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Insurance Insights May 2021

Brian Morrissey, Head of Insurance, and our insurance team have compiled a collection of KPMG's latest publications and articles which focus on developments in, and issues facing the insurance industry. Also included are recent publications from the CBI, EIOPA, and other European bodies.

KPMG Updates

Pre-emptive Recovery Planning for (Re) Insurers

In this article, KPMG, led by Patrick Farrell (Partner, Risk Consulting) and Claire Heeley (Managing Director, Risk Consulting) provide an overview of the regulations, together with considerations and insights gleaned from supporting clients with recovery planning in the banking sector.

Financial Services Code of Conduct

Internal Audit Functions continue to play an integral role in driving effective governance and risk management initiatives. The recent publication of the updated “Internal Audit Financial Services Code” by the Chartered Institute of Internal Auditors provides updated good practice recommendations for the consideration of Boards, Senior Management and the Chief Audit Executive of financial services organisations to foster effective and robust IA practices. Patrick Farrell, Claire Heeley and Neil Taaffe (Director, Risk Consulting) set out a summary of these recommendations and considerations to support their implementation in this article.

CBI perspective on Operational Resilience

KPMG, led by Owen Lewis (Head of Management Consulting), Ian Nelson (Head of Regulatory, Head of Banking and Capital Markets) and David Polley (Director, KPMG Management Consulting) from the KPMG Operational Resilience team explain how strengthening resilience throughout the financial system is one of the strategic commitments by the Central Bank of Ireland (CBI). KPMG notes that resilience includes understanding existing vulnerabilities and mitigating those risks to ensure the financial system can withstand and limit the impact of future disruptions.

Own Risk and Solvency Assessment (ORSA)

The key role that the Own Risk and Solvency Assessment (ORSA) plays in the overall enterprise risk management of life (re)insurers has been highlighted very clearly in the past year as (re)insurers have grappled with the direct and indirect impacts of COVID-19 on their businesses. Over the past five years, since the introduction of Solvency II, the focus areas and process around ORSAs have continued to evolve and our KPMG Life Actuarial and Regulatory team share with you some general insights on evolving themes and development areas observed, in relation to the ORSA process.

Central Bank of Ireland Updates

CBI: Recovery plans for (re)insurers

The CBI has published the feedback statement and responses received from consultation paper 131 "Regulations for pre-emptive recovery planning for (re)insurers". Recovery Plan Guidelines for (re)insurers have also been published.

EIOPA Updates

IBOR transitions and issues information request

European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper on IBOR transitions. The consultation considers adjustments to EIOPA's risk-free rate methodology and production. Comments can be made on the consultation until 23 July 2021.

Reporting of costs and charges of IORPs and the risk management by IORPs providing defined contribution schemes

EIOPA has launched two consultations on risk assessment by Institutions for Occupational Retirement Provisions (IORPs) providing defined contribution (DC) schemes and the supervisory reporting of costs and charges by IORPs.

EIOPA invites stakeholders to provide feedback on both consultation papers by completing the surveys by 22 July 2021 and expects to publish the final Opinions in the fourth quarter of 2021 together with feedback statements on the consultation responses of stakeholders.

Blockchain and smart contracts

EIOPA has published a discussion paper on blockchain and smart contracts in insurance. The discussion paper provides a high-level overview of the risks and benefits of blockchain and smart contracts in insurance from a supervisory perspective. The paper will feed into the upcoming legislative initiatives foreseen in the European Commission's Digital Finance Strategy and supplement EIOPA's overall work on digitalisation.

Use of climate change scenarios in the ORSA

EIOPA has issued an Opinion on the supervision of the use of climate change scenarios in the Own Risk and Solvency Assessment (ORSA) addressed to national supervisory authorities. In this Opinion EIOPA sets out expectations on the supervision of the integration of climate change risk scenarios by insurers in their ORSA.

Maintaining stability of the EU insurance sector in times of uncertainty

EIOPA has published a contribution speech to the Eurofi Magazine, titled ‘Maintaining stability of the EU insurance sector in times of uncertainty’. EIOPA remarks that the outlook for the insurance sector will depend critically on the future development of the pandemic and on the resilience of the economic recovery.

