EIOPA published a statement outlining actions toward mitigating the impact of COVID-19 on the insurance sector in EU. EIOPA emphasized that insurance companies should be ready to implement the necessary measures to ensure business continuity and the national competent authorities should be flexible regarding the timing of supervisory reporting and public disclosure for the end of 2019. EIOPA plans to coordinate the specifics of the approach with the competent authorities. In the short term, EIOPA will limit its requests of information and the consultations to the industry to essential elements needed to assess and monitor the impact of the current situation in the market. EIOPA is also extending the deadline of the Holistic Impact Assessment for the 2020 Solvency II Review by two months, to June 01, 2020.
In the coming days, EIOPA will communicate details on postponing additional reporting and information requirements. Furthermore, the Solvency II framework includes a number of tools that can be used to mitigate risks and impact to the sector. EIOPA and the national competent authorities stand ready to implement these tools, if and when necessary, in a coordinated manner, to ensure that policyholders remain protected and financial stability is safeguarded. Nevertheless, insurance companies should take measures to preserve their capital position in balance with the protection of the insured, following prudent dividend and other distribution policies, including variable remuneration. Notwithstanding existing tools and powers, and together with national authorities and the other ESAs and ESRB, EIOPA will continue to monitor the situation and will take or propose to EU institutions any measure necessary to mitigate the impact of market volatility to the stability of the insurance sector in Europe and safeguard the protection of policyholders.
Under Solvency II, EU insurance companies are required to hold sufficient eligible own funds on an ongoing basis to cover their Solvency Capital Requirement. The risk-based Solvency Capital Requirement enables insurance undertakings to absorb significant losses and give confidence to policyholders and beneficiaries that payments will be made as they fall due. Furthermore, the Solvency II framework includes a ladder of supervisory intervention between the Solvency Capital Requirement and the Minimum Capital Requirement, which is the minimum level of security below which a company’s financial resources should not fall. This allows for flexibility in cases of extreme situations, including measures to extend the recovery period of affected insurers, for example, as foreseen by Article 138 of the Solvency II Directive. Moreover, recent stress tests have shown that the sector is well capitalized and able to withhold severe but plausible shocks to the system. Nevertheless, insurance companies should take measures to preserve their capital position in balance with the protection of the insured, following prudent dividend and other distribution policies, including variable remuneration.
Related Link: Statement
Keywords: Europe, EU, Insurance, COVID-19, Solvency II, Business Continuity, SCR, Stress Testing, Operational Risk, EIOPA
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