On 17 March 2020, the European Insurance and Occupational Pensions Authority (EIOPA) issued a statement on actions to mitigate the impact of Covid-19 on the insurance sector in the EU. EIOPA states that insurers will face “progressively difficult conditions in the immediate future, both in terms of navigating challenging market conditions and in maintaining operations, while taking steps to protect employees and customers.”
The statement provides two key messages, relating to business continuity and solvency:
Insurers should be implementing measures to ensure that they are able to maintain services to clients. National Competent Authorities (NCAs) should be flexible about the timing of 2019 supervisory reporting and public disclosures. 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.
Solvency and capital position
Solvency II requires EU insures to hold sufficient own funds to cover a Solvency Capital Requirement, enabling companies to absorb significant losses and ensure that payments to policyholders can be made as they fall due. Recent stress tests have shown that the sector is well capitalised to withstand shocks. The Solvency II framework includes tools that can be used to mitigate risks to the insurance sector; EIOPA and the NCAs, stand ready to implement these tools if necessary to protect policyholders and financial stability.
Insurers should take measures to preserve their capital position in balance with protecting policyholders and should follow prudent dividend and other distribution policies, including variable remuneration.
What do we learn from this statement?
EIOPA is monitoring how Coivd-19 is affecting insurance and reinsurance companies. Although it has confidence in the Solvency II framework in terms of tools to manage shocks such as those as a result of Covid-19, it will expect firms to ensure that they treat policyholders fairly during this period. Dividends and remuneration arrangements should be in balance with the interests of policyholders.