Insurance regulatory news, January 2021 | Hogan Lovells

Latest regulatory developments of curiosity to insurers and their intermediaries. See additionally our Basic regulatory information within the Associated Supplies hyperlinks.

Contents

• Solvency II: PRA CP1/21 on deep, liquid and clear assessments, and GBP transition to SONIA
• Basic insurance coverage pricing practices: FCA Q&A
• COVID-19: FCA data on flood and storm claims
• COVID-19: EIOPA consults on ORSA supervisory assertion
• Finish of Brexit transition interval: Lloyd’s underwriters’ buying and selling rights
• Cyber danger underwriting: IAIS report on challenges and supervisory concerns for sustainable market growth

Solvency II: PRA CP1/21 on deep, liquid and clear assessments, and GBP transition to SONIA

The UK Prudential Regulation Authority (PRA) has printed a session paper, CP1/21, on deep, liquid and clear (DLT) assessments and GBP transition to the Sterling In a single day Index Common (SONIA) underneath the Solvency II regime. CP1/21 is related to all UK Solvency II companies, together with in respect of the Solvency II teams provisions, and to the Society of Lloyd’s and its managing brokers.

In CP1/21, the PRA units out its proposed method to DLT assessments and the transition of Solvency II technical data (TI) from the London Interbank Provided Charge (LIBOR) to SONIA in 2021. The proposals would lead to modifications to the PRA’s Assertion of Coverage (SoP), “The PRA’s method to the publication of Solvency II technical data”. Draft amendments to the SoP are set out in an Appendix to CP1/21.

From 11 pm on 31 December 2020, the PRA has been required to publish TI for every related forex. The TI contains the essential risk-free charges and basic spreads used within the calculation of the matching adjustment and volatility adjustment. The onshored Solvency II Delegated Regulation supplies that RFRs have to be primarily based on monetary devices traded in a DLT monetary market. From 31 December 2020 and all through 2021, the PRA’s related currencies are: GBP, USD, EUR, CAD, SEK, AUD, JPY, NOK and DKK.

The Solvency II TI for GBP, USD and JPY presently reference LIBOR charges. In December 2020, the administrator of LIBOR, ICE Benchmark Administration, printed a session on its intention for the GBP, JPY and a few USD LIBOR panels to stop on the finish of 2021, and for the rest of USD panels to stop on the finish of June 2023. The Working Group on Sterling Danger-Free Reference Charges really useful that SONIA is used as the popular substitute for LIBOR for sterling markets. Due to this fact, the PRA will transition the GBP Solvency II TI to reference SONIA swap charges earlier than end-2021.

The PRA will even transition the JPY and USD TI references from LIBOR to an In a single day Listed Swap fee, though the date and method to those transitions will depend upon the liquidity of swaps referencing the Tokyo In a single day Common Charge and the Secured In a single day Financing Charge.

The GBP LIBOR-based charges are presently increased than the equal SONIA-based charges. Ought to this proceed to be the case on the time of the proposed transition, the PRA explains that this could usually lead to a rise in technical provisions. Nevertheless, that is, partly, mitigated by a number of proposals included in CP1/21, notably the proposals on transitional reduction and the calculation of the long-term common unfold.

The PRA proposes to implement the transition for GBP TI to SONIA from and together with 31 July 2021.

The session closes on 31 March 2021.

Basic insurance coverage pricing practices: FCA Q&A

The Monetary Conduct Authority (FCA) has printed a Q&A document on common insurance coverage pricing practices. The doc responds to questions raised throughout a collection of webinars held in November 2020 on the FCA’s proposed bundle of cures following publication of the FCA’s closing report on its market research into the pricing of residence and motor insurance coverage.

COVID-19: FCA data on flood and storm claims

The FCA has up to date its webpage on insurance coverage and COVID-19 to incorporate a piece on claims regarding floods and storms. Following the extreme flooding in elements of the UK in December 2020, the FCA reminds insurers that it’s important they’ve plans in place to handle the operational influence of COVID-19. This contains having sufficiently strong plans to proceed to function successfully when there’s stress on providers. The FCA outlines a few of the totally different steps insurers have taken to organize for the influence of COVID-19 on the seasonal enhance in flood and storm-related claims. These embody:

• reviewing and adjusting their operational contingency plans to handle the extra operational challenges they’ve recognized from the pandemic;
• conducting evaluations of capability and sources of the provision chain, and of third events who deal with claims for the insurer; and
• assessing the influence of COVID-19 on the claims course of and adjusting it as vital. This contains elements such because the influence of lockdowns and different restrictions on service suppliers’ capability to entry and perform work in affected areas, and the supply of other lodging the place wanted.

The FCA states that the place clients require quick help, it’s important they will contact their insurer rapidly and communicate to employees who can take care of their declare. The FCA has seen some insurers deal with the problem of employees shortages by cross-training employees in order that they are often deployed rapidly and flexibly to answer affected clients as declare volumes enhance.

