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.
Poised for change? Boardroom diversity survey
To better understand how directors view the opportunities and challenges of enhancing diversity in the boardroom, the KPMG Board Leadership Centre (insurance contact: John O’Donnell) surveyed more than 700 directors around the world. Among the Irish respondents to the survey, it’s clear that:
- 66% would make moderate changes to the composition of their board if rebuilding;
- 50% of respondents are moderately concerned the lack of diverse views hampers insightful discussion;
- 50% of directors identified technology / digital strategy as an area their board is lacking but does not immediately require resolution;
- 61% identified diversity by race as an area where they are lacking, but that did not need immediate resolution; and
- 30% identified gender diversity as an where they are lacking, but that did not need immediate resolution.
Solvency II reforms: Reforming Solvency II for UK insurance market
KPMG UK (led by Matthew Francis, Insurance Director, and James Isdem, Insurance Director) have summarised the key proposals made by UK regulators to reform the insurance market. This includes Her Majesty’s Treasury (“HM Treasury”) consultation on the review of Solvency II, proposals put forward earlier this year by John Glen MP, Economic Secretary to the Treasury and the Prudential Regulatory Authority’s (“PRA”) statement and Discussion Paper focused primarily on one aspect of the review, the fundamental spread.
Innovating through platforms and ecosystems
In our latest edition of Frontiers in Finance, we explore the strategies, technologies, approaches and models that are rapidly redefining the financial services marketplace as we move into the era of platforms, ecosystems and cryptoassets. We also share exclusive interviews with executives from the Commonwealth Bank of Australia, Blackrock and bolttech (an insurance startup).
Central Bank of Ireland (CBI) Updates
The Central Bank of Ireland (“Central Bank”) has published an Insurance Newsletter, dated March 2022. The Newsletter includes updates in relation to:
- The Central Bank’s expectations with reference to the crisis in Ukraine;
- The Digitalisation Survey that that the Central Bank will be issuing later this year to a sample of firms;
- The results of the review of the use of Exempt Ancillary Insurance Intermediaries (EAIIs) in the Insurance Sector; and
- The recently published Insurance Arrangements Regulations 2022.
Climate Risk and Sustainable Finance Forum: call for participants
The Central Bank has established a Climate Risk and Sustainable Finance Forum and invited representatives from financial sector firms and industry representative bodies to become members of the Climate Forum by 20 May 2022. An inaugural meeting will take place on 29 June 2022 focussed on establishing a framework to make progress on high-priority issues affecting the financial sector.
EIOPA: Blockchain and smart contracts
ESAs see recovery stalling amid existing and new risks
The European Supervisory Authorities (EIOPA, European Banking Authority, European Securities and Markets Authority) published their first joint risk assessment report for 2022. The report highlights the increasing vulnerabilities across the financial sector as well as the rise of environmental and cyber risks.
EIOPA: Retail investor protection topics
EIOPA has published a final report containing technical advice to the EC on certain issues relating to retail investor protection. It has published the Annexes separately. The report responds to the European Commission’s (EC) request for advice of July 2021 and EIOPA's subsequent consultation in January 2022. EIOPA has published a resolution table on its own responses to the feedback received to the consultation. The report has been submitted to the EC. EIOPA's advice will feed into the EC's development of a Retail Investment Strategy.
Solvency II: Contract boundaries and valuation of technical provisions
EIOPA has published the following two final reports:
- Final report on the public consultation on the revision of the guidelines on contract boundaries. EIOPA has introduced new guidelines and amended its current guidelines on the determination of contract boundaries, relating to the assessment of whether a cover or financial guarantee has a discernible effect on the economics of the contract and the identification of the contracts that can be unbundled.
- Final report on the public consultation on the revision of the guidelines on the valuation of technical provisions. EIOPA has introduced new guidelines and amended its current guidelines on the valuation of best estimate (including the use of future management actions and expert judgment), the modelling of expenses and the valuation of options and guarantees by economic scenarios generators and modelling of policyholder behaviour.
EIOPA: Integration of sustainability preferences: IDD
EIOPA has published a consultation paper on draft guidelines on the integration of the customer's sustainability preferences in the suitability assessment under the Insurance Distribution Directive (IDD). A Commission Delegated Regulation will introduce changes, as of 2 August 2022, in the way customers' sustainability preferences are considered in the suitability assessment by insurers and insurance intermediaries providing advice on insurance-based investment products (IBIPs). EIOPA expects to publish the final guidelines in July 2022, in time for the Delegated Regulation's application date of 2 August 2022. .
