Crown Dependencies Team Update
Matt Hills appointed as Insurance Advisory Associate Director
Matt Hills has recently joined our Isle of Man office, as Associate Director. With a wealth of insurance sector experience spanning 14 years, Matt will play a key role in delivering KPMG’s insurance advisory services across the Isle of Man and Guernsey. You can expect to see much more of Matt as he settles into the role. Until then, please feel free to contact Matt on firstname.lastname@example.org.
A new era in audit: The impact of rapidly changing technology and new reporting standards
As corporate reporting shifts, including the introduction of ESG reporting standards, KPMG (led by Emer McGrath, Head of Audit) notes that investment in emerging technologies can provide better and faster analysis of data to help deliver valuable insights.
Audit is vital to trust in financial information and it's this trust that turns the wheels of the capital markets system. The audit profession adapted at pace to the challenges presented by the pandemic and is now set to play a critically important role in providing independent opinions on companies' decarbonisation and sustainability claims.
KPMG Insurance SFCR Analysis APP - Ireland
KPMG are delighted to release our SFCR Analysis App. The Irish market app provides insurance professionals indepth analysis on publicly available SFCR data, including capital coverage analysis, own funds analysis, investment analysis and premium analysis. The app was built in order to demonstrate the powerful data analytics and visualisation tooling available and their ability to produce dynamic and interactive data driven insights that are instantaneously available to key decision makers. We hope you find it useful. Please contact Jean Rea (email@example.com) for further details in relation to this SFCR Analysis App, who would be delighted to assist you further.
Insights into IFRS
KPMG’s 19th edition of Insights into IFRS has just been published. KPMG know that corporate reporting is your essential tool for communicating with your stakeholders and conveying how you are adapting to and preparing for the accelerating pace of change. Insights into IFRS is KPMG’s overarching document which on IFRS, which will give you a fresh perspective on your financial reporting. Latest updates include IFRS 17, an important issue for Insurers given the fast approaching implementation date.
Isle of Man Updates
Regulator invites feedback on fee legislation
A public consultation has been published online relating to the draft Fees Orders and Regulations 2023. This legislation will support the introduction of a new funding model and fee structure for regulation and oversight of the finance industry on the Isle of Man.
Feedback is being sought with a closing date for comments of 29 November 2022.
The FSA have issued their latest stakeholder e-bulletin which includes the latest news items from the regulator including improvements to the Authority’s data management, and thematic review of foreign PEPs.
Life Insurance Sector Report – AML/CFT
The FSA have published updated data in respect of the life insurance sector following analysis of the latest AML/CFT statistical returns. The report can be found here.
Central Bank of Ireland (CBI) Updates
Central Bank publishes research outlining key climate risk channels for the economy
The Central Bank of Ireland (CBI) has published a Financial Stability Note, “Climate Risks in the Financial System: An Overview of Channels, Impact, and Heterogeneity”, authored by James Carroll. The Note looks at how physical and transition risks might translate to the real economy and impact households, businesses, and the financial sector.
Guidance for (Re)insurance Undertakings on Climate Change Risk
During August the Central Bank of Ireland (“Central Bank”) released Consultation Paper (“CP”) 151 Guidance for (Re) Insurance Undertakings on Climate Change Risk. This CP is amongst a number of recent publications relating to climate change, including the Central Bank’s letter setting out its supervisory expectations in relation to climate and other ESG issues from November 2021, and EIOPA’s recent application guidance on climate change materiality assessments and climate change scenarios in the ORSA. Our Insurance sector experts and our Sustainable Futures team have prepared a short summary of the guidance and how we help our clients.
CBI: Insurance Newsletter
The Central Bank of Ireland (CBI) has published its September Insurance Newsletter. The Newsletter includes best practices, common themes and/or key issues observed by the CBI from: a thematic review of a sample of ORSAs to understand (re)insurers’ considerations of and exposure to climate change risk; a thematic inspection of oversight and governance controls over Managing General Agents (‘MGAs’); and an analysis of the operational risk challenges of the six most significant players in the domestic non-life insurance sector.
