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
Key thematic areas to consider in 2024
The risk landscape has shifted over the past year. To support Heads of Internal Audit, KPMG (led by Patrick Farrell - Partner, Risk Consulting and Colm Laird - Director, Risk Consulting) have identified and compiled the key thematic areas and related risks which Internal Audit functions should consider in developing their Internal Audit plans for 2024.
The thematic areas in our report below include both emerging and established risks which Internal Audit should consider when preparing its agile annual Internal Audit plan for 2024. While the report below is not an exhaustive list of thematic areas, these can serve as a starting point from which the Internal Audit function can leverage when assessing the organisation’s risk profile and control environment throughout 2024.
Alastair Campbell & Rory Stewart at KPMG Board Leadership Centre
At first glance, Alastair Campbell and Rory Stewart make for an unlikely double act. Alastair Campbell, a bagpipe-playing former tabloid journalist, was Tony Blair’s long-time media strategist. Meanwhile, Rory Stewart, educated at Eton and Oxford, is a former army officer, diplomat and a UK cabinet secretary. They were both in Dublin recently for the launch of the Irish chapter of the Board Leadership Centre (led by Ryan McCarthy, KPMG Audit Partner and Board Leadership Centre Lead).
At the event, Campbell and Stewart shared their own experiences of serving on boards, but also, drawing from their own expertise and political connections, talked about the wider geopolitical and economic issues that boards need to have on their radar.
Preparing for crisis: How boards get ready for the unforeseen
We are living through an era of crises. By addressing global economic trends, AI, talent challenges and the complexity running through these themes, board members can prepare their company for the next one. Ryan McCarthy of our Board Leadership Centre explains how in this article.
Emerging technology: Irish CEOs on AI opportunities and risks
Chief Executive Officers (‘CEOs’) have mixed views on whether to treat advancing digitisation and activity across their business as a top priority to achieve growth in 2023. This comes at a time when economic sentiment globally has softened - leaving some CEOs to pull back on big spending on non-core projects. However, with the rapid advances made in generative Artificial Intelligence (‘AI’), some have felt the need for immediate action. In this article, KPMG (led by Gillian Kelly and Dani Michaux, EMA Cyber Leader) explore generative AI and preparing for cyber-attacks.
CEO Outlook 2023: Leadership perspectives on tech, people and change
Our annual CEO Outlook has taken the business pulse of CEOs for the past 8 years. It provides a unique insight into the mindset and strategies of CEOs in Ireland and how they compare with their peers worldwide.
This Outlook (led by Seamus Hand, Managing Partner), which measures CEO confidence and expectations about both the economy and their own organisations, provides a valuable understanding of business sentiment at home and abroad.
Transforming Compliance in financial services
Compliance functions have gone through a major period of growth and investment. Many firms have seen a massive expansion in their Compliance functions. Despite this, they have been put under significant strain driven by the external market conditions, increased adoption of digitalisation, developments in operational and financial resilience increased focus on consumer outcomes and the implementation of ESG obligations. In this paper, KPMG EMA FS Regulatory Insight Centre (led by Philip Deeks, Director) focus on how Compliance can meet the twin objectives of effectiveness and efficiency, and what firms need to do to transform their compliance function.
Insurance transformation: Modernizing the finance function
Organizations are navigating a digital future that is far more connected than the past. Insurance leaders understand the need to modernize their front, middle and back-office functions to help achieve growth and strategic objectives. In doing so, this can enable organizations to develop a stronger, more efficient infrastructure and build better capabilities to deliver value through strategic direction and operational excellence.
To support clients, KPMG Global (led by Mark Longworth, Global Head of Insurance Advisory and Martin Hoser, Global Insurance Finance Transformation Lead and Partner) will be launching a short series of insurance transformation reports, each exploring key insights across the finance, actuarial, claims and underwriting functions. The first report, focusing on modernizing the finance function, is now available.
Central Bank of Ireland updates
Speech: New Frontiers in Business Ethics
On 26 October, the Central Bank published a speech given by the Director of Consumer Protection, Colm Kincaid at the Vincentian Business Ethics Conference in Dublin City University entitled ‘New Frontiers in Business Ethics’. The speech covers the role of financial conduct regulation, culture at the heart of commercial decision making and the current challenges faced by public authorities.
