Following EIOPA’s recommendation that firms publish details of the effect of Covid-19 on their SFCR disclosures, I have reflected what I think this means for firms’ upcoming reporting.

Regulatory breaches

Key stakeholders will have a keen eye on those firms whose capital coverage has historically been close to 100%, as they will be closer to breaching their regulatory capital than those with larger capital buffers in place. 

Therefore as a minimum, I would expect firms to flag where the impact of the pandemic has resulted in an SCR (or MCR) breach. 

Investment impact

In addition, I would expect commentary describing the impact of the recent market turmoil their investment holdings, particularly those with equity or property holdings, and those with unhedged exposures to fluctuations in interest rates and currency rates.

Lines of business and claims experience

Another obvious area for comment will be the expected effect on material lines of business – particularly where the unearned exposures within the year-end technical provisions are very uncertain, as well as what mitigation might be in place to protect against further deteriorations in experience. Examples of particularly affected lines of business include travel, business interruption, contingency (e.g. event cancellation), credit and surety, D&O, medical expenses and income protection insurance.

Operational resilience

Overall operational resilience and business continuity planning will also be relevant, including details of whether the move to remote working is expected to impact business as usual processes, and what plans firms have in place to minimise the impact of mass staff absences.

This is particularly important, given EIOPA’s call to action from earlier today, in which it urged insurers to mitigate the impact of the global pandemic on consumers, flagging the importance of fair treatment and overall business continuity.

Counterparty risk

Firms with significant exposures to counterparty default (for example those with material expected reinsurance recoveries) should also discuss how their risk profiles may have changed and what they are doing to manage the this going forwards. Fitch has already revised its outlook for the London insurance market - to negative from stable - last week, and with credit ratings of some insurers already being downgraded, it may only be a matter of time before others follow suit.

Next steps

Given how far-reaching the effects of Covid-19 have already been, there’s certainly a lot to think about. 

Some firms have already published their SFCRs, but with little or no discussion on the impact of COVID-19 on their disclosures. But with the 8-week extension to SFCR deadlines, firms which have not yet published should be taking the time to think through the impacts and ensure that their reporting appropriately describes the effect of the pandemic across their entire businesses.