1. SOLVENCY II

1.1 Solvency II Directive review: Provisional political agreement reached on proposed Solvency II amending Directive

On 13 December 2023, the Council of the European Union (Council of the EU) and the European Parliament issued press releases to announce that a provisional political agreement has been reached between the European Parliament and the Council of the EU on the proposed Directive amending the Solvency II Directive (2021/0295 (COD) (Proposed Directive) and on the proposed Insurance Recovery and Resolution Directive (2021/0296/COD) (IRRD).

Key developments arising from the provisional political agreement reached in respect of the Proposed Directive include:

  • Improvementsto the long-term guarantees measures to make them more risk sensitive;
  • Insurancefirms will be required to increase the extent to which they take sustainability-related risks into account and to report moreon such risks to enhance policyholders' understanding of a firm's green credentials;
  • Moresimplified and proportionate rules to reduce the administrative burden on small and non-complex insurance companies;
  • Strengthenedcoordination between National Competent Authorities (NCAs) regarding cross-border activities;
  • Increasedconsumer protection for policyholders when buying insurance in another EU member state; and
  • Assignmentof new tasks to the European Insurance and Occupational Pensions Authority (EIOPA) including the development of secondary legislation to strengthen member states' implementation of the Proposed Directive.

Political agreement was also reached on the proposed IRRD. The aim of the proposed IRRD is to ensure that insurers and the relevant authorities in the EU are better prepared in cases of significant financial troubles. The provisional agreement will introduce a new harmonised regime at European level for resolving insurers in an orderly manner.

The texts of the provisional agreements will now be finalised and presented to member states' representatives and the European Parliament for approval. If approved, the Council of the EU and the Parliament will have to formally adopt the texts.

The Council of the EU's press release can be accessed here.

The European Parliament's press release can be accessed here.

2. EUROPEAN INSURANCE AND OCCUPATIONAL PENSIONS AUTHORITY (EIOPA)

2.1 EIOPA report on impact of inflation on insurance industry

On 5 October 2023, EIOPA published a report on how the current inflationary environment impacts insurers in Europe (InflationReport).

The Inflation Report explores the effect that the higher-than-expected inflation and interest rates have had on the insurance sector and potential future risks and vulnerabilities.

The Inflation Report explores the varying implications of high inflation and interest rates for insurers' capital levels, profitability, and liquidity positions, as well as the implications for consumers.

The Inflation Report can be accessed here.

EIOPA's press release can be accessed here.

2.2 EIOPA consults on the supervision of captive (re)insurers

On 6 October 2023, EIOPA launched a public consultation on its draft Opinion regarding the supervision of captive (re)insurers (Opinion) and its related impact assessment.

The Opinion outlines the supervisory expectations of competent authorities in respect of captive (re)insurers on matters such as intra- group transactions (focusing on cash pooling), the consistent application of the prudent person principle in the context of investment risk management as well as governance-related aspects of key functions and outsourcing requirements.

The public consultation on the Opinion ended on 5 January 2024.

The Opinion can be accessed here.

EIOPA's press release can be accessed here.

2.3 EIOPA unveils its digital strategy for 2024 - 2026

On 12 October 2023, EIOPA published its digital strategy to support consumers, markets and the supervisory community through digital transformation (Digital Strategy).

In its Digital Strategy, EIOPA outlines its approach to the digital transformation of the insurance sector over the next three years. EIOPA has identified three main long-term priorities in its Digital Strategy, including:

  • Ensuringinnovation is aligned with the best interests of consumers, considering financial inclusion and digital ethics;
  • Enhancingthe supervisory capabilities of EIOPA and NCAs by maintaining the standard of efficient prudential and conduct supervision while adapting to and using technological innovation; and
  • Strengtheningbusiness model sustainability and resilience of all insurance market players.

The Digital Strategy can be accessed here.

EIOPA's press release can be accessed here.

2.4 EIOPA consults on greenwashing

On 12 December 2023, EIOPA published a Consultation Paper on its Opinion on sustainability claims and greenwashing in the insurance and pensions sectors (Greenwashing Consultation Paper).

