EIOPA identified business model sustainability and adequate product design as the two EU-wide strategic supervisory priorities. As part of this, EIOPA expects national competent authorities to focus their supervisory activities on monitoring the impact of the prolonged low-yield environment as well as of the COVID-19 crisis on the business model sustainability and development of insurers. EIOPA also expects the national competent authorities to monitor the impact of emerging trends and risks on insurer business models as well as on the future solvency capital and liquidity needs, combined with capital-generation capabilities in medium to long term.
In this context, additional EIOPA expectations for the competent authorities include a consideration of the:
- Potential spillover of risks coming from the interconnectedness of insurers with banks as well as potential spillovers form the sectors of the real economy.
- Enhanced market monitoring of low interest rate via stress tests. The insurance stress tests for 2021 will include liquidity risk component and consider the adverse unwinding of the COVID-19 crisis such as a slower than planned recovery of the economy or double-dip evolutions (the narrative and shocks have been developed in cooperation with ESRB).
- Forward-looking risk assessment insurers perform in their Own Risk Solvency Assessment, or ORSA, process as well as the measures insurers take to preserve their capital position in balance with the protection of the policyholders.
- Direction of the future transformation amid the ongoing turmoil that is likely to accelerate emerging trends in industry, especially in the area of digitalization, sustainability, new insurance products and services, or product transformations (for example, simplification of products, simplification of the product portfolio, structural changes in the products portfolio). For consideration, EIOPA also highlighted that digitalization is raising significant risks and opportunities from a supervisory perspective.
Under the revised EIOPA Regulation, EIOPA is required to identify, at least every three years, by March 31, up to two priorities of Union-wide relevance, which shall reflect future developments and trends. National competent authorities shall take those priorities into account when drawing up their work programs and shall notify EIOPA accordingly. EIOPA shall discuss possible follow-up, which may include guidelines, recommendations to national competent authorities, and peer reviews in the respective area. The priorities of Union-wide relevance identified by EIOPA shall not prevent national competent authorities from applying their best practices and acting on their additional priorities and developments.
Keywords: Europe, EU, Insurance, Supervisory Priorities, Solvency II, Stress Testing, COVID-19, Liquidity Risk, ORSA EIOPA
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