EIOPA: Individual disclosures and EU-wide stress test exercises
EIOPA has published an opinion on individual disclosures in the context of EU-wide stress test exercises. EIOPA regularly runs EU-wide stress test exercises to assess the resilience of the EU insurance industry against foreseen evolutions in market conditions and their potential negative implications for insurers.
EIOPA: Supervision of run-off undertakings: Solvency II
EIOPA has published a supervisory statement on the supervision of run-off undertakings under the Solvency II Directive. The supervisory statement aims to ensure that high-quality and convergent supervision is applied to run-off undertakings and portfolios subject to the Solvency II regime, while considering their specific nature and risks, the proportionality principle and the prudent person principle (PPP). EIOPA identified the supervision of run-off undertakings as an emerging risk in its supervisory convergence plan for 2021.
Speech by Petra Hielkema
EIOPA has published a keynote speech by Petra Hielkema at the FAROS Frühjahrsforum regarding ‘’Investing for the future in a low-yield and high-uncertainty environment’’.
Other European and International Supervisory Authority Updates
The International Association of Insurance Supervisors (IAIS) has published their Newsletter, dated April 2022. The newsletter outlines items it is focused on including passing the mid-point of the Insurance Capital Standard monitoring period, as well as various news, events, and other updates.
OJ: PRIIPs KID
A corrigendum to the text of Commission Delegated Regulation (EU) 2021/2268 amending the regulatory technical standards (RTS) laid down in the packaged retail and insurance-based investment product Key Information Document (PRIIPs KID) Delegated Regulation (i.e. Commission Delegated Regulation (EU) 2017/653) was published in the Official Journal (OJ) of the European Union. Delegated Regulation was originally published in the Official Journal of the European Union on 20 December 2021 and entered into force on 9 January 2022. It currently provides that it will apply from 1 July 2022 (except Article 1, point 13, which has applied since 1 January 2022), but this is likely to change to 1 January 2023.
Insurance Europe (IE) has published an updated set of key messages regarding the European Commission’s Corporate Sustainability Reporting Directive (CSRD) initiative, in view of the ongoing trialogue discussions between the Commission, the Council of the EU and the European Parliament on their respective proposals for the CSRD.
FCA launches three-year strategy to improve outcomes
The FCA (Financial Conduct Authority) has launched a new strategy to improve outcomes for consumers and in markets throughout the UK. The regulator will, for the first time, hold itself accountable against published outcomes and performance metrics. A key focus of the strategy is shutting down problem firms, which do not meet basic regulatory standards. The FCA is recruiting 80 employees to work on the initiative, which will protect consumers from potential fraud, poor treatment and create a better market.
Transforming data collection communication to firms – 13 April 2022
The Bank of England (BoE) and the FCA published a webpage regarding working to transform data collection from the UK financial sector. A lot of this work is being carried out by the joint transformation programme they have set up with industry. The PRA and the FCA are pushing back the start of phase two of the joint transformation programme until September 2022.
Review of Solvency II Reporting and Disclosure Requirements
The PRA launched the Solvency II reporting cost survey with the aim of gathering historical operational cost information from firms on their compliance with the existing framework, to assist with the PRA’s analysis of the costs and benefits associated with future reporting and disclosure policy proposals. Firms were asked to respond by Friday 27 May 2022.
PRA: CP4/22 - Regulated fees and levies: Rates proposals 2022/23
The PRA published a Consultation Paper that sets out proposals for the PRA’s fees for 2022/23. The proposals would make amendments to the Fees Part of the PRA Rulebook. The PRA proposes to publish the changes resulting from this Consultation Paper on Monday 4 July 2022 and proposes that the implementation date for the changes resulting from this CP would be Wednesday 6 July 2022. This consultation closed on Friday 20 May 2022.
PRA: Prudential Regulation Authority Business Plan 2022/23
The PRA published a Business Plan which sets out the PRA’s strategy, workplan and budget for 2022/23. It includes the following key points:
- In April 2022, HM Treasury will consult on a package of reforms to insurance regulation.
- The PRA will launch the next insurance stress test in May 2022, covering the largest general and life insurers.
- The PRA will continue its scrutiny of internal models used by insurers to quantify and manage their risks, recognising the limitations and costs of these models.
- Regarding operational resilience, a focus of engagement during 2022 will be to assess whether firms had implemented the policy expectations by the time they came into force on 31 March 2022.
- On climate change, from 2022 the PRA’s approach to climate-related financial risk will switch from assessing implementation, to actively supervising against the threats.
PS22/3: Diversity and inclusion on company boards and executive management
The FCA published its final policy decision for proposals set out in CP 21/24 ‘Diversity and inclusion on company boards and executive committees’. These measures will improve transparency on the diversity of company boards and their executive management for investors and other market participants.
