The European Systemic Risk Board (ESRB) has called for a framework to enable closer monitoring of re/insurers’ liquidity risks as part of its effort to address COVID-19 challenges.
In a communication to the European Insurance and Occupational Pensions Authority (EIOPA), the Board strongly encouraged EIOPA and its members to finalise and operationalise such a framework promptly.
It noted that the EIOPA and national insurance supervisors have already been considering developing a liquidity monitoring framework for re/insurers, and suggested that this would facilitate a more informed and timely assessment of any potential financial stability risks.
These calls represent part of a second set of actions agreed by the ESRB to address challenges stemming from the coronavirus pandemic and its potential impact on the financial system of the European Union (EU).
The Board believes these macroprudential actions, together with reinforced coordination, can ensure that the European financial system is able to withstand the shock and thus prevent an even sharper loss of economic capacity and jobs.
Other actions called for enhancement to the Pillar 2 provisions in the Solvency II regulatory regime in the medium term to enable supervisors to require individual re/insurers with a vulnerable liquidity profile to hold a liquidity buffer
Beyond the need to address risks and vulnerabilities stemming from the current crisis, a Solvency II review provides an opportunity to better enable supervisors to address liquidity risk in the insurance sector, the ESRB said.
Additionally, the Board has decided to support and complement previous initiatives of the European Central Bank, the European Banking Authority, EIOPA and national authorities by issuing a Recommendation on the restriction of distributions during the COVID-19 pandemic.
The recommendation, which covers banks, certain investment firms, insurers, reinsurers and central counterparties, aims to achieve a uniform approach to restraints on pay-outs across the EU and across different segments of the financial sector.