Speech: Putting principles into practice
On 8 November, the Central Bank published a speech given by the Governor, Gabriel Makhlouf, at the Financial System Conference 2023 in the Aviva Stadium entitled ‘Putting principles into practice: how regulation responds to change’. The speech covers the theme of putting principles into practice across the following topics:
- Innovation & Digitalisation;
- Individual Accountability Framework (‘IAF’) & the Consumer Protection Code (the ‘Code’) Review; and
- Applying principles in Europe and beyond.
Speech: Maintaining stability in the face of volatility
On 14 November, the Central Bank published a speech given by the Deputy Governor, Sharon Donnery, at the Compliance Institute annual conference entitled “Maintaining stability in the face of volatility – financial regulation in a rapidly changing world” The speech covers the current macro-economic environment under the following headings:
- Challenge and change – the economy and the financial sector;
- Risks ahead – the short and long of it;
- Maintaining stability in the face of volatility;
- Responding to change – non-banks and innovation; and
- Regulation, Supervision and Compliance in the age of AI.
Individual Accountability Framework Standards
On 16 November, the Central Bank published a feedback statement (PDF, 442 KB) and issued Regulations (PDF, 1.02MB) & Guidance (PDF, 1.5MB) to firms on the Individual Accountability Framework following a three month consultation process. The Guidance provides clarity on the Central Bank’s expectations for the implementation of three aspects of the framework: the Senior Executive Accountability Framework (SEAR), the Conduct Standards and certain aspects of the enhancements to the Fitness & Probity regime.
Speech: Walking the path – the transition to Net-Zero
On 21 November, the Central Bank published a speech given by Deputy Governor, Sharon Donnery, at the 6th annual Climate Finance Week entitled “Walking the path – the transition to Net-Zero”. The speech covers the following topics:
- The Climate Challenge;
- Safety and soundness – adapting to this new world; and
- Walking the path – Financing the transition/Doing our part.
The speech makes note of the guidance for (Re)Insurance Undertakings on Climate Change Risk (PDF, 524 KB) and to remind (re)insurers of the Central Bank expectations when addressing climate change risk in their business.
Speech: Implementing DORA
On 23 November, the Central Bank published a speech given by Gerry Cross, Director of Financial Regulation – Policy & Risk and Chair of the Joint European Supervisory Authorities (‘the ESAs’) Sub-Committee on Digital Operational Resilience Act (‘DORA’), entitled “Implementing DORA”. The speech covered the following topics:
- Implementing the new framework;
- ICT Risk Management, including ICT outsourcing risk;
- Operational Resilience testing and Threat-led penetration testing (TLPT);
- ICT related incident reporting;
- Third Party Oversight Regime; and
- Next Steps.
Financial Stability Review
On November 23, the Central Bank published the second Financial Stability Review of 2023. The review noted that the Irish economy has been resilient to inflationary shock however previously identified risks are crystallising and the full impact of interest rates is still unknown. The review outlines the Central Bank’s review of risks facing the economy, the resilience of the economy and financial system to adverse shocks and policy actions to safeguard stability. A speech provided by the Governor of the Central Bank Gabriel Makhlouf at the Financial Stability Review press conference provides more background on the developments since the previous Financial Stability Review in June.
EIOPA updates
Macro, markets and digitalisation risks are top concern
On 6 November, EIOPA published its November 2023 risk dashboard which shows that insurers’ exposures to macro, market and digitalisation risks are currently at a high level and the main concern for the sector. Risk levels for the remaining risk categories are constant at medium levels.
Factsheet on EEA IORP’s investments
On 7 November, EIOPA published (PDF, 1.3MB) its most recent data release on statistics it collects on institutions for occupational retirement provision (‘IORPs’) in the European Economic Area. The publication includes information from the final quarter of 2022 and includes a visual factsheet that provides a clear picture of how European IORPs allocate approximately €2.5 trillion euro they manage across different asset types and jurisdictions.
Symmetric adjustment of the equity capital charge for Solvency II
On 7 November, EIOPA published its most recent technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of October 2023.
Solvency II Relevant Risk-Free Interest Rate Free Term Structures
On 7 November, EIOPA published its most recent technical information relating to risk-free interest rate (RFR) term structures with reference to the end of October 2023.
Mapping of External Credit Assessment Institutions
On 13 November, the joint committee of the European Supervisory Authorities (EBA, EIOPA and ESMA – The ESAs) published two amended Implementing Technical Standards (ITS) on the mapping of credit assessments of External Credit Institutions (ECAIs). The amendments reflect the outcome of a monitoring exercise on the adequacy of existing mappings, and the deregistration of the three credit rating agencies (CRAs).
