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Insurance regulatory update: Impact of COVID-19 on insurance supervision

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Last update:  23 March 2020 [see also our newsletter “Possible insurance questions and disputes related to Coronavirus”]

1. On 17 March 2020, the European Insurance and Occupational Pensions Authority (“EIOPA”) has issued a statement on actions to mitigate the impact of COVID-19 (“Coronavirus”) on the insurance sector.[1] This statement has been supplemented by EIOPA’s Recommendations on supervisory flexibility regarding deadlines of supervisory reporting and public disclosure by insurers (“Coronavirus Recommendations”).[2]

2. EIOPA realises that the virus outbreak has significant consequences for the global economy and financial services. In particular, it warns that "insurers are likely to face progressively difficult conditions in the immediate future, both in terms of navigating challenging market conditions and in maintaining operations" and considers the outbreak as a “major development” as referred to in Article 54 of Directive 2009/138/EC of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (“Solvency II Directive”).

3. In the coming weeks, EIOPA will put in place appropriate measures and coordinate national competent authorities’ (“NCAs”) actions to deal with the new challenges insurers face. Currently, it focuses on two areas: business continuity and the solvency and capital position.

 

Business continuity

 

4. EIOPA emphasises the importance of contingency measures. Insurers should develop a ready-to-implement plan to ensure business continuity.

Such measures could include, for example, digital communication tools, remote access to client files and IT systems, sickness absence management and implementation of additional health and safety requirements.

However, insurers should remain cautious to comply with all applicable prudential rules and rules of conduct. In particular, the improvised use of new technologies may cause challenges with regard to outsourcing rules and cybersecurity.

5. Furthermore, insurers should concentrate their efforts on monitoring and assessing the impact of the Coronavirus and include appropriate information in the published information.

6. EIOPA calls upon NCAs to be flexible regarding the times of supervisory reporting and public disclosure regarding end 2019. More specifically, the Coronavirus Recommendations provide that NCAs should offer allow delays in reporting and public disclosure in the following cases: 

  • Recommendation 1: Annual reporting referring to year-end occurring on 31 December 2019;
  • Recommendation 2: Quarterly reporting referring to Q1-2020;
  • Recommendation 3: Solvency and Financial Condition Report (“SFCR”) referring to year-end occurring on 31 December 2019.

In addition, EIOPA has limited requests for information and consultation to essential elements to assess and monitor the impact of the outbreak and its economic consequences. In practice, EIOPA  In practice, EIOPA extended the deadline of the Holistic Impact Assessment for the 2020 Solvency II Review from 31 March 2020 to 1 June 2020.

7. In Belgium, the National Bank of Belgium (“NBB”) took different initiatives with regard to the Coronavirus, such as the establishment of the Economic Risk Management Group (“ERMG”)[4]. With regard to the insurance sector, the NBB will focus its supervision and regulation on critical and essential tasks related to the impact of the Coronavirus. In particular, it has decided to:

  • suspend the NBB Insurance Stress Test 2020;
  • limit audits and prioritise audits with regard to risks related to the Coronavirus and compliance with laws and regulations;
  • postpone the publication of circulars with regard to governance and cloud outsourcing;
  • delay the application of Circular NBB_2020_3 on the impact of deferred tax under the Solvency II Directive. Insurers may voluntarily comply with the circular or wait until year-end 2020;
  • regularly collect data regarding the impact of the Coronavirus via a structured template.

We expect that the NBB will follow EIOPA’s Coronavirus Recommendations  with regard to the extension of delays in reporting and public disclosure (discussed above) and to communicate further details regarding this initiative in due time.

8. The Financial Services and Markets Authority (“FSMA”) has published a newsletter regarding the Coronavirus addressed to insurance intermediaries.[2] The FSMA announces not to take any initiatives that could hinder the business continuity of insurance intermediaries, such as comprehensive requests for information.

 

Solvency and capital position

 

9. As the Coronavirus outbreak causes significant disruption of financial markets, it may develop into the litmus test of the Solvency II Directive as one of the main instruments to ensure financial stability.

10. In an effort to appease the markets, EIOPA reminds that recent stress tests have shown that the insurance sector is well capitalised and able to withhold severe shocks.

11. However, if an insurer would not comply with the Solvency Capital Requirement (“SCR”) and the Minimum Capital Requirement (“MCR”), EIOPA and the NCAs stand ready to use supervisory tools in a coordinated manner.

12. Remarkably, EIOPA warns the insurance industry to ensure prudent dividend and other distribution policies, including variable remuneration. High bonuses or dividends, distributed by an insurer in financial difficulties, will not improve the regulator’s mood.

13. Finally, EIOPA monitors the situation closely and prepares to take appropriate action, such as coordination between NCAs, introduction of new regulation, application of supervisory tools and/or proposals for legislative intervention by the European institutions.

14. The NBB shares EIOPA’s concerns and currently collects information about insurers’ current intentions with regard to distributions to shareholders and policyholders. During the NBB’s analysis of this data, it explicitly requests not to distribute dividends that may weaken the capital or liquidity position of the insurance undertaking. 

 

[1] EIOPA, “Statement on actions to mitigate the impact of Coronavirus/COVID-19 on the EU insurance sector”, EIOPA-20-173, 17 March 2019: available here.

[2] EIOPA, “Recommendations on supervisory flexibility regarding the deadline of supervisory reporting and public disclosure - Coronavirus/COVID-19”, EIOPA-BoS-20/236, 20 March 2020, available here.

[3] FSMA, “Newsletter: special instructions to intermediaries and lenders in connection with COVID-19”, 19 March 2020: available here.

[4] NBB, “Nationale Bank bestrijdt economische gevolgen coronapandemie”, 19 March 2020: available here.

Apart from the impact of the now widespread Coronavirus (COVID-19) on our daily personal life, companies in Belgium and around the world also face important difficulties and challenges on all levels of their day-to-day business.

Find out more regarding various related topics

Our dedicated Lydian team is ready to assist you with any questions you might have regarding the impact of the Coronavirus on your daily business.

Contact us with all your questions on corona@lydian.be

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