EIOPA Examines Physical Climate Risk Exposure, SII Non-Compliance
The European Insurance and Occupational Pensions Authority (EIOPA) published a report assessing insurers' exposure to physical climate change risks as well as a recommendation to the Slovenian supervisor Národná banka Slovenska with respect to an insurer's non-compliance with Solvency II rules.
With respect to the Solvency II non-compliance, a Slovakian insurance company, under the supervision of the NBS as home supervisor, has been non-compliant with Solvency II rules in relation to technical provisions, capital requirements, investments, and system of governance over the past years. While the NBS has adopted several measures to remedy the situation, EIOPA considered the steps insufficient and decided to launch a breach of the European Union law investigation. The investigation concluded that NBS failed to take the necessary corrective measures defined by the Solvency II Directive in a timely and proportionate manner to address the firm’s non-compliance. EIOPA recommends NBS to consider whether it has effectively exhausted the list of proportionate possible supervisory options or whether there is an alternative supervisory choice that would be proportionate to the long duration and gravity of non-compliance. According to the EIOPA recommendation, NBS should adopt a position, verify, and conclude on the compliance of the firm with the supervisory decisions of the NBS within 45 days of the receipt of the recommendation. In addition, the NBS should take the necessary steps and measures pursuant to the Solvency II Directive to ensure compliance with European Union law within the prescribed statutory deadlines as part of a full/integrated intervention strategy by NBS. This should result in either a structural and sustainable recovery of all infringements, or if appropriate or mandatory, a withdrawal of firm’s authorization.
The report on exposure to physical climate change risks presents the first results based on a large data collection exercise focused on property, content, and business interruption insurance against windstorm, wildfire, river flood, and coastal flood risks. The findings suggest that all property-related line of businesses are expected to be impacted by physical climate change risk (for example, property, motor, forestry, crop, infrastructure and transport); due to raising premiums, changes in insurance conditions (for example, higher deductibles, lower limits and exclusions in risky areas) may lead to detrimental consequences for policyholders as well as the insurance sector in terms of reputational risk. The survey results highlight that more than 50% of the participants have not undertaken any climate change analyses yet and a substantial share of the companies were unable to provide data and assessment at a level of granularity required for an in-depth assessment of the risks, which are likely to materialize in the coming years. EIOPA will continue its work with national competent authorities and the industry to raise awareness and contribute to the sector’s preparation for the effects of climate change. The report forms a part of the broader sustainability agenda of EIOPA to integrate environmental, social and governance (ESG) risk assessment in the regulatory and supervisory framework.
Keywords: Europe, EU, Insurance, ESG, Climate Change Risk, Physical Risk, Solvency II, Reputational Risk, NBS, Reporting, CRE, Commercial Real Estate, EIOPA
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