Insurance Insights

The global economy has witnessed continuing interest rate hikes over recent months as central banks aim to curb inflation, which has largely been caused by the consequences of the pandemic, associated supply chain disruptions, and the ongoing conflict in Ukraine. In KPMG UK’s recent blog we looked at the challenges for Treasurers in 2023 against this backdrop. Stewart Hagell (Director) and Phoenix Green (Senior Manager) continue on that theme but with a focus on key considerations for investment decisions.

With base rates having risen above 4% in the past year in the UK and US and tightening monetary policy marking the end of the near-zero interest rate era, has the yield on your investments reacted in kind or is there now a too big to ignore opportunity cost for having not acted? Have you reviewed your credit risk policy in light of the challenging economic outlook and recent mini banking crisis?

Read the full blog here.

With evolving financial crime threats and heightened regulatory scrutiny, firms are reassessing their approach to financial crime risk management and compliance, and are paying a heavy financial cost, collectively spending billions trying to prevent financial crime. And so, maturing and embedding a robust FinCrime operating model to meet regulators expectation, without adding cost, is becoming critical to driving strong regulatory outcomes. KPMG Ireland, led by Ian Nelson (Partner, Head of Financial Services and Regulatory), discuss this further.

Episode 3 of KPMG’s audit podcast series, where we explore the relevant issues, opportunities and new ways of working shaping the audit profession's future, focuses on the European Union Corporate Sustainability Reporting Directive (CSRD). CSRD will lead to a fundamental change in corporate reporting and represents the most significant transformation in corporate reporting in the last 25 years. Conor Holland, Principal, ESG Reporting & Assurance at KPMG Ireland, talks to Elaine Stafford about the CSRD and how this will impact Irish businesses.

ew research released from KPMG UK has found that while some consumers would use artificial intelligence (“AI”) to support everyday tasks, 82% have concerns or challenges that prevent them from using it.  A third of consumers report data privacy concerns with AI, only 13% of consumers believe that AI will support jobs, and saving time was the most popular primary motivation for consumers using AI

Ian West, Head of Technology and Alliances at KPMG UK, said “AI is incredible technology with huge potential but there is much for businesses to think about when it comes to consumers’ views of AI. There are several barriers to adoption that need to be addressed by tech companies and by businesses who are rolling out the technology. Businesses need to be clear about the benefits of the technology and how it is transforming the proposition available to consumers for it to become accepted.

The Isle of Man Financial Services Authority (“IOMFSA”) has published a document setting out its updated approach to supervising the Island’s finance sector.

The Supervisory Methodology Framework will help to focus the IOMFSA’s resources on the greatest threats to its objectives of protecting consumers, reducing financial crime, and maintaining confidence in the financial services sector through effective regulation.

For regulated firms, supervisory activity will be more proportionate to the firm’s impact, as determined by its size, the type of activities it conducts, and its potential to cause disruption to the Island’s financial system. The intention is to focus the IOMFSA’s resources on the greatest threats to its objectives of protecting consumers, reducing financial crime, and maintaining confidence in the financial services sector through effective regulation.

Ros Lynch, Head of Supervisory Practices, said: ‘Moving from a predominantly sector-based approach to an impact and risk-led model will ensure the IOMFSA’s supervisory resources are deployed in the most proportionate and efficient way. The transition will be embedded in the months ahead and we will continue to inform firms of developments.’

To provide further insight into its updated Supervisory Methodology Framework, the IOMFSA is hosting a free event in the Lecture Theatre at the Manx Museum on Friday 19 May, from 9:30am to 10:30am.

Further information on the event can be found here.

The IOMFSA has announced that internal restructuring has taken place to support the transition to an updated approach to supervision.

As part of the overall restructure, governance panels will be convened on a regular basis to review impact and risk ratings, referrals to Enhanced Supervision and/or Enforcement, and process consistency.

The changes will all contribute to a more structured and consistent approach, ensuring that key elements of the supervisory process are assessed using a common framework.

Bettina Roth, Chief Executive Officer, said: ‘We believe we can deliver maximum value by focusing our resources on the firms that have the capacity to cause the greatest disruption to the economy should they fail or operate in an unsafe manner.’

The Central Bank of Ireland (“Central Bank”) published a speech by Gerry Cross, Director of Financial Regulation, Policy & Risk  delivered on 28 March 2023 entitled “Implementing DORA – Achieving enhanced digital operational resilience in European Financial Services”. The speech covered the following topics with regard to the implementation of a Digital Operational Resilience Framework (“DORA”):

• Working Principles;
• Timelines;
• Risk Management;
• ICT Incident Management & Reporting; and
• Oversign of Critical Third Party Providers

On 18 April the Central Bank published the “General Good Rules Arising from the Directive (EU) 2016/97 on Insurance Distribution 2023”.  The Rules are relevant to insurance undertakings and insurance intermediaries operating in Ireland on a cross-border basis and link consumer protection requirements under the European Insurance Distribution Directive to Irish regulatory requirements set out in the Consumer Protection Code, the Consumer Insurance Contracts Act and the Health Insurance Acts, among others others.

The Central Bank’s Director of Insurance Supervision, Domhnall Cullinan, during his address to the Insurance Ireland-Milliman CRO Forum held on 18 April, noted that in a period of heightened market volatility as we are currently experiencing, the Central Bank expects firms to closely monitor market and credit risks in their investment portfolios, ensuring that these risks are not unduly concentrated within a particular counterparty, sector or region. He also reiterated the Central Bank’s priorities for 2023 from an Insurance Supervision perspective: the implementation of the Individual Accountability Framework (IAF); financial resilience; consumer Interests, specifically Payment Protection Insurance (PPI) and Value for Money (VfM) in unit linked products; climate change; digitalisation & technology; operational resilience including Digital Operational Resilience Act (DORA); and Financial Sanctions.

The European Insurance and Occupational Pensions Authority (“EIOPA”) has published on 29 March 2023  a staff paper where it explains that the failure to account for, mitigate and adapt to the consequences of biodiversity loss can have economic implications that potentially jeopardise financial stability. In the paper, EIOPA describes the transmission channels of nature-related risk into society and the economy, and the relationship between climate and nature-related risks. EIOPA identifies how nature-related risks can translate into risks to insurers' assets and liabilities, how insurers can impact on these and the type of approaches for assessing risks and impacts. As part of its sustainable finance strategy, EIOPA aims to establish supervisory expectations for managing nature-related risks and impacts in a step-by-step approach.

On 22 March 2023 EIOPA hosted its ‘Eastern Cooperation Conference’ bringing together insurance supervisors from European Economic Area (EEA) and non-EEA jurisdictions. In hosting this conference, EIOPA underlined its continued support for jurisdictions in the process of adapting or implementing EU insurance legislation. The conference focused on exchanging views on supervisory experiences and practices, in particular related to the implementation of risk-based supervisory frameworks, such as Solvency II.

EIOPA has published the 3 April 2023 results of its comparative study on the modelling of market and credit risk in internal models based on year-end 2021 data. The study focuses on EUR denominated instruments while also analysing selected GBP and USD denominated instruments as well as the corresponding foreign exchange rate indices. The 20 participants from 7 different Member States cover close to 100% of the EUR investments held by all undertakings with approved internal models covering market and credit risk in the EEA. The overall results show moderate to significant dispersion in some asset model outputs. Although this dispersion may in part be attributable to certain model and business specificities that supervisors are conscious of, EIOPA notes that it also indicates the need for continued supervisory attention, including at the European level.