IAIS released a statement in support of the establishment of a Sustainability Standards Board as proposed in the September 2020 IFRS consultation on sustainability reporting. IAIS announced that it stands ready to support this initiative by providing its supervisory expertise. IAIS is also analyzing insurers' investment exposures to climate-relevant economic sectors, with the aim of assessing potential financial stability risks. In addition, IAIS published the global insurance market report, or GIMAR, for 2020. The report discusses the impact of COVID-19 shock on the global insurance sector from a supervisory perspective. High-level results indicate that, despite the considerable volatility in financial markets during the first half of the year, the global insurance sector remained financially and operationally resilient. This resilience was aided by supervisory measures for operational relief and by monetary and fiscal support measures to financial markets in certain regions.
The global insurance market report shows that the most significant prudential impact on the insurance sector was with respect to solvency and profitability, primarily through losses on the asset side. Nevertheless, solvency ratios generally remained well above the jurisdictional requirements. On the liability side, the results vary greatly, depending on the business model. For instance, insurers involved in business lines like travel, event cancellation, business interruption, and pandemic or excess mortality insurance experienced a more significant impact whereas insurers with more diversified portfolios were affected to a lesser extent, as claims in other lines such as motor insurance decreased significantly due lower global economic activity. In terms of liquidity, the data suggest that the impact has been limited, raising no immediate concern on the ability of the insurance sector to fulfil obligations.
However, vulnerabilities remain, given the uncertainties about the duration and impact of the COVID-19 crisis. Thus, IAIS will continue to actively monitor and assess how the insurance sector is affected, through targeted risk assessments involving insurers and supervisors across the globe. To monitor solvency and stability risks from a forward-looking perspective, IAIS is using its data collection to undertake further sensitivity analysis to assess insurance sector vulnerabilities based on various potential future scenarios. The sensitivity of insurers’ asset exposures to risk factors (such as credit loss rates) will be investigated in particular. Future monitoring will focus on key vulnerabilities, which may include:
- The potential for a deterioration in the credit quality of insurers’ fixed-income portfolios, amid concerns about rating downgrades and solvency issues in the real economy.
- The impact of COVID-19 events on insurance claims, including uncertainty around the interpretation of policy wording in some business lines.
- The impact of the deepening of the low-yield environment on life insurers, particularly those writing long-term guaranteed products.
The global insurance market report considered data collected as part of the IAIS’ global monitoring exercise as well as information from the IAIS members on their supervisory responses. The global monitoring exercise was repurposed in 2020 to assess the impact of COVID-19 shock on the solvency, profitability, liquidity, assets, and liabilities of the insurance sector. Individual insurers as well as insurance supervisors participated in the exercise, with 39 jurisdictions participating in the sector-wide monitoring data collection.
Keywords: International, Insurance, GIMAR, COVID-19, Sustainability Standards Board, Global Monitoring Exercise, Solvency Ratio, Solvency Capital Requirement, ESG, Climate Change Risk, IFRS, IAIS
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleHKMA Sets Out Key Focus Areas of Sustainable Finance Strategy
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA published the annual report on asset encumbrance of banks in EU.
MAS revised the guidelines that address technology and cyber risks of financial institutions, in an environment of growing use of cloud technologies, application programming interfaces, and rapid software development.
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.