Covid-19 and Solvency II: Buying time and buying data…

by Lieve Lowet

This blog is the first of a series of three articles written by me concerning the Covid-19 pandemic and Solvency II. The articles will be published on three consecutive days. As could have been expected, once the first implications of the Covid-19 pandemic started to unfold, EIOPA informed the European Commission that it would not deliver its expected advice and its holistic impact assessment on the combined impact of the draft advice for the review of Solvency II by the end of June 2020, but rather by the end of December 2020, six months later than planned.

The rationale was twofold: to offer operational relief to the insurance sector and supervisors alike at the start of the lockdown measures in most countries, by extending with two months to 1 June the deadline for the ongoing information collection exercise needed for the holistic impact assessment; and more importantly, to be able to assess and include, if material, the impact of the current Covid-19 pandemic on the Solvency II Review. To that end, EIOPA announced an additional complementary information request with 30 June 2020 as reference date.

Where the current information collection exercise focuses on “the combined impact of changes relating to the derivation of the following parts of the solvency calculations: risk-free interest rate term structures, technical provisions, own funds, solvency capital requirement and minimum capital requirement”*⁽¹⁾ (Technical specifications of the information request on the 2020 review of Solvency II Holistic impact assessment, par 5), the additional expected complementary information request from EIOPA, announced on 30 April by EIOPA,  will update its holistic impact assessment.  EIOPA will “complement the ongoing information request with a collection of data with a reference date of 30 June 2020. That information request will be carried out from July to mid-September 2020. It will be addressed to a sub-sample of those (insurers) subject to the ongoing information request and will be more focused than that (earlier information) request.” No further details are publicly known as of yet.

Two observations:

• Will this additional information request focus on the same parts of the solvency calculations as the ongoing request, adding more data points over a longer time period? Or will it add elements currently not considered in the information request?  Already in its Board meeting end March EIOPA concluded that the delay of the Solvency II review was desirable to ensure that the advice to the Commission should properly reflect the impact of the current crisis situation. And that impact may well be beyond the parts currently considered.
• Does this imply that the insurers and reinsurers which the national supervisors did not approach for delivering data for the holistic impact assessment originally by 31 March 2020 and which were not included in the first sample will have no chance to share their observations on the Covid-19 impact? Given that the impact of the Covid-19 pandemic seems to extend beyond the impact foreseen for a pandemic in the standard formula for the calculation of the SCR, is this a good idea?

^{* (1)} Technical specifications of the information request on the 2020 review of Solvency II Holistic impact assessment, par 5, 2 March 2020, updated 18 March 2020.

Lieve Lowet