Insurance Europe has today published its response to a consultation by the European Insurance and Occupational Pensions Authority (EIOPA) on proposals to develop a supervisory statement regarding the own risk and solvency assessment (ORSA) in the context of COVID-19.
The requirements set out in the proposed statement are, in most cases, already covered in the Solvency II Regulation, and so there is no need to issue a separate statement.
The industry agrees that COVID-19 has had serious effects on economies and that insurers should assess their solvency positions in light of the pandemic. However, the pandemic is not a new risk in itself. Rather, the pandemic affects the various risks to which insurers are already exposed: eg equity risk. Consequently, insurers should assess the impact on existing risks, and/or identify and assess any additional risk to which an insurer has become exposed due to the pandemic.
It should also be stressed that decisions on the content and methods used, and the level of detail included in ORSA reports, are the sole responsibility of the insurer. General requirements from EIOPA would counteract this and should be viewed very critically.
Moreover, the suggested approach would not help insurers. It may, in fact, have the opposite effect, insofar as that “convergence” of supervisory guidance may lead to ORSAs not taking into account an insurer’s specific risk profile, as the focus will be to comply with supervisory guidance. As such, the effect would be a changed focus, away from other significant risks specific to the insurer.
Furthermore, it is not appropriate to refer to “internally set solvency limits” in the statement, as this concept has no foundation in the Solvency II Regulation. The reference to solvency ratio “coming under pressure or falling below the lower solvency limits” sets a supervisory expectation for action based on triggers which have no foundation in the regulation and the reference here should instead be to the solvency ratio falling below the solvency capital requirement.