The Newsletter also makes reference to the “Outsourcing Registers – Submission Requirements’ webpage which was set up to assist regulated firms that are required to submit to the CBI their outsourcing register and reminds (re)insurers that Individual Questionnaires will soon no longer be submitted via ONR, but will instead be submitted via the Central Bank of Ireland Portal.
CBI: Research Technical Paper
The CBI published a Research Technical Paper, “Wealth Accumulation and Inter-generational Inequality with Inverted Population Pyramids.”. The paper, authored by Simone Cima, examines the impact of changing population dynamics on the economy and the ability of younger generations to fund retirement. It noted in advanced economics, younger people face significant challenges in building enough wealth to fund the same standard of living at retirement as the generations before them.
CBI: Under-insurance in the Home Insurance Market
The CBI has issued a ‘Dear CEO Letter’ to insurance firms on 22 September 2022, outlining findings from a review of the risk posed to consumers of not having sufficient home insurance cover. The review was conducted due to consumers currently facing increasing rebuild costs, which may affect the level of insurance cover that a consumer should have on their property. The CBI found that some consumers may be at risk of not being fully protected if they have to make a home insurance claim. In the Dear CEO Letter, the CBI reminded insurance firms that they should have a fully embedded, and fit-for-purpose, Consumer Protection Risk Management Framework and also set out its expectations of firms in addressing this under-insurance risk.
European Insurance and Occupational Pensions Authority (EIOPA) Updates
The European Insurance and Occupational Pensions Authority (EIOPA) has published a speech by Petra Hielkema, EIOPA Chair on navigating low rates, the pandemic and inflation – shifting patterns in life insurance.
EIOPA: Solvency II data quality
EIOPA published a report describing the importance of regulatory reporting data quality for prudential supervision and macro prudential analysis. Included in the report was the work EIOPA carried out to improve the completeness, reliability, and usability of Solvency II reporting data. The report demonstrates that the automated data quality processing solutions and advanced analytic tools together with built-in validations in the XBRL taxonomy have been effective in raising the quality of data.
Other European Updates
ECB: Insurance Data
On 1 July 2022, the European Central Bank (ECB) received a request from the Chairman of the Oireachtas (Irish Parliament) Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach for an opinion on the Judicial Council (Amendment) Bill 2021 (draft law). In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion. The purpose of the draft law is to make provision for the reporting of the effects of the personal injuries’ guidelines adopted by the Irish Judicial Council on the cost of insurance.
OJ: Calculating technical provisions and basic own funds: Solvency II
The Commission Implementing Regulation was published in the Official Journal of the European Union. It lays down technical information for calculating technical provisions and basic own funds for reporting under the Solvency II Directive with reference dates from 30 June until 29 September 2022.
IE: Review of ELD must not undermine availability of insurance or growth of environmental liability insurance market
IE has responded to a consultation conducted by the European Commission on the review of the Environmental Liability Directive (ELD). IE notes that as providers of cover for environmental liability, insurers consider the ELD to be instrumental in preventing and remediating environmental damage.
IE: European Sustainability Reporting Standards are welcome but refining and phasing is needed
In a joint response to a consultation by the European Financial Reporting Advisory Group (EFRAG) on its draft European Sustainability Reporting Standards (ESRS), IE and the European Chief Financial Officer Forum (CFO Forum) have made a number of recommendations including the urgent need for a phased introduction.
IE and the CFO Forum argue that European insurers are committed to supporting the transition to a more sustainable economy and to tackling climate change as a matter of urgency and that the European Insurance sector strongly supports the EU’s objectives of transforming Europe into a climate-neutral continent by 2050 and is ready to contribute to that objective. They also argue that Europe’s insurers support the European Commission’s ambitious objective of developing a robust sustainability reporting framework through the Corporate Sustainability Reporting Directive (CSRD).
