Insurance Insights June 2023

The Financial Reporting Council (“FRC”) has released their long awaited consultation on the UK Corporate Governance Code. Unlike the wide-ranging review in 2018, this consultation is focused on the legislative and governance reforms the Government proposed within their response to the consultation ‘Restoring Trust in Audit and Corporate Governance’. Niall Savage and Maria Diver of the KPMG Audit Committee Institute explain the implications.

The FRC has issued Audit Committees and the External Audit: Minimum Standard as a direct response to the Government's consultation on Restoring Trust in Audit and Corporate Governance, which expressed the intention to grant statutory powers to ARGA (the Audit, Reporting and Governance Authority) for mandating minimum standards for audit committees in relation to the Appointment of, and oversight over, external auditors. Niall Savage and Maria Diver explain the implications.

Leading insurers see ESG as an opportunity to further reinforce their position and drive positive change. They increasingly recognize their role in advancing the ESG agenda, not only through products and investments, but also within their own organizations, across their customer base and throughout the broader ecosystem. Yet many are struggling to set ambition, prioritize activities and cascade their vision across every division and function.

In this latest report, we discuss how insurers can design and deliver a practical, value-driven ESG strategy that not only meets compliance requirements, but also delivers significant competitive advantage. We highlight key challenges for insurers, demonstrate examples of where leading insurers are getting it right, and offer key elements to help organizations compose an ESG strategy that aligns with overall business objectives.

As of 1 January 2023, IFRS 17 replaced the interim IFRS 4 standard, in force since 2004. In the Irish (re)insurance market work on opening balance sheet restatements is generally well progressed. Most (re)insurers were in a position to provide the required IAS 8 pre transition disclosures in their 2022 financial statements. There is however much to do over 2023, and beyond, to operationalise, embed and optimise reporting under IFRS 17 in the post-implementation phase. Read our article to find out more on the focus and challenge areas for Irish (re)insurers during 2023

As part of our ongoing analysis of insurers’ reporting on implementing the new accounting standards – IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments – we now share our observations on selected insurers’ first interim reports and trading updates for the quarter ended 31 March 2023.

Our analysis focuses on:

• IFRS 17 disclosures and their comparatives in the interim reports; and
• the impacts of IFRS 17 on key performance indicators

We also include an update to our previous analysis of insurers’ IFRS 17 and IFRS 9 accounting policies and significant judgements. Read our article to find out more.

On 2 June 2023, the Board of Supervisors of EIOPA appointed Mr Ante Žigman, President of the Board of the Croatian Financial Services Supervisory Agency (Hanfa), to EIOPA’s Management Board. Mr Žigman’s term began on June 3, 2023. He will replace Ms Zuzana Silberova, Executive Director of the Financial Market Supervision Department at the Czech National Bank, who has completed her second term on the Management Board.

The Board of Supervisors has also decided to re-elect Mr Alberto Corinti, member of the Board of Directors at the Italian Institute for the Supervision of Insurance (Ivass), for a second two-and-a-half-year term.

The European Supervisory Authorities (European Banking Authority (“EBA”), European Insurance and Occupational Pensions Authority (“EIOPA”) and European Securities and Markets Authority (“ESMA”)) published a joint discussion paper (PDF, 777KB) on May 26 2023, seeking stakeholders input on aspects of the Digital Operational Resilience ACT (‘DORA’). The discussion paper follows the European Commission’s request for advice on the criteria for critical ICT third-party service providers and the oversight fees levied on them. Stakeholders are invited to provide their input by 23 June 2023. 

On 1 June 2023, ESAs published their progress reports (PDF, 1MB) on Greenwashing in the financial sector. The ESAs put forward a common high-level understanding of greenwashing applicable to market applicants across their respective limits. EIOPA’s Progress Report provides initial views on greenwashing from an insurance and pension perspective including on how it occurs, its impact, challenges related to its supervision as well as its implications for the regulatory framework.

