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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

Third-Party Risk Management Outlook 2022

KPMG will be hosting the Third-Party Risk Management Outlook 2022 EMA/Americas webcast. This session will look at the key findings from KPMG International’s Third Party Risk Management (TPRM) Outlook 2022 survey, which was conducted to obtain a global perspective on how businesses are assessing and managing third parties. KPMG professionals will be joined by senior executives from organizations in the US, UK and Europe to share their perspectives on TPRM and its critical role in the enterprise. The session will outline a number of focus areas you can explore to help drive enhancements in your program with the aim of supporting a business environment in which TPRM remains high on the boardroom and management agenda.

Enterprise Resilience Session

As part of our continued CRO Engagement Programme, KPMG Ireland recently hosted a discussion on Enterprise Resilience within the Insurance Sector on in Platform X, KPMG’s innovation hub.

In this session, the following was discussed:

  • David Polley, Director, KPMG, Management Consulting discussed what the CBI’s Cross Industry Guidance on Operational Resilience published in December 2021 means for the Irish insurance market, including how Operational Resilience relates to existing operational risk and business continuity practices. Click here to download the presentation.
  • Diarmuid Curtin, Director, KPMG, Risk Consulting discussed what New Standards and consultations are being proposed across multiple jurisdictions such as the Digital Operational Resilience Act (‘DORA’) and the associated timelines for implementation. Click here to download the presentation.

Please click here to learn more on Operational Resilience.

MiFID structured retail product review

On 22 April 2022, the Central Bank issued a letter setting out the findings from its recent series of targeted reviews of Structured Retail Products (SRPs) and its expectations for all firms in relation to SRPs. This follows the Themed Inspection by the Central Bank in 2016. All firms are required to complete a full review of current SRP arrangements and controls against the findings and expectations in the Central Bank letter and make changes where necessary. Our Risk Consulting team, led by Gillian Kelly (Co-Head of Consulting), explore the complications of these requirements.

The Ukraine conflict and financial reporting

The Russian invasion of Ukraine has given rise to potentially complex financial reporting considerations for Irish companies with a presence in one or both territories. The ongoing conflict in Ukraine and resulting sanctions and counter sanctions imposed globally on and by Russia, have impacted certain companies. Although the conflict is first and foremost an immense human tragedy for those involved, companies whose operations have been affected will need to consider the financial reporting implications. David Drought (Director, Accounting Advisory ) delves into the details of two potential issues—the first being whether control of subsidiaries located in Russia has been lost, and the second being whether impairment tests of nonfinancial assets in the affected territories should be carried out.

Central Bank of Ireland (CBI) updates

Insurance Regulations / Differential Pricing

Following publication in March 2022 of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Insurance Requirements) Regulations 2022 (the “Insurance Regulations”), which apply from 1 July 2022, the Central Bank published the ‘Insurance Regulations 2022 Q&A’ on 6 May 2022 to assist insurance undertakings and insurance intermediaries’ understanding of the Insurance Regulations. 

June 2022 Newsletter

The Central Bank has published its June 2022 newsletter which includes observations from the recent self-assessment questionnaire relating to insurers’ asset exposure to Ukraine, Russia and Belarus, and non-life insurance covers offered that could see a material increase in the level of claims because of the crisis in Ukraine. 

Employers’ Liability, Public Liability and Commercial Property Insurance Report

The Central Bank has published the second annual Employers' Liability, Public Liability and Commercial Property Insurance Report of the National Claims Information Database (NCID). The Report provides key statistics on Employers' Liability, Public Liability, and Commercial Property Insurance in Ireland; including data on claims costs and settlement channels.

European Insurance and Occupational Pensions Authority (EIOPA) updates

European insurers’ exposure to physical climate change risks

Building on its ambitious agenda for sustainable finance, and in particular on the sensitivity analysis of asset-side transition risks published in 2020, EIOPA launched a follow-up exercise on physical risks in the second half of 2021. This discussion paper presents the first results of this exercise which included a large data collection from industry focused on property, content and business interruption insurance against windstorm, wildfire, river flood and coastal flood risks. The report focuses on assessing the materiality of the insurance sector exposure to physical climate change risk under a financial stability perspective. 

Clarifications on key areas of the RTS under SFDR

The three European Supervisory Authorities (ESAs) (EIOPA, European Banking Authority and European Securities and Markets Authority) published a statement providing clarifications on the draft regulatory technical standards (RTS) issued under the Sustainable Finance Disclosure Regulation (SFDR), which include the financial product disclosures under the Taxonomy Regulation. 

Withdrawal of authorisation for serious breaches of AML/CFT rules

The ESAs published a joint Report, which provides a comprehensive analysis on the completeness, adequacy and uniformity of the applicable laws and practices on the withdrawal of license for serious breaches of the rules on anti-money laundering (AML) and countering the financing of terrorism (CFT). 

Call for improvements in product descriptions intended for retail investors

The ESAs issued a joint supervisory statement regarding the ‘What is this product?’ section of the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs). 

Other European and International Supervisory Authority updates

IAIS: Newsletter

The International Associations of Insurance Supervisors (IAIS) has published a Newsletter, dated May 2022. The Newsletter includes updates in relation to the ‘Year in Review 2021’ report, which presents an overview of the IAIS’ progress and key achievements of 2021 amid the continued challenges of the COVID-19 pandemic. 

