Insurance Bulletin, June 2018 Edition 2
In this issue: 1. Regulation and legislation; 2. Market developments; 3. HFW publications and events
1. Regulation and legislation
UK: FCA publishes guidance on its approach to the review of Part VII transfers
The FCA has published guidance setting out its key considerations and general expectations when reviewing a Part VII transfer. The guidance can be found here.
In releasing the guidance, the FCA has acknowledged that the PRA leads the Part VII process, while still noting that the FCA has an active and important role to play, as it is required to consider such transfers in the context of its own statutory objectives.
The guidance sets out:
- Factors that firms should consider before contacting the FCA, and what they will need to produce prior to a pre‑application meeting with the FCA.
- The documents which the FCA expects firms to provide in order for the FCA to assess whether to approve the proposed Independent Expert (IE).
- The FCA's overall approach, its expectations and the key aspects it will consider when reviewing the proposed Part VII.
- Detailed information and examples for the key documentation, such as the Scheme documents, the IE report and communications with policyholders.
- Examples and factors to consider if the firms proposing the Part VII are planning to apply for a waiver of any of the statutory notification requirements.
The FCA has made clear that the guidance does not explain all aspects of its role in a Part VII, or all of the issues that firms need to consider. The guidance also explicitly states that the FCA may permit deviations from the guidance, if appropriate in the context of the relevant transfer, but that firms will be expected to explain why they have not followed the guidance.
At a time when numerous (re)insurers are proposing Part VIIs as part of their Brexit strategy, the guidance should reduce the number of occasions on which the FCA has to make the same comments across multiple Part VIIs. The FCA's hope will be that applicants take the guidance into account during the transfer process, allowing the FCA to focus on transfer-specific issues when reviewing each Part VII.
EU: EIOPA report on market and credit risk modelling study
EIOPA has reported on a comparative study which it carried out on market and credit risk modelling in 2016 – 2017. This is the first such study which EIOPA has undertaken.
Market and credit risk are key factors in assessing insurers' solvency capital requirement (SCR), as well as being important for the purposes of internal modelling.
The EIOPA study was carried out in conjunction with several national competent authorities. It involved a European‑wide comparative study of market and credit risk based on year‑end 2015 data, aimed at developing tools and common supervisory practices. The study involved 14 participants from seven member states and focused on euro‑denominated instruments.
The study's key finding was that there were significant variations in asset model outputs. EIOPA has concluded that more detailed scrutiny is required, in order to explore the underlying causes.
EIOPA regards the report as the first step in an ongoing monitoring and comparison process for internal market and credit risk models. It intends to perform regular studies on the market and credit risk modelling in internal models. The next version of the study (which we be based upon 2017 year‑end data) will focus on risk charges for benchmark portfolios under the combined market and credit risk.
The full report can be viewed here.
2. Market developments
US: The Solution for Builder's Risk
QBE North America has announced a new integrated marine product called, The Solution for Builder's Risk, which is a comprehensive policy offering coverage tailored specifically for construction projects.
Construction projects are known to be complex and multi‑faceted with little or no room for error and this new product is intended to help mitigate this. The product offers coverage for bespoke risk, which may include loss of income, delay penalties, business personal property, waterborne property, utility service breakdown, inflation protection and equipment breakdown and has a capacity of up to USD 250 million.
The construction industry remains one of the most challenging markets in which to anticipate and cover risk. There are generally two main categories of construction insurance: property and liability. Property insurance covers the construction and engineering contract works and materials and liability insurance provides cover for claims by third parties in respect of personal injury including to employees, damage caused to property and the liability of architects, engineers and surveyors. There is a range of other types of insurance available, including for delay in works. In addition, contractors may have professional liability insurance. Different insurance markets specialise in providing each different type of insurance and, as a result, the insurance cover provided is often not integrated.
The aim of QBE's new product is to provide an integrated cover for all types of risk. QBE's inland marine underwriters will write the business on a monoline basis and will help create bespoke programs for all types of projects. The underwriters will be supported by the in‑house claims adjusters with the business being underwritten through QBE‑appointed producers in retail and wholesale distribution channels.
UK: SCOR backs London with the first UK cat bond
Scor has launched the first UK catastrophe bond by sponsoring a USD 300 million Atlas Capital UK 2018 PLC (Series 2018 ISPV 1) transaction.
Returning to the capital market and launching its first cat bond in over two years, Scor chose the UK as its preferred ILS domicile.
Scor's previous cat bonds, which provide a source of property catastrophe retrocessional reinsurance, have tended to be domiciled in Ireland. This move, by a major global reinsurer, is seen as a positive endorsement for the UK's new ILS regulatory and tax regime which came into force earlier this year. For further details of the regime, please see the articles in our previous Bulletins1
To issue the cat bond Scor has registered Atlas Capital UK 2018 PLC as an insurance special purpose vehicle to be the transformer for and issuer of a single tranche of Series 2018 ISPV 1 notes. Atlas Capital UK 2018 will provide Scor with multi‑peril retrocessional reinsurance protection over a four year period protecting the reinsurer against named storms and earthquakes in the US and Canada as well as windstorms in Europe.
Scor has said that its decision to choose the UK to issue the cat bond demonstrates its "capacity to innovate" and its confidence in the UK ILS regime. In finalising the deal Scor noted how responsive and helpful the UK regulator has been.
It will be interesting to see whether this move by Scor encourages other issuers to look to the UK as an ILS domicile.
3. HFW publications and events
UK: HFW's Marine Insurance Week 2018
HFW is pleased to be hosting its second Marine Insurance Week.
Marine Insurance Week 2018 will cover key issues across hull, cargo, ports & terminals and liability, including CTLs and recent case law; the interaction between war and H&M; autonomous vessels; cruise ship main engine claims; yacht casualty response; subrogation and recoveries.
Presentations will take place at various times throughout each day allowing you the opportunity to choose the sessions you would most like to attend. The opening seminar will be followed by a screening of the England v Tunisia World Cup game, and to close the week, we will be winding down with a celebratory drinks reception on Thursday night.
A copy of the full programme can be found by clicking here.
If you have any queries regarding this event, or to register your interest in attending, please contact us at firstname.lastname@example.org