Featured Product

    EIOPA Consults on Supervisory Practices in Case of Breach of SCR

    November 25, 2020

    EIOPA published a consultation on the statement on supervisory practices and expectations in case of breach of the Solvency Capital Requirement or SCR. The statement is intended to promote supervisory convergence in the application of the supervisory ladder, in particular addressing the recovery plan required in case of breach of the SCR. The statement outlines supervisory practices and expectations with respect to the observation of non-compliance, request of a recovery plan, causes of non-compliance, assumptions and scenarios of the recovery plan, recovery measures, recovery period, and monitoring and non-compliance at the end of the recovery period. The deadline for submission of feedback is February 17, 2021. Post which, EIOPA will develop impact assessment, publish final report on the consultation, and submit the supervisory statement for adoption by its Board of Supervisors.

    The ongoing uncertainty due to the COVID-19 pandemic can lead to breaches of SCR in the future, in which case the Solvency II supervisory ladder of intervention allows supervisory authorities to take early actions, which include the approval of a recovery plan. Considering the current environment and the potential increase of non-compliance cases, it is important to ensure consistency in the way the recovery plans are developed, assessed, and approved. The following are the key messages of the statement under consultation:

    • Insurance and reinsurance undertakings are required to submit to the supervisory authorities a realistic recovery plan within two months, upon the observation of a breach of the SCR.
    • Supervisory authorities should request from insurance and reinsurance undertakings, as part of the recovery plan, an analysis of the causes of non-compliance and of any shortcomings in their risk management system, including possible inadequacy of internal risk appetite, quantitative or qualitative indicators, risk tolerance limits, stress test framework, and monitoring process.
    • Insurance and reinsurance undertakings should take into account certain assumptions and scenarios when preparing their recovery plan in accordance with Article 142 of Solvency II, considering the proportionality principle, the level of non-compliance with the SCR, and the possible duration of the deterioration of the undertaking’s financial conditions. When preparing recovery plans in the context of the COVID-19 pandemic, undertakings should take into account certain additional assumptions and scenarios.
    • Insurance and reinsurance undertakings should detail the realistic and timely recovery measures to restore their solvency position and sustain it in a medium to long-term period, also considering the internal risk of tolerance limits established in the undertakings’ risk appetite framework.
    • The recovery plan should document the feasibility of the recovery measures, including foreseeable and probable relevant adverse events. The recovery plan should also explain the impact on the undertaking’s solvency and liquidity; timeline for implementation and expected time needed to observe the benefit of the measure; and where applicable, past experience, interconnectedness’ implications, changes to the business model and to the risk profile. 
    • Insurance and reinsurance undertakings can foresee in the recovery plan a period longer than six and up to nine months to restore compliance, explaining the reason why six months would not be enough.
    • After a recovery plan has been submitted, insurance and reinsurance undertakings should notify supervisory authorities of any significant change in the extent of the solvency or liquidity shortfall.

     

    Related Links

    Comment Due Date: February 17, 2021

    Keywords: Europe, EU, Insurance, Reinsurance, Solvency II, SCR, COVID-19, Recovery Plan, Solvency Capital Requirement, EIOPA

    Featured Experts
    Related Articles
    News

    APRA Issues Interim Update to Policy Priorities for 2021 and Beyond

    In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.

    September 24, 2021 WebPage Regulatory News
    News

    EC Adopts Solvency II and Resolution Rules Package for Insurers

    The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.

    September 22, 2021 WebPage Regulatory News
    News

    OCC Issues Booklets on Regulatory Reporting and Earnings

    The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.

    September 22, 2021 WebPage Regulatory News
    News

    ECB Sets Out Results of Economy-Wide Climate Stress Tests

    The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.

    September 22, 2021 WebPage Regulatory News
    News

    EBA Examines Implications of Increasing Use of Digital Platforms in EU

    The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.

    September 21, 2021 WebPage Regulatory News
    News

    HKMA Issues Updates on Policy Measures Intended to Ease COVID Impact

    The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.

    September 21, 2021 WebPage Regulatory News
    News

    ISDA Responds to BCBS Proposal on Treatment of Cryptoasset Exposures

    The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.

    September 21, 2021 WebPage Regulatory News
    News

    BIS Quarterly Review Discusses Developments in Fintech and ESG Space

    BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.

    September 20, 2021 WebPage Regulatory News
    News

    BCBS to Consult on Supervisory Practices for Climate Risks by Year-End

    The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards

    September 20, 2021 WebPage Regulatory News
    News

    OCC Identifies Operational Risk Deficiencies in MUFG Union Bank

    The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.

    September 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7494