Law360, London (July 22, 2020, 2:00 PM BST) -- Europe's insurance watchdog has set out guidelines for how the bloc's regulators should oversee reinsurance-like schemes put in place across the region in response to the financial impact of the COVID-19 pandemic.
The European Insurance and Occupational Pensions Authority published new guidance Tuesday instructing EU member states on how they should supervise new projects that have sprung up to protect credit during the coronavirus outbreak.
Schemes that states in the bloc have put in place to deal with the crisis include loans to support businesses hit by COVID-19 lockdowns and direct grants to small and midsized businesses struggling to stay afloat through the pandemic.
"The risk of a rapid contraction of the credit insurance business following COVID-19 has led the European Commission to take similar initiatives as in the financial crisis in 2008," EIOPA said.
But it noted that national schemes created under these crisis-era initiatives are not consistent with each another.
"Some interact directly with the seller/exporter, covering their transactions or providing guarantees to their loans, while others provide indirect support through schemes closer to reinsurance, which allow credit insurers to keep the previous coverage limit," the watchdog said.
EIOPA said it is seeking to promote "supervisory convergence."
The guidance sets out how such crisis measures should be treated under the bloc's Solvency II Directive — the rulebook which sets out minimum requirements for the capital reserves that insurers must maintain to be able to withstand financial shocks and still be able to pay out on claims.
The European Commission, which is the bloc's executive arm, opened a public consultation earlier in July to work out whether the solvency regime is still "fit for purpose" in the era of COVID-19.
The commission said it will accept responses about the solvency directive until Oct. 21, before it publishes a "legislative proposal" next summer.
"Our world-leading prudential regime, Solvency II, has ensured that our insurance sector remains resilient, despite the current challenges posed by the coronavirus pandemic," Valdis Dombrovskis, an executive vice president at the commission, said at the time.
EIOPA also intervened in the bloc's response to the global health crisis in July to instruct insurers to offer remedial action to consumers over insurance products that have been affected by COVID-19.
The EU's insurance watchdog set out the steps it expects companies to take in an effort to "clarify" its expectations on how insurers and intermediaries such as brokers should handle consumers during the crisis.
The damage done to the insurance industry by the pandemic has been widespread. French insurer AXA recently said it expects to take a €1.2 billion ($1.4 billion) hit to its 2020 earnings from coronavirus-related claims.
--Additional reporting by Martin Croucher and Irene Madongo. Editing by Ed Harris.
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