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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.

Central Bank of Ireland (Central Bank) Updates

CBI: Private Motor Insurance

The Central Bank of Ireland (Central Bank) has published the fourth annual Private Motor Insurance Report of the National Claims Information Database (NCID). The NCID compiles aggregate data received from insurers. This allows the Central Bank to publish an annual report containing analysis on the cost of premiums, the cost of claims, the aggregated financial performance of firms providing this insurance, and key settlement channel information.

CBI: Research on Insurance Engagement and Switching

The Central Bank has published an Economic Letter, “Engagement, switching and digital usage in consumer and insurance markets: who does it and why it matters”. The Letter investigates the patterns of engaging and switching among the car and home insurance consumers in Ireland. Furthermore, the Letter examines the characteristics typically associated with consumers who are uncomfortable searching for and purchasing financial products, including insurance, online. 

CBI: Intermediary Times

The Central Bank has published the Intermediary Times newsletter for 2022. The purpose of this newsletter is to highlight specific areas of interest, including potential risks to business, and what one can do to develop business in a way that puts consumers first. This edition contains information on recent developments such as the Retail Intermediary Authorisations Webinar, changes to the Fitness & Probity application process and Central Bank Portal and issuing of the 2021 industry funding levy.

CBI: Financial System Conference 2022

The Central Bank held its first Financial Services Conference in November. The conference brought together diverse perspectives from industry leaders, consumer representatives, and international policymakers – from Ireland and across the EU – to discuss and debate the driving forces shaping the financial system.  

CBI: Newsletter

The Central Bank of Ireland has published its December 2022 Insurance Newsletter. The Newsletter includes Insurance Insights on inflation, the thematic review of (re)insurers’ Recovery Plans and key sectoral risks for (re)insurers in Ireland.  

European Insurance and Occupational Pensions Authority (EIOPA) Updates

EIOPA: October Newsletter

The European Insurance and Occupational Pensions Authority (EIOPA) has published a Newsletter, dated October 2022, which focusses on, among other things, the EIOPA Strategy from 2023 to 2026, bancassurance warning to insurers and banks to address consumer protection issues related to the sale of credit protection insurance (CPI) products and information from the Joint European Supervisory Authorities Consumer Protection Day.

EIOPA: ESAs' letter to the European Commission regarding a delay in delivery of mandate to review SFDR Delegated Regulation

EIOPA has published a letter from the European Supervisory Authorities to the European Commission regarding the delay in delivery of mandate to review the Sustainable Finance Disclosure Regulation (SFDR). The letter details the significant challenges to deliver the required input for the mandate in the time requested. 

EIOPA: Speech

EIOPA has published a speech by Petra Hielkema, EIOPA Chair, on challenging times for insurers. In her speech, Ms Hielkema underlined the following points of interest:

  • Inflation. Inflation remains a force to be reckoned with for the foreseeable future and insurers must set their reserving and pricing accordingly.  
  • Premiums. Higher claims will lead to rising premiums for policyholders. Those with stretched budgets may be reluctant to accept substantially higher prices and instead reduce or otherwise lower their insurance coverage. 
  • Interest rates. A modest, gradual rise in interest rates is generally positive for insurers. When yields rise in an orderly fashion over time, these new, higher-yield assets will translate into bigger investment earnings. 
  • Liquidity management. Uncertainty is high and the current market environment holds some lessons for insurers. The recent turmoil in the UK gilt market demonstrates that if market movements are intense and fast, liquidity can be a risk for long-term investors such as pension funds and insurers. A similar situation could arise in the EU. 

EIOPA: Insurance Recovery and Resolution Directive

EIOPA has published two staff papers to provide more clarity on recovery and resolution in insurance and thereby support a better understanding of the topic among stakeholders. The papers focusses, in particular, on the proposal for an Insurance Recovery and Resolution Directive (IRRD) put forward by the European Commission in September 2021.

