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
Data ethics within insurance
As part of their “Future Focused” strategy, the Central Bank of Ireland (the “Central Bank”) has identified increasing digitalisation across the insurance value chain as an emerging risk within the insurance sector.
In this context, the Central Bank undertook a research project, the Data Ethics Within Insurance Project over 2021 and 2022. This was a technical support project implemented by the European Commission – DG REFORM and supported by KPMG (led by Jean Rea, Partner in Actuarial and Applied Intelligence and Colion Kane, Director in Applied Intelligence) as a delivery partner.
Half-year reporting under IFRS 17 and IFRS 9
In our analysis of the first half-year reports of 64 insurers we share our key observations on the disclosures under IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments, and their comparatives. In particular, we analysed disclosures under IFRS 17 on:
- the discount rates applied;
- confidence levels; and
- the expected release of contractual service margin (CSM) to profit or loss.
We also share our key observations on the KPIs reported by the 64 insurers.
All eyes on: The future of Audit
Leveraging the strength of the KPMG network, KPMG (led by Emer McGrath, Head of Audit and Niall Savage, Partner in Audit) have launched the “All eyes on: The future of Audit” campaign that reveals how we believe audit may be fundamentally transformed over the coming years.
This series of articles will provide insights on topics such as artificial intelligence, technology assurance including cybersecurity, big data, continuous auditing and ESG, which are trends all shaping the future of audit.
DORA Regulatory Technical Standards update
As a continuation in our DORA webinar series, KPMG led by hosted a DORA update on the regulatory technical standards. This webinar provided a broad market update on the digital operational resilience act regulatory technical standards, explored some of the key strategic themes for financial services firms, and provided guidance on the practical considerations around emerging regulation in Europe. This session covered various topics including:
- ICT Risk Management RTS
- Classification of ICT Incidents RTS
- Contractual arrangements on the use of ICT services by 3rd Parties RTS
Register of ICT 3rd Party Service Providers ITS
First set of ESRSs is now out!
Companies in scope need to get ready now for enhanced sustainability reporting, as the European Commission (“EC”) has published the final text of its first set of twelve European Sustainability Reporting Standards (“ESRSs”). For the first wave of companies, disclosures will be required as early as the 2024 reporting period.
Companies will need to assess which topics to report using the double materiality concept, which requires information that is material from either a financial perspective or an impact perspective. Companies will also need to include information from their value chain. In this article, KPMG (led by Mark Vaessen, Audit Partner KPMG Netherlands) discusses the key features of the final ESRSs, the key changes compared with prior versions and the interoperability with international standard-setting initiatives.
KPMG Global Tech Report 2023
In our latest survey, the KPMG Global Tech Report 2023 (led by Barry Brunsman, Leader of the Global CIO Advisory Center of Excellence), we can note that digital leaders are bullish in their belief that embracing technology across all facets of their business is bringing productivity gains.
Whether it’s a focus on building trust in their services or investigating how AI can help serve them, our latest report shows that technologic advancement is not being slowed by the uncertain economic climate.
Internal audit's role in ESG
With the rise of Environmental, Social and Governance (“ESG”) comes a new kind of risk: ESG risk. Companies are now reshaping their governance structures, embracing commitments, and making strategic decisions. This evolution demands transparency and adaptability across all levels of operation.
The latest paper from KPMG International (led by John-Paul Font, Principal in KPMG’s Internal Audit and Enterprise Risk and Nadine Hönighaus, Global ESG Governance Lead) delves into the strategies that companies are employing to navigate this paradigm shift and help ensure long-term viability. Understand the vital role of internal audit in providing objective assurance and advice on ESG reporting and sustainability matters.
Accelerating transformation with M&A
In this latest report, Accelerating transformation with M&A, KPMG professionals share insights on global and regional M&A activities, deals and key trends. We discuss evolving factors influencing strategies across the insurance industry and the important role that M&A will play as insurance organisations develop business models and growth strategies to drive sustainable, profitable growth.
Central Bank of Ireland updates
Governor’s Blog
On 6 September, the Central Bank published a blog written by the Governor, Gabriel Makhlouf entitled “What’s up with the weather (and what might it mean for inflation)?”. The blog covers what the current extreme weather we are experiencing at the moment means for economies, interest rates and the future economic outlook.
Quarterly Bulletin 2023
On 19 September, the Central Bank published its third Quarterly Bulletin of 2023. The key takeaways from the bulletin are noted below:
- The path to lower inflation is likely to be gradual and uneven. Inflation, forecast is to average 5.4% this year and is expected to be 2.3% in 2025.
- Tight labour market conditions will place upward pressure on wages, allowing for a catch up in real incomes following the decline in 2022.
- Modified domestic demand is forecast to grow by 2.9% in 2023, 2.6% in 2024 and 2.3% in 2025.
