What the FMA checked on insurance companies in the past year

May 11, 2022 – In the area of ​​insurance supervision, the FMA once again relied on analysis, on-the-spot measurements and management discussions in the previous year. In four areas, sales and products were reviewed to strengthen consumer protection, as well as insurance brokerage by banks.

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Annual Report of the FMA 2021 (Cover:FMA)
FMA Annual Report 2021
(Cover: FMA)

The Austrian Financial Market Authority (FMA) has published its 2021 annual report, in which the authority, active since 2002, also summarizes 20 years of supervisory work.

The integrated supervisory model, which combines the regulation and supervision of the entire Austrian financial market under one roof as one authority for all finance, has proven its worth, emphasize the two board members Helmut Ettl and Eduard Müller.

And further: “We have earned the trust of politicians and the respect of market participants through constant work.”

We are particularly proud of having achieved the massive expansion and deepening of regulation and supervision with a very modest increase in budget and staff.

Well mastered in 2021, now new challenges

According to the FMA, the Austrian financial industry has so far coped with the enormous social and economic consequences of the Covid-19 pandemic and is in a stable position. This also applies to insurance companies. At the same time, the war in Ukraine poses great challenges.

The foreseeable interest rate change in monetary policy will impose particular demands on financial participants; In addition, due to climate change, the transition to a more sustainable economic model must be promoted even more consistently.

This also has “serious effects” on the Austrian financial market and all its participants. A prudent and prospective adjustment of the business policies of financial service providers, as well as of regulation and supervision, is necessary.

Monitoring of conduct, distribution and products

The FMA conducted audits in four areas of insurance supervision to strengthen collective consumer protection and contain the operational risks of the supervised companies.

For example, the implementation of the want and need test when entering into contracts in accident insurance and legal protection was randomly verified and the potential for improvement was assessed.

In life, health, and business loss insurance, information and documents on the product approval process, target market, and product monitoring and evaluation were randomly verified.

In unit-linked life insurance, the design, advice and use of exchange options were determined throughout the industry. And finally, the presentation of costs and performance in the life insurance information material was randomly verified.

bank insurance brokerage

The FMA also focused on the implementation and enforcement of the IDD Insurance Distribution Directive by credit institutions.

Among other things, the rectification of identified deficiencies in the training and retraining of client advisors, the implementation of wants and needs tests and the documentation of advice were enforced; This approach will continue in 2022.

In addition, the FMA verified compliance with the legal requirements for the recommendation and declaration of suitability in the sale of insurance-based investment products at eleven Austrian credit institutions.

Analysis of insurance companies.

In addition to ongoing risk and financial analysis of national insurance companies and groups, the FMA also conducted ad hoc surveys in the past year, according to the annual report.

The focus was on annual financial statements and planning data, as well as risk-oriented topics such as solvency, governance, asset allocation, market developments, risk management, sustainability, changes in interest rates and increased charges due to storm damage.

In addition, the FMA carried out a cross-sectional analysis of the ORSA reports (own assessment of the individual risk and solvency situation) of the companies, in which issues of sustainability and climate change scenarios were also examined.

Finally, the model for forecasting the solvency situation of insurers has been deepened; attention was focused on the evolution of the asset portfolio market, the evolution of interest rates, technical provisions and important elements of solvency capital requirements.

on-site measurements

After the number of on-site inspections fell significantly in 2020 due to Covid-19, the activities planned in insurance companies could be carried out in 2021. A total of 27 on-site actions have been carried out, after 22 in the year previous.

The FMA emphasized that virtual formats were used “where possible and sensible”, but this had no effect on the quality of the audits.

The audits focused on information security and cyber risk, the formation of reserves and the claims settlement process, as well as the review of small insurance companies. Government audits with a focus on the supervisory board were recently included in the audit plan.

management talks

The number of management meetings with insurers dropped to 108 in the previous year from 150 in the previous year; this was possible due to the largely calm and collected handling of the financial markets with the Covid-19 pandemic.

These regular and structured discussions with the management of the supervised companies are “another important source of information for ongoing supervisory activities”.

The purpose is to liaise with management, examine the company’s business model, strategy and risk assessment in more detail, and discuss specific issues and oversight priorities with the company.

stress tests

The European insurance and pension fund supervisory authority, Eiopa, also coordinated and carried out a stress test for insurance groups in the previous year (VersicherungsJournal December 20, 2021, March 22, 2022). According to the FMA, a stress test provides important results for insurance supervision.

There is no defined threshold above which a business is considered to have “failed”; however, qualitative and quantitative knowledge would be acquired that would flow to the evaluation of insurance companies and would serve to determine the solvency situation.

Of Austria, only the Vienna Insurance Group participated in the stress test last year, and the five largest insurance companies in the VIG Group were included in the liquidity stress test.

International cooperation

The FMA is the authority responsible for the group supervision of five insurance groups whose ultimate parent company is based in Austria: Vienna Insurance Group, Uniqa Insurance Group, Grawe Group, Wüstenrot Group and Merkur Group.

As part of this activity, the FMA cooperates with numerous European supervisory authorities of the subsidiaries, regularly exchanging information on their risk situation and coordinating cooperation between supervisory authorities and joint supervisory activities.

There is a standardized exchange of information and regular meetings and conference calls; In addition, the FMA prepares an annual “Group Risk Report” for each insurance group.

Download

The 2021 Annual Report can be downloaded as a PDF document (1,199 KB) from the FMA website.

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