The Greenwashing Consultation Paper outlines EIOPA's proposed approach to addressing greenwashing in the insurance and occupational pensions sectors which includes four principles to be considered by insurance providers when making sustainability claims. The four principles proposed by EIOPA relate to accuracy of claims, disclosure of claims in a timely manner, substantiation of sustainability claims, and accessibility to sustainability claims by targeted stakeholders.

EIOPA provides further examples of good and bad practices for each of the four proposed principles and suggests that NCAs monitor providers' adherence to the principles outlined in the Greenwashing Consultation Paper.

EIOPA is welcoming comments on the Greenwashing Consultation Paper via the EU Survey webpage until 12 March 2024.

The Greenwashing Consultation Paper can be accessed here.

EIOPA's press release can be accessed here.

2.5 EIOPA consults on prudential treatment of sustainability risks

On 13 December 2023, EIOPA published a Consultation Paper on the prudential treatment of sustainability risks (Sustainability Risks Consultation Paper).

The Sustainability Risks Consultation Paper addresses the following areas related to the potential treatment of sustainability under the Solvency II Directive ((2009/138/EC):

  • Marketrisks of assets and transition risk exposures;
  • Non-lifeunderwriting risks and climate change adaptation; and
  • Socialobjectives and social risks from a prudential perspective.

The Sustainability Risks Consultation Paper is based on the public feedback received to EIOPA's Discussion paper previously published, in December 2022, on assessing the prudential treatment of insurers' sustainable assets and activities (2022 Discussion Paper), together with feedback received from both the European Platform on Sustainable Finance and the European Banking Authority (EBA).

EIOPA is welcoming responses to the Sustainability Risks Consultation Paper until 22 March 2024 which can be submitted by using the EU Survey Tool.

The Sustainability Risks Consultation Paper can be accessed here.

EIOPA's related 2022 Discussion Paper can be accessed here.

2.6 EIOPA sets out its strategic priorities for 2024 - 2026

On 19 December 2023, EIOPA published its "Final Single Programming Document 2024 – 2026" which sets out EIOPA's strategic priorities and work programme for the period 2024-2026, including EIOPA's Annual Work Programme for 2024.

EIOPA has outlined the following strategic priorities as its focus between 2024 and 2026:

  • Sustainable finance: the integration of sustainable finance considerations across all areas of work including the building up of sustainable insurance by addressing protection gaps for the benefit of EU citizens and businesses.
  • Digital transformation: supporting the supervisory community and industry through digital transformation, with a focus on implementing the Digital Operational Resilience Act (Regulation (EU) 2022/2554) (DORA), the Artificial Intelligence Act and the European Single Access Point (ESAP).
  • Supervision: in light of increased cross-border engagement, enhancing the quality and effectiveness of supervision including the revision of supervisory convergence materials considering the Solvency II Directive review.
  • Policy: ensuring technically sound prudential and conduct of business policy to maintain the integrity of the insurance regulatory framework as the review of Solvency II advances.
  • Risks to financial stability: identifying, monitoring and reporting on risks and vulnerabilities in the insurance sector and promoting preventative policies and mitigating measures including work on enhancing the risk assessment toolkit as well as the proposed Insurance Recovery and Resolution Directive.
  • Governance: develop EIOPA's strong corporate culture, focusing on effective recruitment, management and development of EIOPA's human capital to serve as a model EU supervisory authority and enhance its position as an attractive employer.

A copy of the Final Single Programming Document 2024 – 2026 can be accessed here.

2.7 EIOPA publishes 2024 supervisory convergence plan

On 21 December 2023, EIOPA published its Supervisory Convergence Plan for 2024 which outlines EIOPA's priorities to improve supervisory convergence during 2024.

EIOPA's Supervisory Convergence Plan for 2024 focuses on three priority areas:

  • The practical implementation of the common supervisory culture and the development of supervisory convergence tools. For instance, EIOPA will review the Solvency II guidelines on the supervisory review process and will take practical measures to advance the value for money of insurance products.
  • The risks to theinternal market and to the level playing field which may lead to supervisory arbitrage involving, among other initiatives, continued collaboration with the EBA and European Securities and Markets Authority (ESMA) to establish a cross sectoral system for information exchange relating to assessing fitness and propriety of key function holders.
  • Supervisionof emerging risks to include implementing the framework mandated by DORA.

EIOPA's Supervisory Convergence Plan for 2024 can be accessed here.

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