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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

Ireland’s economic outlook: Ireland & global economic outlook H2 2022

Ireland has enjoyed several years of back-to-back economic growth, but with recent global geopolitical events putting strain on the global economy, and a cost-of-living crisis eroding disposable incomes, how will Ireland fair as the world faces a potential downturn? KPMG, led by Dr. Daragh Mc Greal (Director – Head of Strategic Economic) examines Ireland’s economic outlook.

CP 151 guidance for (re)insurance undertakings on climate change risk: What are the CBI's supervisory expectations in relation to climate?

Consultation Paper (CP) 151 is amongst a number of recent publications relating to climate change, including the Central Bank of Ireland (CBI)’s letter setting out its supervisory expectations in relation to climate and other Environment, Social and Governance (ESG) issues from November 2021, and EIOPA’s recent application guidance on climate change materiality assessments and climate change scenarios in the ORSA. KPMG’s Insurance sector experts and Sustainable Futures team (led by Jean Rea (Partner in Actuarial and Applied Intelligence), Patrick Farrell (Partner in Risk Consulting and Russell Smyth (Head of Sustainable Futures) ) have prepared a short summary of the guidance and what insurers should do next. 

The future of internal audit: The vital role of internal audit in building stakeholder trust.

The vital role of internal audit in building stakeholder trust. KPMG (led by Patrick Farrell) summarise how Internal Audit (IA) function that can evolve as fast as, and is aligned to, the evolving nature of the organisation. Faced with new business models and increasing complexity, IA should adapt to provide the protection and value their organisation requires. 

Rising interest rate challenges: What are the financial considerations for businesses?

In July 2022, the European Central Bank’s (ECB) Governing Council increased interest rates for the first time in 11 years, followed by a subsequent increase in September 2022. This follows a series of interest rate increases by the US Federal Reserve and the Bank of England. KPMG (led by Úna Hegarty (Director in Accounting Advisory Services), summarise how management may need to pay far more attention, than perhaps they have in previous years, to movements in interest rates, given their potential to have material impacts on measurement, presentation and disclosure in the company’s financial statements. 

Central Bank of Ireland (CBI) Updates

CBI: Consumer Protection Code

The CBI has launched a Discussion Paper on the review of the Consumer Protection Code. The Discussion Paper is part of an extensive engagement programme with a wide range of people and organisations to hear their views and experiences. The feedback received will inform the CBI’s decision-making on proposed revisions to the Code. Those proposed revisions will in turn be the subject of a formal public consultation on proposed changes to the Code. You can also read the CBI Governor's remarks on the Discussion Paper here

CBI: Quarterly Economic Bulletin

The CBI has released their Quarterly Economic Bulletin for Q4 2022. The Bulletin details information on the outlook for the Irish Economy over the coming quarters. 

CBI: Director of Insurance Supervision remarks at Financial Services Ireland

The CBI Director of Insurance Supervision, Domhnall Cullinan, provided remarks at Financial Services Ireland. The remarks covered the current uncertain economic environment, gatekeeping, and highlighted the issues under the consideration by the CBI for the insurance industry in 2023. 

European Insurance and Occupational Pensions Authority (EIOPA) Updates

EIOPA: Exclusions in insurance products: Systemic Events

EIOPA has published a supervisory statement on exclusions in insurance products related to risks arising from systemic events. EIOPA has developed the supervisory statement under Chapter V of the Directive on insurance distribution (IDD) and Delegated Regulation (POG Delegated Regulation). The aim of the supervisory statement is to promote supervisory convergence regarding how national competent authorities (NCAs) assess the treatment of exclusions as part of the product design and terms and conditions drafting process.

EIOPA: Management of non-affirmative cyber exposures

EIOPA has published a supervisory statement on the management of non-affirmative cyber underwriting exposures. EIOPA has developed the supervisory statement under Articles 44(1), 45(1) and (2) and 183 to 186 of the Solvency II Directive. It explains that the supervisory statement delivers on EIOPA's strategic priorities for the European cyber insurance market with specific reference to non-affirmative cyber risk and sound management of policy wording and presentation of information. The aim of the supervisory statement is to promote supervisory convergence in how national competent authorities (NCAs) address the market in relation to cyber risks.

