Financial Services Regulation and Compliance - Insurance February 2023

Domestic

Personal Injuries Resolution Board Act 2022 (Commencement of Certain Provisions) Order 2023

The Personal Injuries Resolution Board Act 2022 (the PIRB Act) was signed into law on the 13 December 2022. On 7 February 2023, the Minister for Enterprise, Trade, and Employment signed the Commencement Order for the PIRB Act, with the PIRB Act coming into operation on 13 February 2023. For more on the primary changes made by the PIRB Act, please see our December tracker here.

European

EIOPA publishes supervisory statement aiming to strengthen the supervision and monitoring when using governance arrangements in 3^rd countries

On 3 February 2023, EIOPA published a supervisory statement, addressed to national competent authorities (NCAs) (including the CBI), on the use of governance arrangements in third countries to perform functions or activities (the statement). The statement builds on EIOPA's previous statements on the need for EU-based insurers and intermediaries to maintain appropriate levels of corporate substance in the EU. EIOPA notes that certain governance arrangements involving third countries can pose operational, reputational and financial risks, and lead to poor risk management and ineffective decision making.

EIOPA's key expectations of NCAs regarding the supervision of third country governance arrangements include:

That the use of a third country branch should not compromise an undertaking / intermediary having an appropriate level of corporate substance within the EEA; and

That the primary purpose of a third country branch be to serve the market in which it is established. Third country branches established with the sole purpose of supporting undertakings / intermediaries based in the EU should be avoided.

For more detail on EIOPA's expectations and ALG analysis see here.

EIOPA report on insurers' use of climate-related adaptation measures in non-life underwriting practices

Following its pilot exercise on impact underwriting in 2022, EIOPA published a report on insurers' inclusion of adaptation measures to climate change in their non-life underwriting practices on 6 February 2023 (the report). The report notes that there is a substantial insurance protection gap as only 23% of total losses caused by climate-related and extreme weather events are insured.

While noting that insurers were still at an early stage of adapting their non-life underwriting practices to account for climate change, the report identifies several areas requiring improvement, for example in relation to standardisation of climate change adaptation measures in insurance contracts. Challenges facing the implementation of adaptation measures include a lack of policyholder awareness of climate change and adaption measures (which is limiting market demand) and the cost of adaptation measures.

EIOPA publishes its supervisory convergence plan for 2023

On 1 February 2023, EIOPA published its supervisory convergence plan for 2023. In the plan EIOPA identifies its three main priorities for enhancing supervisory convergence over the course of 2023:

• the implementation of the common supervisory culture and the development of supervisory convergence tools
• the risks to the internal market and the level playing field
• the supervision of emerging risks

The new legislation on digital operational resilience (DORA), where supervisory convergence will also be key, has also been included in EIOPA's priorities. EIOPA will also further analyse cyber underwriting practices with a focus on access of cyber coverage to small and medium enterprises.  

Finally, EIOPA will develop supervisory convergence tools to support NCAs in the performance of the digital business model analysis.

EIOPA consults on changes to the minimum amount of professional indemnity insurance cover and financial capacity intermediaries need under IDD

EIOPA launched a public consultation on 9 February 2023 relating to the draft amendment to the regulatory technical standards (the RTS) adapting the amounts for the professional indemnity insurance (PII) cover and financial capacity insurance intermediaries under the Insurance Distribution Directive (IDD). Under IDD, EIOPA is required to review the minimum amounts every five years.

IDD requires that any changes to the minimum amounts be based on the rate of inflation. Based on inflation between 2018 and 2022, the base amounts will be: 

• The base PII amount applying to each claim is to increase from €1,300,380 to €1,564,610 (an increase of €264,230).
• The base aggregate PII amount per year is to increase from €1,924,560 to €2,315,610 (an increase of €391,050).
• The base financial capacity amount is to increase from €19,510 to €23,480 (an increase of €3,970). 

EIOPA invites stakeholders to provide feedback on the consultation via its online survey up until 6 May 2023, with the view to submitting its draft RTS to the Commission by 30 June 2023. 

EIOPA publishes factsheet on insurers' green investments

On 28 February 2023, EIOPA published a factsheet on insurers' green investments noting that insurers (as long-term investors with balance sheet of around €8trn in the EEA) can take a meaningful role in moving economies to a more sustainable place. EIOPA's analysis focused on insurers’ direct investments in corporate bonds and equities which amounts to around 29% of insurers' total investments.

From its analysis EIOPA found that of insurers’ direct corporate bond and equity investments 2.6% are aligned with EU taxonomy while another 15.5% are eligible. If securities issued by financial firms are excluded the taxonomy-aligned investments figure grows to 5.7% with another 34.1% being eligible.

EIOPA publishes technical information update

EIOPA published its monthly technical information on 3 February 2023 regarding the relevant risk free interest rate term structures with reference to the end of January. This technical information is used for the calculation of technical provisions for (re)insurance obligations.

It also published technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of January 2023.

EIOPA updated the Solvency II list of validations for the insurance data point model and taxonomy on 14 February 2023.

EIOPA publishes risk dashboard indicating overall resilience in insurance despite high macro and market risks

EIOPA published its updated risk dashboard based on data from Q3 of 2022 on 7 February 2023. The results highlight that the main concern for the sector is insurers' exposures to macro and market risks with both noted as being at a high level. All other risk categories such as profitability and solvency, climate, digitisation and cyber risks remain at medium levels.

The European Commission has adopted its tenth package of sanctions against Russia

The EU has adopted its tenth package of sanctions against Russia (see European Commission press release), with immediate effect. The package contains new listings, trade and financial sanctions, including further export bans and import bans. It steps up enforcement and anti-circumvention measures, including a new reporting obligation on Russian Central Bank assets and reporting obligations on frozen assets (including for dealings before listings) and assets which should be frozen. There is an obligation to report more detailed information to NCAs, which in turn report it to the Commission. This enhanced reporting obligation applies from 26 April 2023. 

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

Date published: 20 March 2023