EIOPA recommends narrower underwriting metric and simpler EU Taxonomy disclosures for insurers

The European Insurance and Occupational Pensions Authority (EIOPA) has issued advice to the European Commission on simplifying insurers’ and reinsurers’ EU Taxonomy disclosures and addressing inconsistent underwriting calculations, following its July consultation. It recommends renaming the Underwriting Key Performance Indicator (KPI) the Adaptation Underwriting KPI and standardizing its numerator to include only relevant contracts and the share of gross written premiums or insurance revenue attributable to climate-related perils. The denominator would cover only the eight eligible lines of business. Alternatively, insurers could report a selection of those lines, provided they include the three most relevant to climate change adaptation. Further simplification would remove gas and nuclear activity breakdowns, which are not relevant to underwriting and generally not material to insurers’ investments. For measuring exposures to insurance undertakings, the combined KPI’s weighted average would be replaced by either the Investment or Underwriting KPI, depending on the relevant business activity. Together with the European Banking Authority and the European Securities and Markets Authority, EIOPA recommends full disclosures for parent undertakings, supplemented where necessary by simplified disclosures for material subsidiaries, and advises against introducing an Operational Expenditure KPI even voluntarily. EIOPA also recommends using the parent undertaking’s KPI rather than a weighted average to measure exposure to a group. The July consultation explored a Green Insured Activities KPI to capture underwriting’s enabling role through a look-through approach. The current advice recommends revisiting its possible introduction in five years.