EIOPA: Cyber component in insurance stress testing framework

EIOPA has published a discussion paper on the cyber component methodological principles of insurance stress testing. The paper contains theoretical and practical rules, guidelines, and approaches to support the design phase of potential future insurance stress tests with a focus on cyber risk, which could potentially be applied in future stress-testing exercises. 

EIOPA: Protection gap for natural catastrophes

EIOPA has published its dashboard on the insurance protection gap for natural catastrophes, together with a related press release. EIOPA is concerned that the affordability and insurability of natural catastrophes insurance coverage is likely to become an increasing concern in the light of climate change. EIOPA’s view is that there is an insurance protection gap, given that currently only a quarter of the total losses caused by extreme weather and climate-related events across Europe are insured.

EIOPA: RFR: Risk-free interest rate term structures

EIOPA has published the updated representative portfolios that will be used for calculation of the volatility adjustments (VA) to the relevant risk-free interest rate term structures for Solvency II. EIOPA will start using these updated representative portfolios for the calculation of the VA end of March 2023, which will be published at the beginning of April 2023.

Other European and International Supervisory Authority Updates

OJ: Calculating technical provisions and basic own funds for Q4 2022 reporting: Solvency II

Implementing Regulation, which lays down technical information for calculating technical provisions and basic own funds for reporting under the Solvency II Directive, was published in the Official Journal of the European Union. The Implementing Regulation, which was made under Article 77e (2) of the Solvency II Directive, sets out the technical information for insurers and reinsurers to use when calculating technical provisions and basic own funds for reporting with reference dates from 30 September 2022 until 30 December 2022.

IAIS: Newsletter

The International Association of Insurance Supervisors (IAIS) has published its Newsletter, dated November 2022. The issue includes a recap of the Annual General Meeting and Annual Conference including articles covering the many activities achieved during the IAIS committee meetings. An update on key IAIS activities and summary of the role of the insurance sector is available.

IAIS: Aggregation Method comparability assessment

In response to stakeholder comments on the draft criteria that will be used to assess whether the Aggregation Method (AM) provides comparable outcomes to the Insurance Capital Standard (ICS), the IAIS has decided to provide additional opportunity for stakeholder engagement on the development of scenarios that will be used to inform the assessment. Further details on the timing and format of the workshops will be provided shortly. Accordingly, the IAIS has decided to extend the period for the design of the scenarios and move consideration of the final criteria from November 2022 to March 2023. However, this will not impact the timing of the AM comparability assessment, which remains scheduled to begin in the second half of 2023.

IE: COP27: European insurers and reinsurers reaffirm commitment to international climate goals

Insurance Europe (IE) issued a statement to reiterate Europe’s insurers and reinsurers willingness to continue supporting the goals of the UN Paris Agreement and European Green Deal. 

IE: Sustainability Hub

IE has recently updated its Sustainability Hub which outlines examples of the many ways in which (re)insurers contribute towards tackling the effects of climate change and facilitating the transition to sustainability. This includes a number of areas namely compensating for losses, risk-modelling, awareness-raising, developing new products and building sustainable investment portfolios. 

FSB: G-SIIs

The Financial Stability Board (FSB) has published a press release on monitoring system risk in the insurance sector. The FSB has decided to discontinue the annual identification of global systemically important insurers (G-SIIs). Instead, it will use assessments available through the International Association of Insurance Supervisors' (IAIS) holistic framework for the assessment and mitigation of systemic risk in the insurance sector to inform its considerations of systemic risk in the insurance sector.

IAIS: diversity, equity and inclusion

The International Association of Insurance Supervisors (IAIS) has published a stocktake report on diversity, equity and inclusion (DEI) in the insurance sector. In the report, the IAIS aims to take stock of the work on DEI that is being undertaken by insurance supervisors, relevant international organisations and the insurance industry, to identify areas where the IAIS could do further work in this area, in support of its mission and strategic plan.