Quarterly Insurance Newsletter
On 25 September, the Central Bank published its Quarterly Insurance Newsletter. The key topics covered include:
- Reflections on Reserving;
- ORSA Feedback Part 1 – Supervision of Climate Change Risk;
- ORSA Feedback Part 2 – Strategy & Reinsurance;
- Recent Stakeholder Engagement;
- Head of Division Appointment – Actuarial, Advisory Services & MIIF (INSA);
- Data Ethics within Insurance;
- EIOPA statement on Governance in Third Country Branches;
- Insurance Protection Gaps;
- Product Oversight and Governance (POG) – Developments;
- Solvency II Review; and
- NST Taxonomy Update.
European Regulatory Radar
The outlook for European financial services regulation
The new issue of European Regulatory Radar (led by Philip Deeks (Director)) and Kate Dawson (Capital Markets & Digital Finance Sector Head) of KPMG’s EMA Region Financial Services Regulatory Insight Centre) brings you the latest updates impacting financial services providers in the region.
Complementing the UK Regulatory Radar series, European Regulatory Radar provides an overview of the wider economic and political environment, progress across the regulatory agenda, and deep-dive articles on some of the most important regulatory developments.
EIOPA updates
Macro risks top insurer’s worry list
On 7 September, the European Insurance and Occupational Pensions Authority (“EIOPA”) together with the International Center for Insurance regulation (“ICR”) and the Lebiniz Research Institute SAFE (“Sustainable Architecture for Finance in Europe”) hosted the 8th Global Insurance Supervision conference on 6 & 7 September.
The conference theme was based on “Insurance supervision in a world in transformation” and brought together regulators, supervisors, insurance industry representatives and academics from over 35 countries. In opening remarks, EIOPA chair Petra Hielkema touched on issues related to competitiveness, Solvency II and protection gaps.
ESAs warn of risks resulting from fragile economic outlook
On 18 September, the three European Supervisory Authorities (EBA, EIOPA and ESMA) today issued their Autumn 2023 Joint Committee Report (PDF, 532KB) on risks and vulnerabilities in the EU financial system. The Report underlined the continued high economic uncertainty. The ESAs warn national supervisors of the financial stability risks stemming from the heightened uncertainty and call for vigilance from all financial market participants.
Survey on access to Cyber Insurance by SMEs
On 20 September, EIOPA launched a survey on access to Cyber Insurance by Small & Medium Enterprises (SMEs) in order to gain a broader understanding of the challenges small businesses face in protecting themselves from cyber risks and to evaluate the level of access to cyber insurance.
EIOPA notes that access to cyber insurance can play a significant role in mitigating risks that may arise from digitalisation by absorbing shocks and managing any risks associated with irregular and unpredictable income. The survey is seeking to gather information on the size and type of business of the surveyed enterprises and the level of cyber risk awareness.
Other updates
Retail measures to increase consumer participation in capital markets
On 31 August, Insurance Europe issued (PDF, 370KB) its support of the goal of the Retail Investment Strategy (“RIS”) to increase retail participation in financial markets, while protecting investors with unfair practices.
Insurance Europe welcomes the RIS effort to make the regulatory framework more digital, streamline consumer information, promote financial education, use consumer testing, and preserve the IDD minimum harmonisation with options for member states to introduce further restrictions where appropriate for their market (e.g., mandatory advice or a full ban on inducement).
Proposal on ESG rating activities
On 4 September, Insurance Europe published its response welcoming the European Commission proposal to improve the overall environmental, social and governance (“ESG”) rating activities.
Insurance Europe notes that the planned introduction of regulatory standards for rating activities should improve the quality of information on ESG ratings and address existing shortcomings in the ESG rating market. In addition, Insurance Europe believes there are a number of areas of improvements which could be made to ensure a level playing field and fostering competition.
Response to first batch of draft DORA level 2 measures
On 12 September, Insurance Europe published (PDF, 465KB) its first batch draft response to the four consultations of the ESAs’ draft regulatory technical standards (RTS) and draft implementing technical standards (ITS) to complement the new DORA level 2 measures.
Key messages on the Retail Investment Strategy (RIS)
On 14 September, Insurance Europe published (PDF, 1.2MB) its key messages in respect of the European Commission’s RIS to increase retail investor’s participation in financial markets, while protecting them from unfair practices.
Insurance Europe supports the European Commission’s stance and notes that with a well-designed legislative framework, insurance-based products (IBIPs) are the most beneficial to enable consumers to invest with confidence, access insurance protection and prepare for old age.
Insurance Recovery & Resolution Directive (IRRD)
On 18 September, Insurance Europe published (PDF, 168KB) its key messages ahead of the trilogues relating to the IRRD. Insurance Europe notes that since the introduction of Solvency II the regulation has further improved the consistency of supervision and insurance company risk management across the EU and has enhanced consumer protection. Insurance Europe believes that IRRD should be applied proportionately to the issue it is aiming to solve.
