EIOPA to Consider Liquidity Risk in Stress Test for 2021
EIOPA published its annual report, which sets out the work done in 2020 and indicates the planned work areas for the coming months. The strategic priorities of EIOPA for 2020 included driving forward conduct of business regulation and supervision, leading convergence toward high-quality prudential supervision throughout EU, strengthening the financial stability of the insurance sector, and delivering its mandate effectively and efficiently. EIOPA also worked on the cross-cutting priorities such as sustainable finance (including climate change) and insurtech (including big data and cyber risk). Looking ahead, EIOPA will continue to adapt its work and ways of working to the new normal, as it continues to focus on the ensuring that the insurance and pensions sectors can play their role in a sustainable recovery for Europe.
The report highlights the following key points:
- COVID-19 crisis has led to specific thematic work on certain products showing very poor value for money, leveraging on the product oversight and governance framework, where further interventions are anticipated during 2021 and 2022.
- During 2020, EIOPA continued to work with national supervisors to promote convergence on internal models. This included carrying out the annual technical study on the modeling of market and credit risk study (based on year-end 2019 data) and preparing two new studies on the modeling of non-life underwriting risk and modeling of diversification. EIOPA also developed a prototype dashboard of indicators for the monitoring of capital requirements calculated with internal models while additional testing is planned for 2021.
- EIOPA conducts own assessment work in close cooperation with national competent authorities to enhance supervisory convergence and to increase the quality, effectiveness, and efficiency of national supervision. Given the additional supervisory issues raised by the COVID-19 pandemic’s effects on the economy, EIOPA held numerous calls with national supervisory authorities on this specific topic and will also continue to monitor the measures taken in 2021.
- Based on the recent experience with the COVID-19 outbreak, EIOPA has initiated a liquidity monitoring exercise based on the new data submissions recommended by ESRB. Liquidity risk is considered to be included in the Insurance Stress Test 2021.
- In 2020, Internal Audit Service of EC conducted a new in-depth risk assessment of all EIOPA processes with the aim to define the Strategic Audit Plan for 2021-2023. Based on the results of this risk assessment and taking into consideration the major risks included in the EIOPA risk register, Internal Audit Service defined the three prospective audit topics: EIOPA intervention measures, procurement and contract management, and data management, dissemination, and IT security. Internal Audit Service also selected certain potential reserve audit topics, including crisis and risk management.
- EIOPA is in the phase of drafting its replies to the preliminary observations of European Court of Auditors received on May 31, 2021. The final report is expected to be published during the third quarter of 2021.
- EIOPA aims to adopt its environmental policy, finalize the establishment of its environmental management system, and start running related management processes in alignment with European Eco-Management and Audit Scheme (EMAS) standards by the second quarter of 2021. The registration for EMAS certification is indicatively planned for early 2022.
- EIOPA maintains a comprehensive strategy that, in the first instance, seeks to prevent cases of fraud occurring, but, should they occur has in place measures to identify and report them to the appropriate authorities. In 2020, EIOPA commenced to revise its strategy for the forthcoming years. With the new strategy in place in 2021, EIOPA will be in a position to devise and implement a new suite of measures that can address the evolving threat of fraud that it faces.
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Keywords: Europe, EU, Insurance, COVID-19, Sustainable Finance, Climate Change Risk, ESG, Governance, Insurtech, Credit Risk, Annual Report, Liquidity Risk, Stress Testing, Internal Models, EIOPA
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