IAIS: Individual insurer monitoring assessment methodology

IAIS has published a consultation paper on its review of the individual insurer monitoring (IIM) assessment methodology, which is used to calculate individual insurers' systemic risk scores. The IAIS is continuing to enhance its holistic framework for assessing and mitigating systemic risk in the insurance sector. A key element of the holistic framework is the global monitoring exercise (GME), which is designed to detect key risks and trends and the potential build-up of systemic risk in the sector.

IAIS: Digitalisation

The International Association of Insurance Supervisors (IAIS) has issued two publications showcasing work on digital innovation:

  • An IAIS Report on FinTech developments in the insurance sector; and
  • A Joint Note with the Access to Insurance Initiative (A2ii) and the Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) on the role of supervisory technology (SupTech) in insurance supervision.

IE: IRRD

Insurance Europe (IE) has published a set of key messages on the European Commission’s proposal for an Insurance Recovery and Resolution Directive (IRRD). IE does not consider there to be a need to develop an extensive recovery and resolution framework for insurers and is of the view that, should such a framework nevertheless be adopted, it should be properly tailored to the insurance sector and take into consideration the specific characteristics of the EU’s different national markets.  IE also noted that the Commission’s proposal for an IRRD needs a number of significant changes to make it fit for purpose and to avoid subjecting European insurers and their policyholders to a greater and more costly unnecessary regulatory burden.

UK Updates

PRA: CP14/22 - Review of Solvency II: Reporting phase 2

Prudential Regulation Authority (PRA) published a consultation paper proposing to streamline Solvency II reporting and disclosure requirements for UK insurers as follows:

  • Removal of 9 quantitative reporting templates (QRTs), 3 national specific templates (NSTs) and the proposal to require insurers to produce 3 solo QRTs and 2 group QRTs less frequently; 
  • Reporting thresholds introduced in a number of areas which will make the reporting more proportionate and aligned to the PRA’s supervisory needs; and
  • Simplifications made to existing templates by removing duplications and requirements for information which the PRA consider of little value to its supervisory needs. 

At the same time however, the PRA has added additional information requirements in a number of templates and also proposing to introduce new templates in areas such as cyber risk coverage. The deadline to respond to the current consultation paper is 8 May 2023, with the first quarterly and annual reporting reference dates falling on and after 31 December 2024.

FCA Response: Financial Service Consumer Panel – 2022

Financial Conduct Authority FCA published its response to the Financial Service Consumer Panel. FCA highlights the ongoing concerns about poor conduct in the general insurance sector, referring to an example of consumer ‘ping pong’ (back and forth from banks to insurers) stressed in the panel report. In insurance, FCA introduced product governance fair value rules and are undertaking multi-firm work on product governance/ fair value. 

FCA: Annual Public Meeting 2022

FCA in its Annual Public Meeting 2022 answered some questions relevant to insurance of multi-occupancy buildings which is currently a hot topic: 

  • In relation to use captive reinsurance arrangements, there is nothing to prevent the use of such arrangements, and insurers may choose to do this as a way of reducing their individual exposure to catastrophic loss. If these arrangements, however, increase prices in a way that does not reflect risk or without delivering benefits to policyholders, this may breach FCA rules. 
  • In relation to the “practice” by some firms to suppress insurance claims by either rejecting the claim to the unaware leaseholder or using the service charge monies instead of the insurance monies to repair any damage, to protect their profit commission based on the performance of the risk, the FCA indicated that they will review the actions of such firms once they receive intelligence or complaints about them.

Risk Margin and Matching Adjustment within Solvency II

PRA published the summary of the responses received to its DP 2/22 where it sought views on:

  • A potential formulation for a Credit Risk Premium (CRP), an allowance for uncertainty around credit risk in the MA framework to correct a weakness in the current design.
  • A potential new suggested design and calibration of the RM.
  • The extent to which combined potential reforms to the MA and RM might result in a package that is compatible with the PRA’s statutory objectives. 

