Insurance & Asset Management – Update November
  • Thursday, 19 November 2020

Insurance & Asset Management – Update November

Insurance

Climate change risk

EIOPA consults on the supervision of the use of climate change scenarios in ORSA
The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation on the use of climate change risk scenarios in the Own Risk and Solvency Assessment (ORSA). According to EIOPA, forward looking management of risks related to climate change is crucial for insurers, which includes considering a wide range of potential outcomes. Another focus point of the consultation is the enhancement of supervisory convergence on the integration of climate change scenarios. In particular, two scenarios are considered relevant:

  • A climate change risk scenario where the global temperature increase remains below 2°C, preferably no more than 1.5°C, in line with the EU commitments
  • A climate change risk scenario where the global temperature increase exceeds 2°C

Please contact Nicolas Ziob or Lennard Beijering for more information on climate change risk in the insurance market.

Regulatory updates insurance market

EIOPA launches consultation on Supervisory Statement on the use of risk mitigation techniques by insurance and reinsurance undertakings
EIOPA has launched a consultation on its Supervisory Statement on the use of reinsurance structures by insurance and reinsurance undertakings that optimise the use of capital under the Solvency II framework, when the standard formula is used to calculate the SCR. By means of this statement, EIOPA is promoting supervisory convergence when assessing the use of risk-mitigation techniques, as it is recognised that potential divergent practices or potential supervisory arbitrage in this area could contribute to an unlevel playing field. Furthermore, the consultation will focus on potential group issues and intragroup transactions relating to internal reinsurance.

Response from The Actuarial Association of Europe (AAE) to the Solvency II Review consultation
The AAE responded to a public consultation regarding Solvency II for the insurance sector. The questionnaire covered various topics, amongst others, long-term investing and sustainability. The AAE thinks that regulation should enhance financial stability and market fairness. However, promoting certain asset classes cannot be achieved by inconsistent capital requirements, according to the AAE. The principle “same risk, same capital” should be guarded. Also, the current framework apparently does not set the right incentives for long-term financing for the economy. The one-year horizon in the context of long-term equity investments is an obstacle preventing the promotion of longer tenor investing.

Please contact Nicolas Ziob or Lennard Beijering for more information on regulatory updates for the insurance market.

Swiss insurance market

Swiss insurance market: significantly better results
The Swiss Financial Market Authority FINMA published the annual insurance market report. The aggregate results, which exclude insurance groups, increased by 44 percent in the financial year of 2019. This is mainly due to positive results on capital markets. Fixed-income securities are still the dominant yet decreasing asset class, amounting to 46 percent of total investments. Long-term equity follows on the second place.

Next to that, the FINMA also released the Swiss Solvency Test (SST) Survey 2020. The SST ratios improved for all business segments except reinsurance, where it decreased by 4 percentage points compared to 2019. For life insurers, the market risk is the predominant risk driver mainly due to interest rate and spread risk. Reinsurers suffer from a large exposure to insurance risks. However, the market risk is still the second largest area of risk with a significant exposure to EUR and USD interest rate movements.

Please contact Mark van Maaren or Lennard Beijering for more information on the Swiss insurance market.

Asset Management

FSB report considers financial stability implications of BigTech in finance in emerging market and developing economies (EMDEs)

In the report by the Financial Stability Board (FSB), it is noted that the advance of BigTech firms is more rapid in EMDEs than in advanced economies. Increasing and easier access to mobile phones and internet allowed the companies to reach rural and low-income customers. With the advantages of more efficiency and cheaper service costs, the FSB has concerns about consumer protection risks and market dominance. The experiences gained in these EMDEs regarding BigTech’s involvement in finance highlight the need for the “same risk – same regulation” principle.

Please contact Mark van Maaren or Bas van Oers for more information on the implications of BigTech in finance or other questions related to asset management.