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
Enhancing Product Oversight and Governance
As the financial landscape evolves, ensuring robust Product Oversight and Governance (‘POG’) is more vital than ever. In a recent report, EIOPA assessed product governance within the European Economic Area. The findings unveiled varying levels of maturity among National Competent Authorities in enforcing POG requirements.
In this article, KPMG led by Gillian Kelly (Head of Consulting), Shane Garahy (Director, Risk Consulting) and Donata Halpin (Director, Risk Consulting) delve into the report's key themes, highlighting key considerations for firms aiming to strengthen their POG frameworks.
Listen to our latest podcasts - from ESG to audit
KPMG podcasts showcase a selection of views, insight and discussion on cross-border issues and topics that impact your business. From ESG to tax, audit to financial services, KPMG’s experts share their thoughts on the latest developments and discuss new trends with industry leaders and key stakeholders.
FRS 102 changes: Your essential guide
Kelly Campbell (Director, Accounting Advisory) and David Drought (Director, Accounting Advisory) discuss the proposed amendments to Financial Reporting Standard (FRS) 102 – which is applicable in the UK and the Republic of Ireland.
Audit Committee Magazine - July 2023
In this publication, KPMG (led by Niall Savage (Partner, Consumer Markets), Maria Diver (Director, Audit and Assurance and Eoin O'Brien (Director, Audit)) seek to highlight areas that Audit Committee members should consider. Topics covered within relate to; the latest Audit Committee Survey results for Ireland; UK Audit reform developments; the role of the Board in the oversight of Artificial Intelligence; Audit Committee considerations relevant to nature and biodiversity. We have also provided an update on recent regulatory and reporting requirements.
Central Bank of Ireland updates
Consumer Protection Code Review
On 31 July, the Central Bank of Ireland (the ‘Central Bank’) published an update (PDF, 1.7MB) to their October 2022 discussion paper regarding the Consumer Protection Code review. The discussion paper sought view on the issues emerging for consumers in the changing financial services landscape. The Central Bank undertook a six-month engagement programme with stakeholders. The engagement is being published to share what has been learned so far and the next steps.
EIOPA updates
Macro risks top insurer’s worry list
On 31 July, the European Insurance and Occupational Pensions Authority (‘EIOPA’) published its Insurance Risk Dashboard which shows that insurers’ exposures to macro risks are currently the main concern for the sector; Central Banks continue to tighten their monetary policy, with the average global policy rates increasing and the balance sheets’ sizes decreasing
Appeal by Euroins Insurance Group AD against EIOPA dismissed
On 3 August, the Joint Board of Appeal (‘The Board’) of the European Supervisory Authorities (‘ESAs’) unanimously decided (PDF, 347KB) that the appeal brought by Euroins Insurance Group AD (‘Euroins’) against EIOPA is inadmissible. The appeal was brought in relation to an EIOPA Report assessing the valuation of Euroins’ technical provisions.
Other European and International Supervisory Authority Updates
Classification and Measurement of Financial Instruments
On 21 July, the Insurance Association of Insurance Supervisors (‘IAIS’) issued a comment letter (PDF, 402KB) to the International Accounting Standards Board (‘IASB’) on the Exposure Draft (‘ED’) on Amendments to the Classification and Measurements of Financial Instruments issued in March 2023. The IAIS welcomes the IASB’s proposed amendments contained in the ED and the intention to clarify and improve understandability of the classification and measurement requirements of IFRS9 Financial Instruments.
European Commission’s Financial Data Access Proposal
On 5 July, Insurance Europe (‘IE’) welcomed the goal of the European Commission’s (‘EC’) proposal for a framework on Financial Data Access. The proposal allows consumers to choose if, how, with whom and for how long they want to share their financial data. While Insurance Europe has welcomed the steps taken by the European Commission, it also raised a number of concerns. Insurance Europe noted that the insurance industry is disappointed with the failure of the Commission to embrace the clear added value of enabling cross-sectoral data sharing for financial institutions.
Solvency II : Limited improvements by MEPs
On 18 July, IE expressed disappointment at the position adopted by the European Parliament’s Committee of Economic and Monetary Affairs on the Solvency II review.
Closing the climate protection gap
On 1 August, IE welcomed the publication of the Climate Resilience Dialogue Interim report (PDF, 558KB). Officially launched in November 2022 by the EC, the Climate Resilience Dialogue is a special group co-chaired by DG CLIMA and DG FISMA and includes EIOPA, IE and the Actuarial Association of Europe among its members. The Dialogue was up as a forum to discuss and identify possible actions that can be implemented by relevant stakeholders to contribute to narrowing the climate protection gap in the EU and stimulate investments in good adaptation solutions.
UK updates
Transitional Measure on Technical Provisions
On 17 July, the Prudential Regulation Authority (‘PRA’) published a statement which highlights the PRA's recent invitation to insurance firms to recalculate the Transitional Measure on Technical Provisions.