The PRA considered the feedback received to DP2/22 in its discussions with HMT on potential reforms. HMT has since announced its decisions on the Solvency II Review, which is summarised below.

HM Treasury: Solvency II Review

His Majesty’s Treasury published its final reform package for the regulation of insurance companies in the UK introducing a simpler, clearer, and much more tailored regime.

FCA: General insurance value measures data

FCA published value measures data for general insurance (GI) products for July to December 2021. FCA looked at claims costs as a proportion of premium. At an aggregated product level:

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.

08 November: S2 Reporting – QRT S.14.01 and S.01.01

EIOPA clarified in Q&A (#2486) that S.14.01 template is limited to direct business and as such the line of business list for C0030 shall exclude 35 and 36. The proposal to include additional option for S.01.01 R0250: "Not reported as no direct insurance business" will be analysed during the next ITS amendments.

08 November: S2 Reporting – QRT S.22.01

EIOPA clarified in Q&A (#2470) that S.22.01 is relevant for life and non-life business as transitional and the volatility adjustment are relevant for non-life business too. Undertakings that neither applied any transitional nor any LTG measures are exempted from reporting S.22.01. However, if the undertaking applies any long-term guarantee or transitional measure, the template should be reported for the whole business of the undertakings, regardless of the lines of business that may be affected by such measures.

08 November: SCR Spread risk – Modified duration

EIOPA clarified in Q&A (#2370) that the modified duration as referred to in Article 176 of the Delegated Regulation (EU) 2015/35 should be calculated in accordance with the Appendix “Duration of cash flows" in EIOPA's Final Report on CP 14/036 on Guidelines on the treatment of market and counterparty risk exposures in the standard formula which also sets out the treatment of options. Compared with an otherwise identical non-amortising loan the modified duration for an amortising loan is lower.

11 November: Outsourcing arrangements

EIOPA clarifies in Q&A (#2277) that the guidelines do 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 are 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”.

15 November: EPIFP

EIOPA clarified in Q&A (#2451) that for the purpose of the calculation of the expected profits in future premiums as set out in Article 260 of the Commission Delegated Regulation 2015/35, a split in the insurance obligations should be made into those attributable to already paid-in premiums and those attributable to premiums in respect of business in force which are receivable in the future. In the first example there is no premium receivable in the future, the EPIFP is therefore indeed equal to 0. In the second example, if the expected present value of the only premium which is receivable in the future is equal to 50, of which 5 is expected profit, then the EPIFP is indeed equal to 5.

16 November: Solvency II Reporting – S.12.01

EIOPA clarified in Q&A (#2506) that row R0300 (Surrender value) does not need to be reported for reinsurance accepted. Datapoints C0100/R0300 and C0200/R0300 will be crossed out in the next ITS amendments.

16 November: Commission rebate subject to Type 2 CDR in SCR calculation

EIOPA clarified in Q&A (#2368) that according to Article 189(3) of the Delegated Regulation (EU) 2015/35, type 2 exposures should consist of all credit exposures which are not covered in the spread risk sub-module and which are not type 1 exposures. “Commission rebate" cash flows from intermediaries should be included in the calculation of the capital requirement for counterparty default risk on type 2 exposures in the counterparty default risk submodule of the Standard Formula.

16 November: Classification of index-linked bonds

EIOPA clarified in Q&A (#2318) that the definition for CIC 21 defines corporate bonds as bonds issued by corporations, with simple characteristics, usually covering the ones referred to as 'plain vanilla'.  The inflation linkage is not covered in the description in the CIC subcategories 22 to 28. As clarified in the ITS, structured notes "combine a fixed income with a series of derivative components" and "have embedded one or a combination of categories of derivatives". It is therefore enough if the bond has one derivative component, like to link to inflation, to be classified as structure note (in this case: CIC 59).