EIOPA: Strategy

EIOPA has published its strategy for the period 2023-26. It states its mission is to protect the public interest by contributing to the short-, medium- and long-term stability, effectiveness, and sustainability of the financial system for the EU's economy, citizens and businesses. Its strategic objectives are to strengthen the resilience and sustainability of the financial sector, thereby safeguarding its effectiveness, level playing field and financial inclusion, and to ensure strong and consistent protection of consumer interests across the EU.

EIOPA: Credit Protection

EIOPA has published a report and factsheet setting out the findings from its thematic review on the functioning of the EU market for credit protection insurance (CPI) products sold via banks, acting as insurance intermediaries. The thematic review focused on identifying potential sources of conduct risk and consumer detriment to allow EIOPA and national competent authorities (NCAs) to take relevant policy and supervisory measures if needed. It also assessed whether consumers are treated fairly within "bancassurance" business models.

EIOPA has also issued a warning to insurers and banks (acting as insurance distributors) to ensure CPI products offer fair value to consumers. 

EIOPA: European Insurance Overview 2022

EIOPA published the European Insurance Overview 2022 which is an extension of EIOPA's statistical services to provide an easy-to-use and accessible overview of the European (re)insurance sector. The report is based on annually reported Solvency II information. 

European Parliament: Study on prudential treatment of equity exposures under Solvency II

European Parliament's Committee on Economic and Monetary Affairs (ECON) has published a study on the prudential treatment of equity exposures. The study assesses the impact of amendments to Solvency II as well as the expected impact of the two European Commission (EC) proposals on equity investments by insurance companies. 

ESAs Final Report on disclosures for fossil gas and nuclear energy investments under SFDR

The three European Supervisory Authorities (ESAs) have delivered to the EC their Final Report with draft Regulatory Technical Standards (RTS) regarding the disclosure of financial products’ exposure to investments in fossil gas and nuclear energy activities under the Sustainable Finance Disclosure Regulation (SFDR). In the draft RTS, the ESAs propose to add specific disclosures to provide transparency about investments in taxonomy-aligned gas and nuclear economic activities. The EC will scrutinise the draft RTS and endorse them within three months of their publication. 

Other European and International Supervisory Authority Updates

IAIS: Role of supervisors in approaches to address pandemic protection gaps

The International Association of Insurance Supervisors (IAIS) has published a joint note, developed with the Access to Insurance Initiative (A2ii), on the role of insurance supervisors in multi-stakeholder approaches to address pandemic protection gaps. The note, which has been written by IAIA and A2ii staff members, examines the role insurance supervisors could play in the design, development and implementation of insurance-based programmes for pandemic risk. It considers key characteristics of proposals in this area, including public-private partnerships (PPPs) and risk pools, and outlines the role(s) supervisors can play as future initiatives are developed. The note focuses on gaps in coverage for types of risk where diversification is more difficult to achieve, particularly coverage for non-damage business interruption (BI) losses in the context of pandemics.

IAIS: Newsletter

The International Association of Insurance Supervisors (IAIS) has published their September Newsletter.

ECJ: IMD and IDD

The Court of Justice of the EU (ECJ) has given a preliminary ruling in a reference concerning the definitions of "insurance intermediary", "insurance mediation" and "insurance distribution" under the Insurance Mediation Directive (IMD) and the Insurance Distribution Directive (IDD), in the context of arranging membership of a group insurance policy. 

Insurance Europe (IE) CBI: (Re)insurance undertakings on intragroup transactions and exposures

The Reinsurance Advisory Board (RAB) has published its comments on the CBI’s consultation paper on its guidance for (re)insurance undertakings on intragroup transactions and exposures. In the RAB’s view, the CBI should explicitly recognise the potentially most important benefit of membership of a (re)insurance group: the diversification of risk. Intragroup transactions (IGTs) are an essential tool for facilitating the diversification of group-wide risks, which enhance the financial strength of a (re)insurance group and its subsidiaries.

IE: Response to call for feedback on EU platform on Sustainable draft report on minimum safeguards

IE is seeking feedback on the Sustainable draft report on minimum safeguards (MS). The report advises on the application of MS in relation to the Taxonomy Regulation Articles 3 & 18. It does so by a) embedding MS in existing EU regulation, b) identifying substantive topics relating to the standards and norms referenced in Article 18 of the Taxonomy regulation and c) presenting advice on compliance with MS.

