, Petra Hielkema, addressed the challenges and opportunities for investment decisions faced by the insurance industry and the importance of thinking long-term, especially in the face of a low interest rate environment and uncertainty. Her speech included comments on the impact of the COVID-19 pandemic on the insurance sector, the war in Ukraine, opportunities from the transition to a green economy and digitalisation, adapting regulatory frameworks and the supervision of run-off (re)insurers.

EIOPA publishes monthly technical information

On 5 April 2022, EIOPA published technical information on the relevant risk free interest rate term structures (RFR) with reference to the end of March 2022. Separately, EIOPA published the Russian Rouble RFR curve using current underlying interest rates as of 31st of March 2022. EIOPA noted that it is monitoring the situation and reliability of the interest rates and the trading of government bonds in Russian Roubles.

Sanctions imposed in response to the crisis in the Ukraine

Since February, the EU imposed a number of sanctions in response to the crisis in the Ukraine. Given that the crisis is developing and sanctions are continuing to evolve, the CBI is publishing details of new restrictive measures/sanctions that are adopted in this regard, as well as any associated EU/UN guidance, on their dedicated webpage.

For more information on these topics please contact any member of A&L Goodbody's Insurance & Reinsurance team.

Date published: 12 May 2022