16 November: SII Reporting – Deferred tax assets on QRTs S.23.01 and S.02.01

EIOPA clarified in Q&A (#2196) that yes, as deferred tax assets reported on the balance sheet should be net from deferred tax liabilities according to Guideline 9 on the valuation of assets and liabilities other than technical provisions, in line with IAS 12.71. Therefore, S.23.01, R0160 / C0050 corresponds to the value of deferred tax assets in the solvency balance sheet S.02.01, R0040 / C0010.

17 November: Treatment of CADES bonds in SCR calculation

EIOPA clarified in Q&A (#2485) that for the calculation of the spread risk and market concentration risk sub-modules, bonds issued by public entities should be treated as central government bonds only if:

  • the entity is a regional government or local authority listed in Article 1 of Commission Implementing Regulation (EU) 2015/2011.
  • there is a guarantee for the bond of the entity provided by one of the counterparties mentioned in points (a) to (d) of Article 180(2) of the Delegated Regulation (EU) 2015/35 or by an entity listed in Article 1 of Commission Implementing Regulation (EU) 2015/2011, and the guarantee is full, unconditional, and irrevocable and meets the requirements set out in Article 215 of the Delegated Regulation (EU) 2015/35.

EIOPA did not assess whether CADES falls in one of the criteria above at the time of publication of this Q&A.

17 November: Calculation of reserve volume measure in SCR calculation

EIOPA clarified in Q&A (#2467) that the example calculation is in accordance with Article 116 and Annex III of Delegated Regulation (EU) 2015/35.

17 November: Counterpart Default Adjustment (CDA) in TPs

EIOPA clarified in Q&A (#2466) that the calculation of the counterparty default adjustment described in Article 42 of the Commission Delegated Regulation 2015/35 may take into account any collateral as defined in Article 1(26).

17 November: Concentration risk for SCR_other undertakings

EIOPA clarified in Q&A (#2410) that when applying Article 184 DR to compute the amount mentioned in Article 336(d) DR for an undertaking referred to in Article 335(1)(f), the calculation base of the market risk concentration sub-module 'Assets' should be equal to the value of all the assets this undertaking holds excluding the assets listed in Article 184(2) (a) to (f). Assets held by other entities within the group should not be considered in the calculation base.

Please see also Q&A (#1417). Please note in particular that when determining the “SCR of other undertakings" (Article 335(1)(f) DR) in order to compute the SCR at group level, undertakings should not assume that “all the related undertakings cumulated according to Article 335(1)(f) fall under the same single name exposure".

17 November: Lapse risk vs counterparty default risk 

EIOPA clarified in Q&A (#2393) that as noted in the question, future premiums that are within the contract boundary of the technical provisions would be expected to be included within the calculation of the lapse risk submodule. Article 189(3) of the Delegated Regulation (EU) 2015/35 gives examples of the credit exposures that should be included within the counterparty default risk submodule. In order to avoid double counting, element (b) 'policyholder debtors' should be taken to relate to premiums that are overdue, rather than those payable in the future.

18 November: Solvency II Reporting - S.04.05.21 and S.05.02.04

EIOPA clarified in Q&A (#2505) on the following:

  • EIOPA confirms that the underlying concept for these points is identical. 
  • EIOPA confirms that there is a difference in the sum gross vs net. 
  • EIOPA confirms that the underlying concept for these points is identical.

18 November: Solvency II Reporting – QRT S.06.02

EIOPA clarified in Q&A (#2511) that the CIC95 (PPE) should be excluded.

21 November: Solvency II Reporting – QRT S.06.02

EIOPA clarified in Q&A (#2335) that the reason for the error is that the ISIN fails the checksum digit test. We suggest that you report it as “CAU/INST”.

21 November: Solvency II Reporting – QRT S.06.02

EIOPA clarified in Q&A (#2340) that given the information provided, the asset should be classified with the CIC Code XT79 “Other cash and deposits”. Please see Q&A #1904 as well.

