Insurance Insights April 2022

The Prudential Regulation Authority (PRA) launched the second round of the Biennial Exploratory Scenario (BES) exercise on financial risks from climate change. The objective of the Climate BES is to explore the financial risks posed by climate change for the largest UK banks and insurers (participants). This is in line with the plan for the Climate BES set out in June 2021. The second round of the BES will comprise a small number of questions, which will further explore participants’ strategic responses to the three scenarios published as part of the first round and the associated implications for their business models. The deadline for participants’ second round submissions will be the 31 March 2022. The Bank expects to publish results from the Climate BES in May 2022.

The PRA published a letter to provide an update on its 2022 priorities for life and general insurers operating in the United Kingdom. It notes that the UK Government’s review of Solvency II will continue to be a focus for both the PRA and insurance firms throughout 2022. The PRA is working towards a package of reforms that, when implemented, will align the prudential regime and its resilience requirements better with the shape of the UK insurance sector and its risks. Other priorities for 2022 include Operational & Financial Resilience, Climate Change, Regulatory Change, Third Country Branches, and Diversity & Inclusion.

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The FCA updated its webpage on general insurance value measures. The update contains a new section on reporting responsibility, which sets out which firm is responsible for submitting the value measures data. The rules came into force on 1 July 2021. A firm’s first report will be for the 6-month period covering 1 July 2021 to 31 December 2021 and will be due by 28 February 2022. Firms will need to submit the reports via RegData, which is the FCA’s new data collection platform for gathering regulatory data from firms.

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The FCA published a webpage for European firms wishing to remain in the temporary permissions regime (TPR). It mentions the need to meet the FCA’s standards to continue operating in the UK. The regime was designed to ensure that European firms operating in the UK via a passport when the Brexit transition period ended could continue operating temporarily while they seek full authorisation in the UK. Firms may be asked to stop undertaking new business or could be removed from the TPR if they miss their ‘landing slot’, fail to respond to mandatory information requests, have no intention in applying for full authorisation, or if their authorisation application is refused. Firms that have had their permissions cancelled can no longer conduct regulated business in the UK and will be committing a criminal offence if they do so. The FCA also notes that it has already cancelled the temporary permissions of four firms which did not respond to mandatory information requests.

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The House of Lords Industry and Regulators Committee is launching an inquiry into the regulation of the London Market – the UK’s commercial insurance and reinsurance market. The Committee will explore the extent to which regulatory policy is well-designed and proportionately applied and the possibilities for optimising policy following Brexit. The inquiry will consider the roles of the Bank of England and Financial Conduct Authority and the appropriateness of regulation – the content of regulations as well as their implementation and application by regulators – relative to the risks posed by the London Market. The Committee will also assess the effects of regulation on customer interests and the market’s global competitiveness.

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The CBI has published a Feedback Statement regarding the Consultation ‘Guidance on the Use of Service Companies for Staffing Purposes in the Insurance Sector’, which closed on 6 November 2021. The finalised Guidance remains largely unchanged from the version consulted upon during the consultation process.

On 20 January 2022 the Central Bank published three Behind the Data papers. The second paper, “Through the looking glass: understanding the interconnectedness of the Irish insurance sector and investment funds”, provides new insights on the underlying financial exposures of insurers and their policyholders from their investments in funds. More specifically, the paper looks at the geographical location and seet category of the underlying assets.

The European Insurance and Occupational Pensions Authority (EIOPA) has published a Decision document on peer reviews of national competent authorities. The document establishes a framework for peer reviews, including the selection of topics, the governance and methodology for carrying out peer reviews of national competent authorities. This decision applies to all peer reviews conducted by EIOPA and enters into force immediately.

EIOPA has published its supervisory convergence plan for 2022. In the plan, EIOPA sets out its priorities to enhance supervisory convergence over the course of 2022:

• Practical implementation of the common supervisory culture and further development of supervisory tools. 
• Risks to the internal market and the level playing field that may lead to supervisory arbitrage. 
• Supervision of emerging risks.
• EIOPA also provides an overview of its priorities for its own oversight work in 2022. Among other things it intends to increase its effective engagement through resolving supervisory concerns on passporting by establishing and co-ordinating cross-border co-operation platforms and participating in joint-onsite inspections with colleges of supervisors or via the cross-border co-operation platform. 

The three European Supervisory Authorities (EBA, EIOPA and ESMA) published on 7 February a joint report in response to the European Commission’s February 2021 Call for Advice on Digital Finance. In their response, the ESAs noted that the use of innovative technologies in the EU financial sector is facilitating changes to value chains; that dependencies on digital platforms are increasing rapidly; and that new mixed-activity groups (i.e. groups providing both financial and non-financial services) are emerging. 

EIOPA published this article as part of its contribution to the Eurofi Magazine - February 2022. The article talks about ensuring a trusted and financially inclusive Insurance sector in the new Artificial Intelligence (AI) world. 

EIOPA published this article as part of its contribution to the Eurofi Magazine - February 2022, which discusses how sustainability risks are of growing relevance for the investment and underwriting activities of insurers and also how Solvency II can help manage climate risks alongside the other risks faced by insurers. 

EIOPA published this article as part of its contribution to the Eurofi Magazine - February 2022 regarding EIOPA's Opinion on the Solvency II review which aims at keeping the regime fit for purpose by introducing a balanced update of the regulatory framework and better reflecting the economic situation, while completing the regulatory toolbox. 

EIOPA has published its Risk Dashboard based on Solvency II data from the third quarter of 2021.

EIOPA has published a consultation paper on advice to the European Commission (EC) relating to its Retail Investment Strategy for the EU. The Annexes have been published separately. EIOPA is consulting on certain aspects of retail investor protection relating to the sale of insurance-based investment products (IBIPs). EIOPA will hold a public hearing to discuss the proposals on 18 February 2022. Comments can be made on the proposals until 25 February 2022.

EIOPA has published its third discussion paper on methodological principles of insurance stress testing. This paper focuses on the climate change component. It sets out methodological principles that can be used to design bottom-up stress test exercises that aim to assess the vulnerability of insurers to climate change risks.

EIOPA has published its Consumer Trends Report, which identifies an acceleration in digitalisation as a clear trend emerging from the COVID-19 pandemic. This brings opportunities but also some concerns for consumers, such as frauds and possible new forms of exclusion from access to financial products.

Every month KPMG Ireland’s IFRS team produces an update on the progress of the industry to date on the implementation of the new insurance accounting standard.

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