IE: Risk Based Underwriting – FAQ

IE has issued a Risk based underwriting FAQ on the right to be forgotten. The FAQ covers a number of questions in respect of the ‘right to be forgotten’ for cancer survivors as part of the European Commission’s “Beating Cancer Plan”.

IE: Revised payment services framework (PSD2)

IE has published its comments on the review of the revised payment services framework (PSD2). IE welcomes the stated intentions of the European Commission to carry out a comprehensive review of the application and impact of PSD2, including an overall assessment of whether it is still fit for purpose and what challenges have arisen in its application.

IE: Consumer Credit Directive – The use of risk-based underwriting and the impact of a right to be forgotten

IE has issued its concerns with regard to the review of the Consumer Credit Directive. The European Parliament has called for the introduction of an EU-wide right to be forgotten (RTBF) for persons with a prior diagnosis of certain communicable and non-communicable diseases, including cancer. Insurance Europe is concerned that such an approach is not compatible with private insurance and would be to the detriment of consumers, including those whom an RTBF is intended to benefit.

IE: How to make the EU Data Act work from the perspective of insurers

IE has published information on how to make the EU Data Act work from the perspective of insurers. The information addresses “What to keep in the act” and “How can the Data Act enable the development of innovative digital services” and “What can be improved”.

IE: Key messages on the review of the MVBER and supplementary guidelines

IE has issued the key messages on the review of the Motor Vehicle Block Exemption Regulation (MVBER). Insurance Europe welcomed the draft regulation extending the MVBER for five years and the draft communication introduced targeted updates to the additional automotive guidelines. 

UK Updates

UK Parliament: Treasury Committee publishes Government and regulator responses to ‘Future of Financial Services Regulation’ report

The Treasury Committee published responses from the Government, Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA) to its report on the Future of Financial Services Regulation. In their response, the PRA agrees that the independence of the Bank of England is vital to maintaining the effectiveness of financial regulation. The FCA also supports the Committee’s position on regulatory independence but disagrees with the recommendation that the regulator should ‘have regard’ to financial inclusion, arguing it wouldn’t increase the FCA’s existing ability to act in line with the objectives set for it.

PRA: DP4/22 – The Prudential Regulation Authority’s future approach to policy

PRA published a discussion paper (DP) describing how it proposes to approach policymaking as it takes on wider rulemaking responsibilities following the UK’s departure from the European Union. The Financial Services and Markets Bill will implement the reforms identified by the government as part of its Future Regulatory Framework Review, which was established to consider how the UK financial services regulatory framework should adapt to be fit for the future outside of the European Union.  

PRA welcomes views on the ideas set out in this DP from all interested parties. The period for comment runs until 8th December. 

FCA: Report on insurance for multi-occupancy buildings

FCA published a report in which it sets out a range of recommendations recommendations for measures that industry, Government and regulators can take to increase the availability and affordability of insurance cover for leaseholders of multi-occupancy building. 

FCA plans to provide an update on progress against the potential remedies in six months. It will also report on a review of the activities of brokers in 2023.

FCA: Assessing liquidity for orderly wind-down: good and poor practices from general insurance brokers

FCA published the findings from its multi-firm review of general insurance (GI) brokers. The aim of the review was to understand which practices increased or weakened the credibility of firms’ wind-down arrangements. Most firms in the review had both wind-down planning arrangements and formal wind-down plans in place. FCA's findings show that firms need to further improve their wind-down planning and formal wind-down plans.

UK Parliament: Retained EU Law (Revocation and Reform) Bill

UK Parliament introduced the Retained EU Law (Revocation and Reform) Bill to Parliament. The Bill is intended to enable HM Government (HMG), via Parliament to amend more easily, repeal and replace retained EU Law. The Bill will sunset the majority of retained EU law so that it expires on 31 December 2023; the sunset may be extended for specified pieces of retained EU Law until 2026.

Policy Statement on general insurance pricing practices – update

FCA published an update on Policy Statement 21/11 General insurance pricing practices. FCA notes that under PS21/11 firms were given a one-year transitional period from the date the enhanced PROD 4.2 rules came into effect to comply with the requirement for existing products. The transitional period ends on 30 September 2022. Manufacturers who design products which are sold through overseas intermediaries to cover non-UK risks for customers based outside the UK are also required to comply with the enhanced PROD 4.2 rules. However, distributors outside the UK are typically not subject to its rules. 