Working Paper on the market for sharing interest rate risk
On 21 July, the PRA published a working paper which sets out research in progress by their staff, with the aim of encouraging comments and debate surrounding the market for sharing interest rate risk.
Hedging, market concentration and monetary policy
On 21 July, the PRA published a working paper which uses granular data sets – merged across the UK government bond, interest rate swap, options and futures markets – to estimate exposures to interest rate risk at the sector level and for individual funds within the same sector.
Financial Lives 2022 survey
On 26 July, the Financial Conduct Authority published (PDF, 832KB) an article outlining the findings on general insurance and protection as part of the Financial Lives 2022 survey.
EIOPA Q&As
Please see below for EIOPA’s response to recent queries which have been raised by the public for further clarification on the Solvency II requirements. The Solvency II requirements may change or become more prescriptive over time.
25 July: S2 Reporting – QRT S.23.02 ((EU) 2023/894 - ITS with regard to the templates for the submission of information necessary for supervision)
EIOPA clarified in Q&A (#2426) that BV1880 and BV1181 were removed from the 2.7.0 model (similarly to BV1224 and BV1225), with the note to restore them (potentially in a modified manner) in 2.10.0.
25 July: S2 Reporting – QRT S.12.01 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2697) that it was decided that every new validation (unless extraordinary exceptions) will be non-blocking for being on the safe side. In the future, after a transition phase, validation error status might change.
There is an equivalent for Health since the column C0210 covers Health similar to life and column C0150 is Life other than health insurance, including unit linked.
25 July: S2 Reporting – QRT BV1865 ((EU) 2023/894 - ITS with regard to the templates for the submission of information necessary for supervision)
EIOPA clarified in Q&A (#2693) that from the modelling and LOGs perspective BV1865 is indeed incorrect, the expenses are actually different. BV1865 will be removed from the 2.8.0 Hotfix.
25 July: S2 Reporting – S.14.02 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2668) that, for matching line of business S.05.01 R0110 will equal the sum of columns C0070, C0080 and C0090 in S.14.02. As product category can be provided for certain line of business, it could lead to double counting. Therefore, we agree that only rows where C0020 is not reported should be included in calculation
25 July: S2 Reporting – S.14.02 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2662) that it is agreed that the description of column C0130 (Number of insured at the end of the year) implies that it should be reported for business lines 11.1 and 12.2. However, it does not imply the opposite, as number of insured would apply also to rows for other Lines of Businesses and /or product categories. Please note that EIOPA often describes the minimum set of constrains/information required. In summary, we would expect the C0130 to be reported for product categories 11.1 and 12.2, but at the same time we do not want to prevent in any way filling more detailed report.
25 July: S2 Reporting – S.14.01 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2661) that:
- S.14.01.01.01 column C0030 (Line of business) has matching LoBs to options 29 – 32 in S.04.04. In addition, annuities stemming from non-life insurance contracts should be excluded from the comparison.
- EIOPA would expect that in most cases the sum of C0071 in S.14.01.01.05 to be equal to S.04.04.01.01 C0010 R0050 plus S.04.04.01.01 C0020 R0050 for all underwriting entity codes (z0020) for matching Lines of Business.
25 July: S2 Reporting – S.14.01 & S.14.02 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2633) that S.14.01 and S.14.02 are reported only at solo level. The reporting for S.14.04 and 05 templates should be consolidated at group level. i.e. groups should report flows netting the intragroup transactions, in line with other reporting templates.
24 July: S2 Reporting – S.08.01 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2660) that all entities should report C0041 for those derivatives that fall in the scope of Regulation (EU) No 648/2012.
24 July: S2 Reporting – S.14.01 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2657) that C0051 and C0054 are also applicable to non-life insurance annuities and there should be no negative entries for C0051 and C0054.
24 July: S2 Reporting – S.14.02 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2637) that the information collected in C0030 of Templates S.14.02 aims at identifying the total liabilities exposed to climate risks. This should indicate the percentage of total premium which would cover climate related perils and/or not specifically exclude pay-outs for climate related perils. If none of the products in the portfolio cover climate related perils it should indicate 0.
24 July: S2 Reporting – S.08.01 & S.06.01 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2636) that:
- On S.08.01 EIOPA confirms that in C0450 and C0460 there shall be a description of the pattern of the cashflows associated with the swap. It applies to any kind of swap. The examples provided in the question are valid.
- On S.06.02 tokens that are financial instruments (falling under the DLT regime), are to be considered in "4- Other crypto-assets".
24 July: S2 Reporting – QRT S.29.01 & S.01.01 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2590) that:
- in S.01.01 R0600 the Option 0 is to be used and this item will be reviewed in the future ITS amendments.
- EIOPA confirms the captives' exemption holds only for S.29.01.
24 July: S2 Reporting – S.14.02 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2669) that products for which are not active contracts should not be report but products, no longer being sold, but for which there are active contracts in information should be reported including for C0120.
