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    FSI Brief on Insurance Regulatory Measures in Response to COVID Crisis

    April 23, 2020

    FSI published a brief report providing a non-exhaustive summary of the regulatory measures announced by insurance authorities to achieve four objectives amid COVID-19 pandemic. These objectives are preserving capital adequacy of insurers, mitigating excessive procyclical investment behavior of insurers, providing temporary relief from non-essential regulatory and supervisory requirements, and preserving the continuity of insurance coverage.

    The far-reaching impact of COVID-19 calls for sustained vigilance on the part of supervisors and insurers. The FSI brief highlights that many insurance authorities have responded mainly by taking measures to provide operational relief to insurers from regulatory and supervisory requirements. Such measures, which will help insurers to enhance risk monitoring of their COVID-19 financial exposures, include:

    • Extending deadlines to submit regular supervisory reports
    • Allowing submission of pro-forma unaudited financial reports (Guernsey, Jersey, Tunisia)
    • Postponing public consultation of new or revised regulatory or supervisory measures (Canada, Dubai, EIOPA, Malaysia, Peru, Singapore, New Zealand, and the United Kingdom)

    Additionally, some authorities have set out expectations for insurers to conserve capital through prudent exercise of dividend and variable remuneration policies. The brief highlights that capital-related measures should relieve supervisory pressure and reduce the tendency of insurers to manage their investments procyclically. These measures include extending the supervisory intervention ladder, triggering the countercyclical lever, and recalibrating capital requirements. Other capital-related measures in response to COVID-19 include the following:

    • Allowing loans or premium payment deferrals not to increase capital requirements (Canada, South Africa)
    • Adjustment to capital requirements for interest rate risk (Canada, Malaysia)
    • Favorable consideration of requests for application of transitional measures on technical provisions under Solvency II (Germany, Poland, United Kingdom)

    The extraordinary regulatory measures to provide operational relief to insurers and preserve the continuity of insurance services should be reviewed constantly. A well-designed solvency framework should stand the test of time and should not require frequent ad hoc adjustments that may go against the intended policy objective of withstanding extreme events. Care should be taken to avoid morally hazardous behavior among insurers that could encourage them to expect regulatory relief when the next crisis arrives. As we look toward the post-pandemic phase, the extraordinary measures that are currently warranted will need to be unwound. These recent actions by supervisors and insurers may have long-lasting implications for the industry. Their potential effect on the industry’s reputation and trustworthiness should be carefully considered. An exit strategy that balances sound risk management practices with the need to treat customers fairly will become necessary for insurers and supervisors.


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    Keywords: International, Insurance, COVID-19, Solvency II, Reporting, Deadline Extension, Capital Requirements, Volatility Adjustment, FSI

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