FCA: Expectations on cost of living and insurance

FCA has published their expectations of firms in the insurance sector around helping customers through the cost of living. 

PRA: The effects of subsidized flood insurance on real estate markets- Staff working paper

PRA published a staff working paper on the effects of subsidized flood insurance on real estate markets. It sets out research in progress by its staff, with the aim of encouraging comments and debate. Subsidized insurance against extreme weather events improves its affordability among households in high-risk areas but it can weaken the risk signal via property prices. 

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.

15 September: Counterparty default risk for mortgage loans

EIOPA clarified in Q&A (#2363) that the threshold of EUR 1 million includes all exposures to the counterparty or other connected third party (in the example regular mortgage and bridge loan). Temporary deviations from this threshold are not provided for. 

15 September: CIC Code for Alternative Investments

EIOPA clarified in Q&A (#2474) that “alternative investments” means collective investment undertakings, including investment compartments thereof, which: 

  • raise capital from several investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors and 
  • do not require authorisation pursuant to Article 5 of Directive 2009/65/EC. 

These funds would be identified with CIC code ‘4’.

16 September: Premiums due vs not yet due

EIOPA clarified in Q&A (#2403) that premiums that are not yet due should be included in the Technical Provisions (if they are within the contract boundary) and should not be included in the Counterparty Default Risk sub-module of the SCR. However, if monthly payments are arranged to facilitate a payment schedule for an annual premium that has already fallen due, then those monthly payments should be classified as a policyholder debtor and included within the Counterparty Default Risk sub-module of the SCR

28 September: Definitions of written and earned premiums

EIOPA clarified in Q&A (#2465) that “written/earned premiums” is in alignment with the definition used in the Directive 91/674/EEC. While the current Implementing Regulation (EU) 2015/2450 (ITS on Reporting) refers to the Directive 91/674/EEC in its draft amendments this reference is deleted and a reference to Article 1(11) and (12) of Delegated Regulation (EU) 2015/35 is included. Acknowledging, that the application date of IFRS 17 (January 2023) precedes the implementation date of the ITS amendments on reporting for the first 3 quarters in 2023 the insurance and reinsurance undertakings shall report written/earned premiums as defined in Article 1(11) and (12) of Delegated Regulation (EU) 2015/35 regardless of whether they use IFRS 17 or local GAAP. The requirement is in line with the current ITS and with its amendments

29 September: Repo transactions

EIOPA clarified in Q&A (#2396) that in the case where the insurers are the seller in a repo (receiver of the cash funds), the asset ceded (pledged) remains on the insurers' balance sheet. The cash received is reported in S.10.01 a, no information needs to be reported in S.11.01. In the case where the insurers are the buyer in a repo (cedant of the cash funds), the asset received is not recognised in the insurers' balance sheet. In S.11.01 most columns to be filled in for the asset held as collateral. Also S.03.01 and S.10.01 need to be filled in in this case

29 September: Trade vs settlement date accounting

EIOPA clarified in Q&A (#2272) that IFRS 9 allows both 'trade date' and 'settlement date' accounting for 'regular way purchase or sale', which means that either the transaction is already recognised at reporting day under 'trade day accounting' or will only be recognised after the reporting day following 'settlement accounting'. In the trade day account case, the outstanding amount is a receivable/ payable, whereas in the 'settlement accounting' case nothing is booked before settlement day.

29 September: Cash pledged as collateral

EIOPA clarified in Q&A (#2211) that undertakings usually retain the risks and benefits of collaterals pledged and, for this reason they remain in the Balance Sheet of the undertaking. If that is not the case and the cash posted as collateral has been derecognised, therefore it should not appear in S.02.01 and S.06.02. In that case, there is also no SCR stress for the cash. However, collaterals posted usually remain in the Balance Sheet. In that case, cash posted as collateral should appear in S.02.01 together with the rest of the cash (R0410). In S.06.02 the cash should also appear, but it should be identified as pledged as collateral in C0100. Therefore at least two separate lines for cash would be needed in S.06.02: one for the cash posted as collateral and one for the rest. Regarding the treatment for SCR purposes, the fact that the cash is pledged as collateral does not affect the stress (except in case the cash was derecognised, where no stress is needed since it would be off-balance)

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.

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