International Supervisory Authority Updates
The International Association of Insurance Supervisors (IAIS) has published a Newsletter, dated July/August 2022. The newsletter covers some of the events held over the past weeks including the IAIS-A2ii Supervisory Dialogue on Conduct and Culture (21 July) and the Public Roundtable on the implementation of the Holistic Framework (19 July) and the CRO Roundtable (6 July).
IAIS: European Insurers call for greater clarity and improvements to draft IAIS criteria on comparability of Aggregation Method and ICS
Insurance Europe (IE) has responded to a consultation conducted by IAIS on draft criteria to assess whether the Aggregation Method provides comparable outcomes to the Insurance Capital Standard (ICS). While IE supports the aim to take a quantitative approach to the comparability assessment, it argues that a number of key elements must be changed or clarified before the criteria are finalised and the comparability assessment begins.
PRA: Climate Financial Risk Forum
Prudential Regulatory Authority (PRA) published the minutes of the second meeting of the Climate Financial Risk Forum (CFRF)’s third session. Since the last Forum meeting in April 2022, the Working Groups have been progressing in their respective area of work on scenario analysis, disclosure, data and metrics and transition to net zero. The Forum discussed the progress made by each Working group, including planned outputs for Session 3 and the timeline for publishing them.
PRA: Regulatory reporting for the insurance sector - updated webpage
PRA updated its webpage on regulatory reporting for the insurance sector. The update states that the PRA implemented the EIOPA’s Taxonomy 2.6 for firms to use from 31 December 2021 and firms should continue to use this taxonomy to meet the reporting requirements set out in PS29/21 until further notice.
FCA looks for external experts to help shape its work on ESG issues
Financial Conduct Authority (FCA) published a webpage which states that it is establishing a new advisory committee to the FCA’s Board to work on Environmental, Social and Governance (ESG) issues, and is looking for expressions of interest from stakeholders to join. The Committee’s membership will include a small number of external experts who have in depth knowledge of ESG issues in the financial sector. The Committee is expected to meet for the first time in Q4 2022, and quarterly from then onwards.
BaFin: Stable investments - Investments in infrastructure projects are becoming increasingly popular with insurers
BaFin (Federal Financial Supervisory Authority Germany) published an article which suggests that Investments in infrastructure projects are becoming increasingly popular with insurers. Insurance companies are increasingly trying to invest their funds profitably in assets outside the traditional investment spectrum. A survey revealed that infrastructure investments suit insurers’ needs in many ways.
Please see below for EIOPA’s response to recent questions, as summarised by our colleagues in KPMG UK. EIOPA has responded to queries where uncertainties exist in the Solvency II requirements. The Solvency II requirements may change or become more prescriptive over time.
24 August: Counterparty default risk and receivables
EIOPA clarified in Q&A (#2442) that premium receivables from policyholder debtors due and recognized in the balance sheet (assets side) should be considered when calculating the counterparty risk. Future premiums (included in the technical provision) are not taken in consideration to calculate counterparty risk. One can also see Q&A (#564).
31 August: Mass lapse scenarios and management actions
EIOPA clarified in Q&A (#2402) that article 83.1 (d) of Delegated regulation (EU) 2015/35 does not allow management actions during scenarios in the sense that the shock may not be changed by these management actions. For the mass-lapse scenario this means that lapse level cannot be reduced by any management actions. EIOPA also clarified that if a management action is triggered by the stress, the principle stays the same – it should not be activated during the scenario. That means that the instantaneous nature of the mass-lapse scenario implies management actions cannot start until after the mass-lapse occurs. In the end, EIOPA said that if the models are realistic in accordance with the articles 23 and 83 of Delegated regulation (EU) 2015/35, such future management actions can be present in the best estimate models and in the solvency capital requirement calculation.
Transition to IFRS 17
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.