PRA: Passporting - updated webpage
The PRA has updated its webpage on passporting. The update states that passporting rights will continue for firms operating between the UK and Gibraltar. Statutory Instrument (SI) 2019/589 established transitional arrangements for Gibraltar that will preserve the status quo of deemed-passporting for Gibraltarian firms after the end of the transition period.
HM Treasury Solvency II Review - Consultation
HM Treasury has published a consultation on Solvency II reform in the UK. The consultation provides further details on the proposals announced earlier this year by John Glen MP, Economic Secretary to the Treasury.
PRA’s statement on the ‘Review of Solvency II’ consultation
The PRA published a statement that provides an update from the PRA, coinciding with the consultation published by HM Treasury on the Solvency II Review (see above). The PRA supports the objectives of the Review and continues to work closely with HM Treasury on the potential reforms. This statement and the accompanying Discussion Paper (see below) set out the PRA’s current views on some key aspects of the potential reform package.
Reforms to Risk Margin and Matching Adjustment within Solvency II
The PRA published a Discussion Paper which sets out the PRA’s current views on some key aspects of the HM Treasury proposed reform package (see above). The PRA is of the view that decisions on changes to the risk margin need to be taken together with decisions on the Fundamental Spread (FS) when assessing the overall impact of reforms on its statutory objectives.
PRA: Review of Solvency II - Quantitative Impact Study
Last year, the PRA launched the Quantitative Impact Study (QIS) as a data collection exercise to assist its analysis of potential Solvency II reform options. During Q1 2022, the PRA continued to engage with the insurance industry through a series of roundtable events on the Fundamental Spread (FS), risk margin, internal model framework, and Transitional Measure on Technical Provisions (TMTP).
Protecting investors in authorized funds following Russian invasion of Ukraine
The FCA published a Consultation Paper in which it is consulting on rules which will allow Authorised Fund Managers (AFMs) to create separate unit classes (side pockets) for retail investment funds affected by the invasion of Ukraine. FCA wants these funds to operate fairly and efficiently in the interests of all investors.
Creating conditions for sustainable growth in the life annuity sector
At the 19th Annual Conference on Bulk Annuities, Charlotte Gerken (Executive Director, the PRA) gave a speech about the long-term sustainable growth of the UK’s life annuity sector.
In her speech, she highlights the importance of:
- The responsibility of the board
- Risk management
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.
05 April: Treatment of CIUs in consolidated data for groups
EIOPA clarified in Q&A (#2203) that the data on related Collective Investment Undertakings are to be included in the consolidated data on the basis of the proportional share held according to Article 335(1)f of the Delegated Regulation 2015/35, if method 1 applies.
05 April: IGT reporting
EIOPA clarified in Q&A (#2378) that where similar transactions with a related entity may be excluded from IGT reporting when considered individually against the thresholds for significant and very significant, these transactions must nevertheless be individually reported where collectively they are at or above the corresponding threshold values for significant or very significant IGTs.
05 April: Treatment of Volatility Adjustment in QRT S.29 Excess of Assets over liabilities
EIOPA clarified in Q&A (#2379) that as it is the first year of application of the Volatility Adjustment, year N-1 values should be reported without VA and year N values should include VA for all S.29.XX templates. The use of VA will have an impact on the technical provisions and, therefore, in the reconciliation reserve.
05 April: Use of local GAAP vs IFRS for S.05 Premiums & Claims & IFRS 17
EIOPA clarified in Q&A (#2228) that groups using local GAAP for their consolidated financial statement and producing consolidated accounts also in accordance with IFRS for reasons different from the preparation/presentation of the general purpose financial statement are required to fill in S.05.01 on the basis for the accounting principles used for the accounting financial statement (in this case local GAAP).
It also clarified that although IFRS 17 is not yet applied in the EU, it is worth reminding that while IFRS 17 does not require written premiums to be shown in the Profit and Loss, it does require disclosure in the notes. So those figures are expected to be available to the undertakings and may be reported in S.05.01, assuming undertakings use IFRS for their accounting financial statements. Further instruction will be provided by EIOPA in due course.
07 April: Treatment of foreseeable dividends in quarterly QRTs
EIOPA confirms in Q&A (#2311) that as soon as a dividend is foreseeable, the full amount of dividend must be included in the quarterly reporting at one time, which means that it shall not be added incrementally from quarter to quarter.
07 April: S.22.05 Overall calculation of transitional measure on technical provisions (TMTP)
EIOPA clarified in Q&A (#2326) how QRT S.22.05 should be presented.
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.
For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.