EIOPA finds that greenwashing can occur – to varying extents – as part of the broader set of conduct risks at all stages of the insurance (e.g. entity level, product manufacturing, delivery and management) and pensions (e.g. scheme design, delivery and management) lifecycles. The report presents concrete examples to show how greenwashing manifests itself in practice.

On 5 June 2023, EIOPA published technical information on the relevant risk-free interest rate term structures with reference to the end of May 2023. 

On 5 June 2023, EIOPA has published technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of May 2023. 

The Board of Supervisors of the European Insurance and Occupational Pensions Authority (EIOPA) agreed on 28 June that EIOPA will coordinate the first joint mystery shopping exercise on sales of insurance. The exercise will be conducted in 8 Member States and will follow a common methodology and criteria developed by EIOPA and its Members. The results of the exercise will be available in the first half of 2024.

The European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) launched today a public consultation on the first batch of policy products under the Digital Operational Resilience Act (DORA). This includes four draft regulatory technical standards (RTS) and one set of draft implementing technical standards (ITS). These technical standards aim to ensure a consistent and harmonised legal framework in the areas of ICT risk management, major ICT-related incident reporting and ICT third-party risk management. The consultation runs until 11 September 2023.

Each year, the Prudential Regulation Authority (“PRA”) seek input from firms on the effectiveness and quality of the PRA supervisory framework and approach through an annual firm feedback survey. This process is overseen by a team independent of frontline supervision. The survey was conducted from August to October 2022 and the feedback has been published.

The PRA has published a Letter to Chief Actuaries of general insurance firms and Lloyd’s Managing Agents regulated by the PRA setting out observations of a review on how firms responded to the October 2022 letter. Firms are advised to take into account the observations as they prepare for their next and subsequent reserving and capital assessment exercises.

The PRA Regulatory Digest has been published for the month of May.

The Bank of England (“BoE”) has launched its first system-wide exploratory scenario exercise. The exercise aims to improve understanding of the behaviours of banks and non-bank financial institutions in stressed financial market conditions. It will explore how those behaviours might interact to amplify shocks in UK financial markets that are core to UK financial stability.

The BoE have published a market research paper based on transaction-level data on the universe of traded UK inflation swaps to characterise who buys and sells inflation risk, when, and with what price elasticity. This provides measures of expected inflation cleaned from liquidity frictions. The paper shows that this market is segmented: pension funds trade at long horizons while hedge funds trade at short horizons, with dealer banks as their counterparties in both markets.

The BoE’s Data Standards Committee serves as a forum for relevant stakeholders including reporting firms, trade bodies and relevant standard setting bodies to propose solutions in the area of data standards. The minutes for the meeting held on 16 February have been published.

The Prudential Regulation Authority (“PRA”) has released its Solvency II consultation setting out the bulk of the reforms not covered by the Government’s secondary legislation. This includes proposals on internal models, TMTP changes, reporting and market access. The proposed changes to the matching adjustment will be in a separate paper in September.

Following on from Charlotte Gerken’s Moderation in All Things speech in April 2023, where she noted that the BPA market is growing very rapidly and there is a risk that insurers may ‘over-indulge’ and go outside of their risk appetite, the PRA has delivered a ‘Dear CRO’ (PDF, 221KB) letter.  The letter provides feedback on the PRA’s preliminary thematic review and sets out concerns around quality of collateral, recapture risk and effectiveness of management action.  Firms are asked to take remedial action, with further supervisory and policy action likely.

Leading insurers see ESG as an opportunity to further reinforce their position and drive positive change. They increasingly recognize their role in advancing the ESG agenda, not only through products and investments, but also within their own organizations, across their customer base and throughout the broader ecosystem. Yet many are struggling to set ambition, prioritise activities and cascade their vision across every division and function.

In this latest report, we discuss how insurers can design and deliver a practical, value-driven ESG strategy that not only meets compliance requirements, but also delivers significant competitive advantage. We highlight key challenges for insurers, demonstrate examples of where leading insurers are getting it right, and offer key elements to help organizations compose an ESG strategy that aligns with overall business objectives.