Insurance Europe Reinsurance Advisory Supervisory Board
On 22 September, Insurance Europe’s Reinsurance Advisory Board (RAB) welcomed (PDF, 253KB) the opportunity to provide comments to the IAIS on the Insurance Capital Standard (ICS) as a Prescribed Capital Requirement (PCR). The RAB supports the objective of the ICS project to create a “high quality and robust global insurance standard that promotes a sound and level global regulatory playing field”. Insurance Europe also published (PDF, 326KB) their comments to the IAIS.
UK updates
PRA: Speech on the economic costs of restricting trade
On 26 August 2023, the Prudential Regulation Authority (“PRA”) published Ben Broadbent discusses the economic costs of restricting trade. He argues that in 2021 and 2022 shocks reduced real national income significantly and contributed to the rise in domestic inflation. He explains that although import costs have been declining in recent months, it is likely that monetary policy will have to remain in restrictive territory for some time.
Supervisory approach to market oversight for wholesale cash distribution
On 18 August 2023, the PRA published a publication outlining the statement of policy on the Bank of England’s supervisory approach to market oversight for wholesale cash distribution.
Bank expectations and prudential outcomes
On 4 August 2023, the PRA published a working paper which discusses bank expectations using a rich data set derived from regulatory returns. The data covers key bank-level variables, including profitability, capital, and loan impairments.
Mispricing in inflation markets
On 4 August 2023, the PRA published a working paper which uses UK transaction-level data on nominal bond, inflation-linked bond and inflation swap markets to study trading behaviour and prices in inflation markets.
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.
01 August: S2 Reporting – Reporting Templates
EIOPA clarified in Q&A (#2745) that there is a mismatch in S.17.01, the label of rows ER0421 and ER0422 between the taxonomy (Annotated templates) and the guidance. The mismatch will be corrected in the 2.8.0 Hotfix.
21 August: S2 Reporting – Reporting Templates
EIOPA clarified in Q&A (#2737) that, with regards to the new Annotated Template 2.8.0, not including deleted elements in the model is intentional. Although the Annotated Templates was originally published with the deleted elements marked in red, this approach was changed in later versions of the model (after 2.3.0). One of the reasons for not including deleted elements in the Annotated Template excel file was that the file was used as an input for generating the taxonomy.
22 August: S2 Reporting – Reporting Templates
EIOPA clarified in Q&A (#2724) some uncertainties in S.37.01. Column (C0310) should include all risk techniques mitigating the exposure towards the counterparty, this can include external reinsurance and derivatives when these are used as risk mitigation techniques. (C0310) is however not sum of column (C0210) and column (C0260) given that the related risk mitigation technique is used to mitigate the risk towards a different counterpart.
22 August: S2 Reporting – Reporting Templates
EIOPA clarified in Q&A (#2722) some uncertainties regarding the new reporting requirements (taxonomy 2.8.0). EOIPA were able to give clarification on the ECB add-on in S.02.01, surrounding the definitions and application of non-negotiable instruments.
22 August: S2 Reporting – Reporting Templates
EIOPA clarified in Q&A (#2689) that, regarding the new S.04.03 and S.04.04 QRTs added to the 2.8 taxonomy and associated LOG guidance, if the entity is a non-EEA Branch it cannot write any business via FPS. This is also reflected in the modelling for column C0020 Location of activity defined as EEA countries and not local.
21 August: S2 Reporting – Reporting Templates
EIOPA clarified in Q&A (#2677) that, regarding the S.26.13 template, contracts may have differing but overlapping coverage. In cases where the highest sum insured for a combination of perils is requested, please remove the overlap and please report the highest Sum Insured out of all perils similar to the NLCS study (option 2) for cells C0420/R1960-1990.
21 August: S2 Reporting – Reporting Templates
EIOPA defined in Q&A (#2676) that, regarding the S.26.13 template, for “1 – Non-life and NSLT health reserve risk aggregated jointly with implicit catastrophe risk” aggregated jointly means that reserve risk includes implicit catastrophe risk that cannot be separated in the model from the Non-life and NSLT health reserve risk.
21 August: S2 Reporting – Reporting Templates
EIOPA confirmed in Q&A (#2675) that, regarding template S.26.13, column C0140 should include any diversification benefit stemming from diversified Premium Risk, Reserve Risk and Cat Risk upwards in order to arrive at the Non-Life and NSLT Health.
21 August: S2 Reporting – Reporting Templates
EIOPA confirmed in Q&A (#2630) that, S.37 should include all type of exposures and is therefore not limited by information in S.06. However, when specific asset characteristics are not applicable to the assets following the assessment for S.06 this will also impact the tables under S.37.
Further information
For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.