Companies ought to be certain that they will reply to clients appropriately, together with clients they’ve recognized, or who establish themselves, as susceptible. In doing so, companies must also recognise that some clients could also be going through monetary problem due to COVID-19. This may increasingly have an effect on their capability to pay for any quick prices whereas their insurance coverage declare is being processed. The FCA reminds insurers to think about if emergency and interim funds are acceptable within the gentle of the client’s circumstances, and to make sure they make funds in a well timed manner.

Whatever the challenges from COVID-19, the FCA expects companies to deal with storm and flood claims promptly and pretty, making certain that clients don’t face limitations or delays when making a declare. Companies ought to present clients with clear communications concerning the data they should help their declare and preserve clients knowledgeable on progress, together with timeframes for any work to be carried out and settlement funds made.

The FCA reminds insurers that they maintain regulatory accountability for the claims course of and outcomes, together with once they delegate the dealing with of claims to a 3rd celebration. They have to preserve acceptable oversight of those preparations to make sure that their outsourcing relationships are assembly the insurer’s regulatory obligations.

COVID-19: EIOPA consults on ORSA supervisory assertion

The European Insurance coverage and Occupational Pensions Authority (EIOPA) has printed a consultation on the Supervisory Assertion on Personal Danger Solvency Evaluation (ORSA) within the context of COVID-19.

In its press release, ESMA states that the assertion promotes convergence by guiding undertakings by frequent supervisory expectations on the ORSA within the present scenario triggered by the pandemic, considering that the influence on every particular person endeavor can differ relying on its particular danger profile. A correct stability between flexibility and acknowledgment of the ORSA as an endeavor’s personal train, and clarification of supervisory expectations in particular circumstances, needs to be saved.

EIOPA believes that the present scenario requires an ad-hoc/non-regular ORSA within the circumstances the place the pandemic impacts the danger profile of the endeavor materially, particularly in these circumstances the place the efficiency of the common ORSA has not allowed the endeavor to evaluate and to keep in mind the influence of the pandemic.

Undertakings are anticipated to think about the uncertainty within the length and (macroeconomic) influence of the pandemic in its ORSA and, if related for its danger profile, take into account a number of eventualities to seize this uncertainty in an acceptable method. On this case the eventualities are anticipated to incorporate a number of levels of severity for the pandemic’s influence on the endeavor’s solvency and capital wants contemplating its particular person scenario.

EIOPA invitations responses to its survey by 15 March 2021. After contemplating the suggestions acquired, EIOPA will develop influence evaluation and publish a closing report on the session, in addition to submit the supervisory assertion for adoption by its Board of Supervisors.

Finish of Brexit transition interval: Lloyd’s underwriters’ buying and selling rights

Lloyd’s has printed market bulletin Y5321, which summarises and clarifies Lloyd’s underwriters’ buying and selling rights within the EEA after the tip of the Brexit transition interval. Factors of curiosity embody the next:

• Lloyd’s underwriters will stop to have buying and selling rights within the EEA for insurance coverage enterprise from 1 January 2021. Because of this, Lloyd’s underwriters’ EEA Crystal experiences will probably be up to date to mirror the brand new regulatory place and the influence on Lloyd’s underwriters’ buying and selling rights;
• Lloyd’s underwriters will proceed to have the ability to write cross-border EEA reinsurance enterprise post-transition interval, besides with respect to German cedants. For some territories, cross-border reinsurance enterprise can solely be written on a reverse solicitation foundation;
• intermediaries and entities carrying on distribution actions to EEA policyholders in search of cowl for EEA dangers are required to be established and registered within the EEA following the tip of the transition interval. This is applicable to each insurance coverage and reinsurance enterprise;
• from 30 December 2020, when the Lloyd’s insurance coverage enterprise switch scheme took impact, all transferring EEA insurance policies caught by the scheme and associated property and liabilities transferred to Lloyd’s Europe. Any claims or proceedings in opposition to the members in reference to these EEA insurance policies will probably be continued by or in opposition to Lloyd’s Europe. The switch is not going to change the phrases and situations of any coverage, besides that Lloyd’s Europe will develop into the insurer and knowledge controller for EEA insurance policies; and
• after the tip of the transition interval, Lloyd’s will probably be deemed a third-country reinsurer for the needs of the Solvency II Directive. Beneath the Directive, if the nation through which the reinsurer is established is deemed equal, that reinsurer needs to be handled the identical as EEA reinsurers. The EU has not confirmed whether or not and, in that case, when it should assess the UK’s equivalence for reinsurance functions. Nevertheless, if the EU doesn’t designate the UK as being equal for these functions underneath Solvency II, Lloyd’s underwriters will have the ability to proceed to put in writing EEA cross-border reinsurance (aside from Germany).

Cyber danger underwriting: IAIS report on challenges and supervisory concerns for sustainable market growth

The Worldwide Affiliation of Insurance coverage Supervisors (IAIS) has printed a report on the recognized challenges and supervisory concerns for sustainable cyber danger underwriting. The report units out the findings of the IAIS’ cyber underwriting small group which it appointed in 2019 to organize a report with findings and suggestions for a strategic method to how supervisory practices can foster sustainable cyber danger underwriting. The report additionally units out the findings from the IAIS’ 2019 stock-take of supervisory practices relating to cyber danger underwriting.

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