EIOPA Proposes Ad-Hoc Own Risk and Solvency Assessment Due to Pandemic
EIOPA is consulting on the Supervisory Statement on Own Risk and Solvency Assessment (ORSA) by insurers in the context of COVID-19. EIOPA believes that the current situation calls for an ad-hoc or non-regular ORSA in cases where the pandemic impacts the risk profile of the undertaking materially, particularly in cases where the performance of regular ORSA has not allowed the undertaking to assess and to take into account the impact of the pandemic. The feedback period ends on March 15, 2021. Based on the feedback received, EIOPA plans to develop an impact assessment, publish a final report on the consultation, and finally submit the supervisory statement for adoption by its Board of Supervisors.
Undertakings should assess and decide if an ad-hoc ORSA is needed based on the analysis of any material changes to the risk profile. If there is any indication of a material impact, leading to a significant change in the risk profile, undertakings should perform an ad-hoc/non-regular ORSA to be submitted to the competent authority earlier than the regular one, if needed. In the course of the evaluation of the need to perform an ad-hoc ORSA, the undertakings might engage in a supervisory dialog with the relevant competent authority. The consultation paper outlines the considerations that should be a part of the ORSA exercise. Undertakings are expected to take into account uncertainty in the duration and (macroeconomic) impact of the pandemic in its ORSA and, if relevant for its risk profile, consider multiple scenarios to capture this uncertainty in an appropriate manner. In this case, the scenarios are expected to include several degrees of severity for the pandemic’s impact on the undertaking’s solvency and capital needs, taking into account its individual situation. The proposed supervisory statement is based on Solvency II Directive and is addressed to the competent authorities.
The proposed supervisory statement is intended to guide undertakings through common supervisory expectations on ORSA in the situation triggered by pandemic, while recognizing that the impact on each undertaking can vary depending on its risk profile. ORSA was designed and considered as an important and effective tool for risk management. The ORSA outcomes can influence strategic decisions on changes to underwriting and pricing practices, to risk mitigation techniques, to investment strategy, and to capital management, or on improvements of operational and cyber resilience. In accordance with Article 45 of Solvency II, EIOPA expects undertakings to plan their ORSA process in a manner that allows ORSA outcomes to be embedded in the strategic planning and/or other strategic decisions. This planning should take into account any ad-hoc strategic planning and/or other strategic decisions being taken as a result of the pandemic situation. This will allow undertakings to define the necessary changes to the business model or risk profile.
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Comment Due Date: March 15, 2021
Keywords: Europe, EU, Insurance, Solvency II, ORSA, COVID-19, SCR, Solvency Capital Requirement, EIOPA
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