Update on the EU Insurance & Reinsurance Regulatory Response to COVID-19

For additional guidance, please refer to Steptoe's COVID-19 Resource Center.

In recent weeks, the European Insurance and Occupational Pensions Authority (EIOPA) has been issuing emergency recommendations, statements, and press releases responding to the novel coronavirus (COVID-19) outbreak and its impact on the insurance and reinsurance sectors. 

This alert summarizes the EU-level insurance and reinsurance regulatory response to date. 

EIOPA Statement on Actions to Mitigate the Impact of COVID-19 

The EIOPA statement of March 17 is EIOPA's first response to the difficult conditions caused by the outbreak. A short, two-page statement focuses on business continuity and the solvency and capital position of insurers and reinsurers, in particular: 

• In order to provide immediate operational relief to insurers and reinsurers, EIOPA suggests that national supervisors should be flexible about the timing of supervisory reporting and public disclosure relating to end-2019. In addition, in the short term EIOPA intends to limit requests for information and the consultations with the industry. 
• EIOPA has also extended the deadline of the holistic impact assessment for the 2020 Solvency II Review by two months to June 1, 2020. The insurers and reinsurers which participate in the information request exercise now have until June 1 for submitting the completed reporting templates to their national supervisors. 
• EIOPA does not propose any immediate action in relation to the solvency and capital position of insurers and reinsurers and will continue monitoring the situation. Insurers and reinsurers are requested to "take measures to preserve their capital position in balance with the protection of the insured, following prudent dividend and other distribution policies, including variable remuneration." 

Recommendations on Flexibility for Reporting and Disclosures 

The EIOPA recommendations of March 20 on supervisory flexibility regarding the deadline of supervisory reporting and public disclosure are intended to provide immediate operational relief to insurers and reinsurers. The EIOPA recommendations are addressed to national supervisors; supervisors, insurers and reinsurers are required "to make every effort to comply with these recommendations." 

With certain exceptions, EIOPA recommends: (i) an eight-week delay for the submission of annual supervisory reports for 2019; (ii) a one-week delay for the submission of quarterly supervisory reports for Q1 2020; and (iii) an eight-week delay for the publication of the solo/group Solvency and Financial Condition Report (SFCR) for 2019. 

Extraordinary Weekly Calculations of the Relevant Risk-Free Interest Rate Term Structures and the Symmetric Adjustment to Equity Risk 

On March 27, EIOPA announced that it will carry out extraordinary calculations on a weekly basis to monitor the evolution of the relevant risk-free interest rate term structures and the symmetric adjustment to equity risk: 

• The weekly calculation of the relevant risk-free rate interest rates allows insurers and reinsurers to reflect current market developments in the calculation of technical provisions. 
• The weekly calculation of the symmetric adjustment to equity risk is relevant for insurers and reinsurers using the Solvency II standard formula to calculate their capital requirement for equity risk. 

Call to Action to Mitigate the Impact of COVID-19 on Consumers 

On April 1, EIOPA issued a further statement urging insurers and insurance intermediaries to mitigate the impact of COVID-19 on consumers. 

In its statement, EIOPA "strongly encourages" insurers and intermediaries to consider various practical implications of COVID-19 for the day-to-day activities of consumers, in particular the social distancing and self-isolation measures. 

In addition, EIOPA expects insurers and intermediaries to continue acting in the best interests of consumers and requests insurers and intermediaries to take the following actions: 

• Provide clear and timely information to consumers on contractual rights. In particular, EIOPA emphasises the need to ensure consistent application of exclusions. 
• Treat consumers fairly and be explicit in all communications. Insurers and intermediaries are expected to avoid vague terms that could be misinterpreted or lead to confusion. All communications to consumers should be balanced and carefully calibrated taking into account how consumers might react in volatile market conditions. 
• Inform consumers about contingency measures that insurers and intermediaries are taking and how these measures can impact the contractual relationship and services provided to consumers. 
• Continue applying product oversight and governance (POG) requirements taking into account the impact of the COVID-19 outbreak and, where necessary, carry out a product review. 
• Consider the interests of consumers and exercise flexibility in how they are treated, where reasonable and practicable. 

EIOPA also comments on the question of coverage (or absence thereof) of losses sustained as a result of efforts to contain the spread of the virus under in-force insurance policies, such as business interruption and infectious disease covers. EIOPA takes a relatively robust view which is favorable to insurers and reinsurers: "As a general principle, imposing retroactive coverage of claims not envisaged within contracts could create material solvency risks and ultimately threaten policyholder protection and market stability, aggravating the financial and economic impacts of the current health crisis." 

Dividend Distribution and Variable Remuneration Policies in the Context of COVID-19 

On April 2, EIOPA issued a statement on dividend distribution and variable remuneration policies in the context of COVID-19. The key elements of the EIOPA statement are as follows: 

• EIOPA urges insurers and reinsurers to temporarily suspend all discretionary dividend distributions and share buy backs aimed at remunerating shareholders. The request to suspend dividend distributions is also intended to cover distributions from EU subsidiaries to parent companies. According to the statement, intra-group dividend distributions and similar transactions should be suspended "whenever these may materially influence the solvency or liquidity position of the group or of one of the undertakings involved." 
• The decision to suspend distributions and share buy backs "should be reviewed as the financial and economic impact of the COVID-19 starts to become clearer."
• In addition, EIOPA requests insurers and reinsurers to set the variable part of remuneration at a "conservative" level and to consider postponing payments of the variable remuneration component altogether. 

Impact of COVID-19 on Current/Future EIOPA Initiatives 

In order to provide operational relief to insurers and reinsurers, EIOPA has re-prioritized its work and extended the deadlines/delayed projects requiring input from industry/national regulators. 

The deadlines for the currently open public consultations have been extended as follows: 

• Review of technical implementation means for the package on Solvency II Supervisory Reporting and Public Disclosure: deadline for comments is extended by six weeks from April 20 to June 1, 2020; 
• Consultation on PEPP ITSs: deadline for comments is extended by four weeks from May 20 to June 17, 2020; 
• Consultation on Discussion Paper on IBOR transitions: deadline for comments is extended by nine weeks from April 30 to June 30, 2020; 
• Market and Credit Risk Comparative Study: information request deadline is extended by five weeks from May 31 to July 3, 2020. 

The publication of a discussion note on value-chain/Insurtech and a second discussion paper on methodological principles of insurance stress testing have been postponed until further notice. 

The Q1-Q2 planned EIOPA data requests to financial institutions are affected as follows: 

• Data request for climate risk sensitivity analysis 2020 to complete data available for top-down element and qualitative survey to groups reporting for FS purposes will be cancelled. The report will be prepared with the available information. 
• Data collection for the work on the impact of ultra-low yields on insurers to complement Solvency II data planned for Q1/Q2 will be launched later also to incorporate COVID-19 reflections if necessary. 

Finally, EIOPA has decided to extend the deadline for interested stakeholders to submit their application to become members of the Insurance and Reinsurance Stakeholder Group and the Occupational Pensions Stakeholder Group. The new deadline was April 19, 2020.

Consumer Guide

On April 24, EIOPA released a consumer guide: "Understand your insurance coverage during Coronavirus/COVID-19 Outbreak" – a simple, one-page guide encouraging consumers to: check policy terms for the scope of cover; find about any contingency measures adopted by the insurer, intermediary or government; (for savings-type products) avoid panic if the product has lost value; be careful of scams; and if in doubt, contact the insurer or intermediary.