Question ID: 1769
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII)
Article: 132
Status: Final
Date of submission: 13 Jun 2019
Question
Should the BUSINESS INTERRUPTION (BI) (caused by e.g. natural catastrophe, fire damage,..) insurance be segmented to line of businees 7 (Fire and other damage to property) or line of business 12 (Miscellaneous financial loss)?
Based on the definition of LoB 12 (=Insurance obligations which cover employment risk, insufficiency of income, bad weather, loss of benefit, continuing general expenses, unforeseen trading expenses, loss of market value, loss of rent or revenue, ...) I would say that BI shoud belong to the LoB 12.
On the other hand it would mean that I should not take BI into account when calculating SCR for Fire risk. However, this seems inconsistent to me with the calibration of SF. In the document CATASTROPHE TASK FORCE REPORT ON STANDARDISED SCENARIOS FOR THE CATASTROPHE RISK MODULE IN THE STANDARD FORMULA there is written that BI was taken into account when calibrating the risk.
Moreover, in the recent document EIOPA'S SECOND SET OF ADVICE TO EC ON SPECIFIC ITEMS IN THE SII DELEGATED REGULATION, paragraph 436, the BI is explicitelly mentioned and it is taken into account in the calculation. Article 132 in Delegated Regulation, paragraph 2(a) specifies that only insurance obligation in LoB7 or LoB19 are taken into account in teh calculatation of Fire risk. This gave rise to my doubts about proper segmentation.
EIOPA answer
Annex I of the Commission Delegated Regulation (EU) 2015/35 describes the different Lines of Business (LoBs).
The Line of business 7 concerns the “Fire and other damage to property insurance”. It is described as taking into account the “ Insurance obligations which cover all damage to or loss of property other than those included in the lines of business 5 and 6 due to fire, explosion, natural forces including storm, hail or frost, nuclear energy, land subsidence and any event such as theft.”
The line of business 12 is a fall-back category “Miscellaneous financial loss”. It is described as taking into account “Insurance obligations which cover employment risk, insufficiency of income, bad weather, loss of benefit, continuing general expenses, unforeseen trading expenses, loss of market value, loss of rent or revenue, indirect trading losses other than those mentioned above, other financial loss (non-trading) as well as any other risk of non-life insurance not covered by the lines of business 1 to 11.”
Should the business interruption insurance contracts comply with the definition of the Line of business 7, these have to belong to this LoB. Otherwise, the fall back category is retained.