24 July: S2 Reporting – S.14.02 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2666) that the product category can only be associated with the relevant line of business. If the product categories cover more than one line of business it should be associated with the main one.
24 July: S2 Reporting – S.04.05 ((EU) No 2015/2452 - procedures, formats and templates of the solvency and financial condition report)
EIOPA clarified in Q&A (#2626) that the undertakings shall report S.04.05 on a country-by-country basis for at least 95% of gross written premium which can be done either at the individual underwriting entity/line of business or based on the overall portfolio. When deciding on the “Top 5" countries in S.04.05.21 companies need to assess whether the countries are already included in any “other country" at the LOB level and break them out if they were.
24 July: S2 Reporting – S23.02 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2615) that per EIOPA Q&A (#1735), S.23.02.01.01 and S.23.02.01.02 should be reported at nominal value and in S.23.02.01.03 at fair value.
BV892 is still valid as well. It is describing relation between columns ( = + -) for S.23.03.nn.01 and S.23.03.nn.04. The calculation is provided for each row separately.
24 July: S2 Reporting – S.14.02 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2555) that for each line of business a maximum of two rows can be reported one containing all the information for all products falling under the relevant line of business (C0010) and one if relevant for those products which fall under the specific product categories identified in C0020. In C0120 all countries in which the relevant products are commercialised, and which meet the thresholds included in C0120 should be listed in the relevant row separated by a comma.
10 July: S2 Reporting – S.05.01 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2634) that according to IFRS 17.42: An entity shall recognise income and expenses for the following changes in the carrying amount of the liability for incurred claims: (…) (b) insurance service expenses—for any subsequent changes in fulfilment cash flows relating to incurred claims and incurred expenses; and (c) insurance finance income or expenses—for the effect of the time value of money and the effect of financial risk (…). Therefore, claims incurred to be reported by IFRS 17 users should include changes in the carrying amount of the liability for incurred claims.
10 July: S2 Reporting – SCR ((EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII))
EIOPA clarified in Q&A (#2433) when deciding whether an insurance policy falls under Article 118(1)(a) or Article 142(6)(a) or (b) of the Delegated Regulation (EU) 2015/35, the result of two calculations of technical provisions should be compared:
- The technical provisions for the point in time before the policyholder triggered the discontinuance.
- The technical provisions for the point in time after the policyholder triggered the discontinuance but before the payments caused by the discontinuance are made.
In accordance with the third subparagraph of Article 77(2) of Directive 2009/138/EC, the cash-flow projection used in the calculation of the best estimate shall take account of all the cash in- and out-flows required to settle the insurance and reinsurance obligations over the lifetime thereof. Consequently, the payments caused by the discontinuance should be included in the calculation of the best estimate of these technical provisions.
In the calculation of the second result, the discontinuance referred to in Article 118(1)(a) or Article 142(6)(a) or (b) of the Delegated Regulation (EU) 2015/35 is assumed to be certain. Therefore the probability of the discontinuity payments should be 100% for the probability-weighted average of future cash-flows referred to in first subparagraph of Article 77(2) of Directive 2009/138/EC when the technical provisions of the second result are calculated.
07 July: S2 Reporting – Total Return Swap ((EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII))
EIOPA clarified in Q&A (#2308) that provided the instrument is a credit derivative as referred to in Article 179 of the Delegated Regulation 2015/35 (DR), the underlying exposure should be included in the determination of the capital requirement for spread risk on credit derivatives unless the bond is included in the list of exposures set out in Article 180(2) DR.
07 July: S2 Reporting – S.25.01 ((EU) No 2015/2450 - templates for the submission of information to the supervisory authorities)
EIOPA clarified in Q&A (#2609) that R0540/0550/0555 in S.25.01 reflect the capital requirements for non-controlled participations, for residual related undertakings, and for collective investment undertakings or investments packaged as funds respectively. These are part of the Consolidated Group SCR in S.25.01 in R0220 and also of consolidated part of the Group SCR in S23.01.4 in R0820.
R0820 + R0860 = R0590 is correct in most cases, however, do note that R0590 is the larger amount of a) the sum R0820 and R0860 and b) R0610.
07 July: S2 Reporting – SCR ((EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII))
EIOPA clarified in Q&A (#2549) that in order to take into account in a calculation that the lender can cancel the insurance obligation towards the policyholder, consideration should be given to all relevant contractual aspects and potential restrictions, especially regarding enforceability and timing of the cancellation. These considerations should include in accordance with Article 83(2)(a) DR the requirements on management actions set out in Article 23 DR.
Following the scenario in which there is an instantaneous decrease in the value of the loan, the market risk concentration sub-module should take into account any change in value of the obligation to the policyholder so long as those requirements on future management actions are complied with in relation to the cancellation of that obligation. Consideration should be given in particular to the enforceability of the cancellation of the obligation towards the borrower, for example, whether the cancellation will be accepted by the liquidator in situations where that is relevant.
Further information
For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.
