The insurance sector is one of the most highly and robustly regulated industries worldwide. The last decade has seen significant developments in supervision of insurance activities, particularly with the introduction of risk-based capital regimes in many locations.

These post-Global Financial Crisis reforms, while costly to implement, have largely contributed to a more stable and secure insurance sector. Research conducted by KPMG on the European insurance sector in 2020 for ICISA and other trade associations showed that the number of insurer failures has fallen significantly since the introduction of enhanced prudential requirements, with no known failures of a credit insurer or surety since the beginning of Solvency II.

A wider agenda of reforming supervision driven by the International Association of Insurance Supervisors (IAIS), has also seen a growth in emphasis on systemic risk related to insurance business, as well as emerging rules on recovery and resolution for insurers. Equally, as sustainability solidifies its position at the top of policymakers’ concerns, incorporating these elements into financial insurance regulation has sped up in recent years.

The pace and volume of change can itself be a challenge for even the biggest insurers. That’s where organisations like ICISA aims to support members throughout the world to understand what rules are changing, how they may impact credit insurance and surety business, and to provide a voice representing our industry in discussions on change.

So, what have we seen in 2022 for changing insurance regulations, and what should ICISA members be aware of? A key focus of our efforts this year has been continuing to follow the ongoing Solvency II Review in the EU. While this is only the prudential regime for EU insurers, changes that happen here tend to either match what is on the IAIS’ agenda or originate in Europe before being taken up by other regulators later on.

For that reason, we have kept a close watch in recent years on what ways the framework may change and how this may impact our members. In particular, we have focused on three key areas when speaking with regulators and policymakers. These are:

  • That the strong position of policyholders in instances of insurer insolvencies should be maintained as the regime evolves. This has important implications for how credit insurance is treated in banking rules, which we have also updated members on recently.
  • That parameters used in the calibration of the Standard Formula for assessing the Solvency Capital Ratio (SCR) should be reviewed. Internal research conducted by ICISA in recent years suggests that some parameters may be set too conservatively for the Line of Business (LOB) relating to our members due to the make-up of that LOB, which includes other, more risky lines such as mortgage indemnity, financial guarantee and agricultural credit.
  • That users of the Internal Model for SCR calculation should not also have to prepare and discuss the Standard Formula SCR with their supervisor. The Internal Model is an equal but different process to the Standard Formula and is a more appropriate method for some insurers due to their individual risk profile. Proposals to require the simultaneous use of the Standard Formula may lead to false conclusions being drawn, as well as being an unnecessary drain on resource.

ICISA hopes to see progress on all these matters as the Solvency II review progresses through discussions currently being held at the level of the European Council and European Parliament. ICISA has engaged closely with key officials and politicians during this period to promote our viewpoint on the basis of sound logic and evidence garnered from our members. Initial drafts of compromise proposals from the European Parliament show that the first two of these issues may be taken up, however, the latter point on Internal Models is seen as more controversial by some policymakers. This is in part due to false comparisons between banking and insurance regulation, but ICISA continues to highlight the important legal principles at play on this matter.

Elsewhere we are also seeing a much stronger focus from regulators on elements such as transparency and reporting, related to sustainability. In the US, the National Association of Insurance Commissioners adopted a new standard earlier this year which will require new reporting by insurers on climate-related risks. This standard is in line with the international Force on Climate-Related Financial Disclosures (TCFD) standard.

In the EU, we have also seen further work in this area with progress on disclosures and reporting in several areas of financial services regulation. The Chair of the European Insurance and Occupational Pension Authority (EIOPA) commented during her presence at ICISA Trade Credit Insurance Week that regulators like her would take action where insurers were slow to move on these issues. Indeed, while proposals related to sustainability have yet to be confirmed as part of the Solvency II review, EIOPA has already launched a Discussion Paper which progresses its thinking further in the direction of establishing prudential measures for the treatment of sustainability risks.

This would include the treatment of assets (such as fossil fuel assets) which may be prone to energy transition impacts, as well as underwriting risks themselves. This might necessitate adaptations to underwriting and pricing guidelines for certain projects/risks. To support members, ICISA has arranged several webinars throughout the year, as well as held discussions in technical committees to consider ways in which the industry can respond to these topics in more detail. Waiting no longer seems like a viable option on this topic, particularly with the impact of climate change being more obviously felt each year.

With uncertain economic times ahead, the focus from regulators is likely to be on matters of market stability and systemic risk. ICISA has also engaged throughout the year on these topics and has held several conversations with the European Systemic Risk Board. This has included providing a response to a paper issued by that body on elements of systemic risk it believed arose within the Trade Credit Insurance sector. This includes the ESRB’s recommendation for much wider use of non-cancellable cover.

ICISA has worked to improve awareness of the sector, as well as correct some erroneous views on this and related matters and will continue with these efforts well into 2023 and beyond.

The topics noted above are only a small snapshot of the major issues facing insurance as regulations evolve in the post-Covid era. Not mentioned above is the continuing development of the Indian market for surety with further clarification on guidelines governing the sector required there. Equally, broader themes related to cyber risk, digital transformation, the interaction of financial services with trade and exports are also going to remain in focus in 2023. We look forward to working with and for all our members in the new year on these and other issues.