21 November: Solvency II Reporting – QRT S.09.01: Realised and unrealised gains/losses

EIOPA clarified in Q&A (#2375) that the definition of realised and unrealised gains and losses in the financial assessments may depend on whether IFRS or local GAAP are applied, for this reason EIOPA defined realised and unrealised gains and losses for the purposes of S.09.01 reporting. In any case, the total amount of gains and losses reported in S.09.01, i.e., the sum of C0070 to C0110 is not expected to reconcile with gains and losses from investments in the financial statements as valuation in Solvency II and the financial statements is not equivalent. The same holds true for net (realised) gains and losses and unrealised gains and losses. In S.09.01 net (realised) gains and losses should include gains and losses from assets sold or matured during the period excluding interest, dividends and rent; while unrealised gains and losses should include gains and losses from assets that have neither matured nor been sold during the period also excluding interest, dividends and rent". The cells for interest, dividends and rent include the amounts of interest, dividends and rent earned during the period regardless of whether the asset has matured or been sold during the period.

21 November: Solvency II Reporting – QRT S.05.01

EIOPA clarified in Q&A (#2405) that reinsurance profit commissions depends on claims experience and therefore should be reported in row R0340 – Claims incurred – Reinsurer's share of template S.05.01.

21 November: Solvency II Reporting – Threshold for QRT S.18.01

EIOPA clarified in Q&A (#2490) that the assumption is correct: in case the undertaking is using a simplification that does not require to project cash flows to part of its business, S.13.01 and S.18.01 should be reported for the remaining part of the business, i.e. where such simplification is not applied.

The denominator for the threshold in S.18.01 should include all non-life technical provisions, regardless of the use of any simplification. There are no exceptions for S.17.01 R0370 – R0440 nor for S.12.01 R0230 – R0280 based on the use of such simplifications as for S.18.01 and S.13.01. As these templates do not require annual breakdown, the amounts can be reported on best effort basis in case such simplification is used.

24 November: Risk mitigating effect on a reinsurance arrangement

EIOPA clarified in Q&A (#2066) that the answer to this question is provided by the European Commission: Yes, for the calculation of each of those sub-modules the largest sum insured net of reinsurance should be determined.

The risk-mitigating effect of a reinsurance arrangement should be calculated in accordance with Article 196 of Commission Delegated Regulation (EU) 2015/35. 

24 November: LGD on derivative exposures

EC clarified in Q&A (#2104) that the calculation of loss-given-default on derivatives exposures should be based on one of the formulas set out in paragraphs 3 to 3c of Article 192 of Commission Delegated Regulation (EU) 2015/35. In the case of derivatives that are CCP-related and where the insurance or reinsurance undertaking is a member of the CCP and not itself a client of the CCP, the formula in Article 192(3c) should be used.

25 November: SII Reporting – QRT S.33.01

EIOPA clarified in Q&A (#2488) that the templates S.33.01 will be required (from EY 2023) to collect information on all insurance and reinsurance undertakings of the group from EEA and non–EEA countries, regardless of the method used for the calculation of the group solvency according to the relevant instructions.

25 November: SII Reporting – QRT S.02.01

EIOPA clarified in Q&A (#2458) that for IFRS 17 users, row R0020 (Deferred acquisition costs), row R0360 (Insurance and intermediaries receivable), row R0370 (Reinsurance receivables), row R0820 (Insurance & intermediaries payables) and row R0830 (Reinsurance payables) / C0020 in S.02.01 should be nil.

25 November: SII Reporting – QRT S.02.01

EIOPA clarified in Q&A (#2457) that deposits whose cash flows are within the fulfilment cash flows are to be included in reinsurance recoverable (R0270 / C0020 in S.02.01) in case of ceded business and in technical provisions (R0510, R0600 or R0690 / C0020 in S.02.01) in case of accepted reinsurance.

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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