In times of crises, you know your friends…
When EIOPA last week issued its statement on the COVID-19 situation and the insurance sector, it suggested national authorities to be flexible not only regarding the upcoming supervisory reporting deadlines, but also drew attention to dividend and distribution policies. On 20 March, recommendations followed on Supervisory flexibility regarding the deadline of supervisory reporting and public disclosure – coronavirus/COVID-19. Normally the annual supervisory reports referring to year-end 2019 should have been filed by early April 2020, but will now receive an 8 weeks delay till 2 June 2020. While this is true for the Regular Supervisory Report, it is not the case for certain important quantitative reporting templates where only a 2 weeks delay is recommended.
The same 8 weeks delay is suggested for the SFCR, the Solvency and Financial Condition report, which is essentially a narrative report in which insurers should explain their business, performance, governance and risk sensitivity. No wonder that EIOPA asks at the same time that “Insurance and reinsurance undertakings should consider the current situation as a “major development” as referred to in article 54(1) in the Solvency II Directive and publish at the same time of publication of the information referring to the year-end occurring on 31 December 2019 or after, any appropriate information on the effect of the Coronavirus/COVID-19 in the published information.” That is a challenge, but it should at the same time not be a surprise.
For the Q1 2020 quarterly reporting including the quarterly financial stability report, only a one weeks delay in the submission for both solo and group level is recommended. As did EBA for banks a few day earlier, EIOPA further suggests insurers to take measures to preserve their capital position in balance with the protection of the insured, and to follow a prudent dividend and other distribution policies, including variable remuneration. Some insurers are already moving into that direction.
In addition, EIOPA in a move of self-restraint, further announced that it 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. Consequently, and in coherence with the above, EIOPA is extending the deadline of the Holistic Impact Assessment for the 2020 Solvency II Review by two months to 1 June 2020. Several national supervisors are taking similar actions in the area of consultations, surveys, stress tests and the like. The impact of the delay regarding the information request for the Holistic Impact Assessment on the Solvency II review are as of yet unclear.
Given the overall corona chaos which has reshuffled already many agenda’s and timelines, it is reasonable to expect that also the Solvency II review timeline may be subject to such reassessment. Lastly, EIOPA underlines the fact that the Solvency II framework includes a ladder of supervisory intervention between the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR), the minimum level of security below which a company’s financial resources should not fall. And it underlined the importance of Article 138 of the Solvency II directive.
EIOPA did, however not go that far yet as to declare the current corona crisis as an exceptional adverse situation according to Article 138,4. Notwithstanding existing tools and powers, and together with national authorities and the other ESAs and the ESRB, EIOPA will continue to monitor the situation and will take or propose to EU institutions any measure necessary in order to mitigate the impact of market volatility to the stability of the insurance sector in Europe and safeguard the protection of policyholders.
Lieve Lowet