UK updates

PRA: Insurance Stress Test 2022 cover letter to firms

The Prudential Regulatory Authority (PRA) is launching its biennial insurance stress test (IST) and is asking a number of the largest regulated life and general insurers to provide information about the impact of a range of stress scenarios on their business. The PRA expects participating firms to fully engage and to provide comprehensive responses to its request. The PRA has provided the scenario specification, guidelines, and instructions for the stress test. It has also published a template version of a Dear CEO letter on the IST 2022, which sets out the PRA's expectations for firms participating in the test. The deadline for submission is 28 September 2022.

FCA: Learning from the last 30 years

The Financial Conduct Authority (FCA) published a speech by Nikhil Rathi delivered at the Chartered Institute for Securities & Investment (CISI) 30th anniversary dinner. In his speech, Nikhil Rathi talks about the following topics:

  • Resilience and standards
  • Transformation and digital challenges
  • Environmental, social and governance (ESG)
  • Diversity and Inclusion

FCA: Multi-occupancy buildings insurance letter

The FCA published a letter to the Department for Levelling up, Housing and Communities (DLUHC), providing an update on its review of the multi-occupancy buildings insurance market. The FCA’s work has focused on the following three areas:

  • gathering data and engaging with both insurers and intermediaries to better understand their approach to pricing.
  • considering the drivers of harm in the market which may be impacting leaseholders; and
  • developing initial options for ways it could address any harms identified, as well as considering the scope of its powers and where harms would be better addressed through action by others (such as industry-led initiatives or Government intervention).

The FCA plans to publish its final report on the multi-occupancy buildings insurance market by 28 July 2022.

HMT: The new Financial Services and Markets Bill

HM Treasury (HMT) published a speech delivered by Her Majesty the Queen in which she announced the new Financial Services and Markets Bill. One of the main elements of the bill is revoking retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK. This includes the Solvency II legislation governing the regulation of insurers, which the government has committed to reform.

Financial stability risks in the UK

The PRA published the results of its regular survey asking market participants how confident they are in the UK financial system and what risks they believe the system is facing. Cyber-attack risk and geopolitical risk remain among the top three most cited risks and have been since the 2017 H1 survey. Pandemic risk is no longer a top three risk among survey participants, with most firms now citing inflation risk instead. The largest change since the 2021 H2 survey was around inflation risk, becoming one of the top five most cited risks for the first time since the survey began in 2008. It was cited as a key risk by 33% of respondents in 2021 H2, but this has now risen to 63%. 

EIOPA Q&As

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.

06 May: Equity investments in Special Purpose Acquisition Companies (SPACs) should be treated as equity investments in the Standard Formula 

EIOPA clarified in Q&A (#2351) that Equity investments in Special Purpose Acquisition Companies (SPACs) should be treated as equity investments in the Standard Formula. This is like the treatment of equity investments in real estate administration companies, as per Guideline 3 of the Guidelines on the Look-Through Approach.

Article 84(1) and 84(2) of the Delegated Regulation states the criteria for investments to be treated on a look-through basis. They would need to either meet the criteria of being an investment packaged as a fund or meet the criteria of only being exposed to indirect risks. As well as the indirect exposure to the assets held by the SPAC, there is additional exposure to the market perception as to the value of the SPAC.

Therefore, it would be inappropriate to solely apply a look-through basis to the investment, and the Standard Formula does not allow for splitting of the risks in the way envisaged by the question.

06 May: Outsourcing to cloud service providers

EIOPA clarified in Q&A (#2287) that in cases where the undertaking outsources operational functions or activities to service providers which are not cloud service providers but rely significantly on cloud infrastructures to deliver their services (for example, where the cloud service provider is part of a sub-outsourcing chain), paragraph 16 of Guideline 1 of EIOPA’s Guidelines on outsourcing to cloud service providers does not imply an obligation for the undertaking to conclude a written agreement with the cloud service provider in the outsourcing chain, but to ensure that the content of the guidelines is complied with also in case of this type of arrangements. This expectation is to be read in conjunction with “Article 274(4) (k) and (l) of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014”.

The written agreement entered into with the service provider that relies significantly on cloud infrastructures to deliver its service shall comply with the EIOPA’s Guidelines on outsourcing to cloud service providers.

20 May: 2022 EIOPA IORP Stress tests shocks 

EIOPA responded to a series of questions regarding the 2022 EIOPA IORP Stress tests shocks. EIOPA clarified in Q&A (#2429) that the scenario has been provided by the ESRB and is based on the disorderly transition scenario, as elaborated by the NGFS. The information reflected in EIOPA’s input helper tool (baseline) has been defined according to the following:

  • For risk-free rates: The Solvency II term-structures as of 31/12/2021 as published by EIOPA (i.e., without VA and including UFR). 
  • For sovereign yields: the observed yields for 3M and 10Y as of 31/12/2021 as provided by Refinitiv using the relevant tickers according to EIOPA’s RFR technical documentation.

The information reflected in EIOPA’s input helper tool (adverse scenario) has been defined according to the following:

  • For risk-free rates: the adverse scenario as provided by the ESRB. As only two tenor points have been provided, the corresponding levels have been translated into shocks for each tenor point, followed by linear interpolation and extrapolation to arrive at the shocks for the other tenors. The unchanged UFR has been applied to the adverse scenario as well. 
  • For sovereign yields: a similar approach has been taken as for the risk-free rates using now the observed sovereign yields from Refinitiv and the levels from the ESRB adverse scenario to define the shocks

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.

Further reading