Framework to address value for money risk in EU unit-linked market

EIOPA has published a consultation paper on a framework to address value for money risk in the EU unit-linked market. It has published the consultation paper in response to its repeatedly highlighted concerns that, while unit-linked products can and often do offer important benefits for policyholders, costs for some of these products continue to remain too high. Comments can be made on the proposals until 16 July 2021.

2021 EU-wide insurance sector stress test

EIOPA has created a webpage on the EU-wide insurance sector stress test to be held in 2021. The aim of the stress test is to assess the resilience of the participants to the adverse scenario(s) by a capital and liquidity perspective and to provide supervisors with information on whether these insurers can withstand severe but plausible shocks. EIOPA outlines the timeline for the stress test process throughout the year and indicates that the outcome of the stress test will be published in December 2021.

Year-end 2019 comparative study on market and credit risk modelling under Solvency II

EIOPA has published a report setting out the findings from its YE 2019 comparative study on market and credit risk modelling. The overall results show significant variations in asset model outputs, consistent with past studies, which EIOPA explains could be partly attributable to model and business specificities already known by the relevant national competent authorities, but also indicate a certain need for further supervisory scrutiny.

Insurance Distribution Directive (IDD) single rulebook

EIOPA has published a press release announcing that it has launched its IDD single rulebook. The single rulebook is an online tool that aims to promote the consistent implementation of the Solvency II regulatory framework for insurance supervision. As well as covering the IDD, it also covers Delegated Regulation (EU) 2017/2358, Delegated Regulation (EU) 2017/2359, Delegated Regulation (EU) 2019/1935 and Implementing Regulation (EU) 2017/1469) as well as EIOPA guidelines and Q&As relating to the IDD. EIOPA has also published a user guide for the rulebook.

Annual report on limitations and exemptions from reporting under Solvency II: 2019 and Q1 2020

EIOPA has published its annual report on limitations and exemptions from reporting by national competent authorities in different markets, during 2019 year-end and Q1 2020, under the Solvency II Directive.

EIOPA’s new chair

In March 2021, the Board of Supervisors of EIOPA decided on a shortlist of three candidates for the position of Chairperson of EIOPA, ensuring gender representation. The shortlist was submitted to the European Parliament's Committee on Economic and Monetary Affairs and the Council. Petra Hielkema, Director Insurance Supervision at De Nederlandsche Bank, has been recommended as the new chair.

Other European and International Supervisory Authority Updates

European Supervisory Authorities decision on admissibility of appeal concerning EIOPA involvement in review of member state insurance sector

The Joint Board of Appeal of the European Supervisory Authorities (ESAs) has published its decision in an appeal case brought by City Insurance against EIOPA. In December 2020, City Insurance filed a notice of appeal with the Joint Board pursuant to Article 60 of the EIOPA Regulation requesting that the Joint Board issue a finding that, among other things, EIOPA had acted in excess of its regulated competence. Full details of the findings can be found here.

IAIS completes key milestone in Aggregation Method comparability assessment project

The International Association of Insurance Supervisors (IAIS) has progressed its work on the comparability assessment project – an initiative that will ascertain whether the Aggregation Method provides comparable outcomes to the Insurance Capital Standard. The definition of comparable outcomes and the high-level principles to inform the development of the comparability criteria have been finalised, following public consultation. IAIS has also published a document setting out the main comments received on its consultation on comparable outcomes and high-level principles.

Key inclusive insurance stakeholders to discuss the role of insurance in achieving the Sustainable Development Goals

The repercussions of the pandemic on people's lives and economies have reignited discussions around the role of insurance in sustainable development efforts. On 22 April, the Access to Insurance Initiative (A2ii) and IAIS hosted a Public Dialogue on Insurance and the Sustainable Development Goals where H.M. Queen Máxima of the Netherlands, United Nations Secretary-General's Special Advocate for Inclusive Finance for Development (UNSGSA) provided a pre-recorded video message for the keynote address.

Other Updates

Insurance Europe - E-Privacy

Insurance Europe has published a paper that examines the impact of the different positions that have been taken by the European co-legislators - the European Commission, the Council of the EU and the European Parliament on proposals for the e-Privacy Regulation, which will soon be debated in trialogue discussions.

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.

Further information

For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.