Keynote speech of Petra Hielkema at the EIOPA Conference
On 21 November, Pietra Hielkema, chairperson of EIOPA delivered a keynote speech entitled ‘Hidden risks and new horizons: What’s next for Supervision’ at the EIOPA 2023 conference. The speech covered the future challenges of supervision, the existing protection gaps and the importance of data in narrowing the gaps.
Cross-border IORPs trends in 2023 report
On 23 November, EIOPA published its 2023 report on the recent developments in cross-border business among institutions for Occupational Retirement Provision (IORPs) within the European Economic Area (EEA). The report notes that the year-end data for 2022 shows a number of cross-border IORPs active in Europe has remained low and unchanged from previous year with only 31 IORPs operating across borders. Key takeaways from the report include:
- High geographical concentration: Majority of cross-border IORPs are concentrated in only a few countries.
- More home and host countries: The report notes there has been a modest rise in number of both home and host countries despite a low number of cross-border IORPs and the high geographical concentration.
- Belgium and the Netherlands leading: Belgium maintains its position as the home country with the broadest geographical coverage, covering 14 different host countries. Meanwhile the Netherlands continues to host the highest number of cross-border IORPs.
Other updates
Empowering the European Automotive Ecosystem
On 6 November, Insurance Europe (‘IE’) published a letter calling on the European Commission (PDF, 298 KB) to propose sector specific legislation on access to in-vehicle data, functions and resources by the end of this year. IE believe that immediate regulatory action is needed to foster competition, innovation, consumer choice and affordability.
EC’s proposed framework for FIDA
On 6 November, IE published its views on the European Commissions proposed framework (PDF, 298 KB) for Financial Data Access (‘FIDA’). IE believe the current European Commission FIDA proposal currently drafted, its socio-economic costs do not match its benefits. IE note for FIDA to be a success, a balance must be found between costs, benefits and risks. IE suggest narrowing the scope, making changes to definitions, providing access to data to ensure a ‘level playing field’ and further recommendations.
Natural Catastrophe Protection Gaps
The International Association of Insurance Supervisors (‘IAIS’) has published a report on the role of insurance supervisors (PDF, 1.3 MB) in addressing natural catastrophe (‘NatCat’) protection gaps. The IAIS states that, due to the effects of climate change, in combination with structural changes to economies and ongoing economic development, it is expected that NatCat protection gaps will increase. The report analyses various types of initiatives that supervisors can undertake to help address NatCat protection gaps.
Recommendations to promote an open reinsurance market
On 9 November, IE published a report by the IE Reinsurance Advisory Board (‘RAB’) (PDF, 501 KB) on the importance of an open global reinsurance market. The report covers aspects of the reinsurance business model, particularly global diversification, which the IE RAB allows the industry to contribute to narrowing insurance protection gaps, promoting innovation, supporting adaptation against the growing dangers of climate change and improving financial resilience.
Joint statement on the European Commission ESG ratings proposal
On 22 November, Insurance Europe and Pensions Europe issued a joint statement welcoming measures included in the European Commission’s ESG Rating Regulation proposal. The joint statement notes it will improve the transparency of ESG ratings and ensure insurers/pension providers support the initiative’s aim of improved ESG ratings providers independence and conflict of interest.
Public consultation on climate risk supervisory guidance
On November 23, the IAIS launched its second consultation to promote a globally consistent supervisory approach to climate related risks. The consultation focuses on issues related to market conduct supervision and climate scenario analysis. The IAIS is inviting feedback until 23 February 2024 on two draft applications:
- Draft Application Paper on climate risk market conduct issues in the insurance sector (PDF, 1.2 MB) aims to support supervisors to identify instances of potential unfair treatment of consumers that can emerge in relation to natural catastrophe (NatCat) protection products or sustainability-focused products, for example through “greenwashing” or misleading information on the sustainability of an insurer’s operations.
- Draft Application Paper on climate risk scenario analysis in the insurance sector (PDF, 1.4 MB) focuses on the use of climate-related scenario analysis as a tool used by both supervisors and insurers to understand the risks to which the insurance sector is exposed at a micro- and macroprudential level.
UK updates
Review of Terminal Illness Benefits
On 2 October 2023, the Financial Conduct Authority (‘FCA’) published a review of insurance companies’ approaches to terminal illness benefits to make recommendations for improvement.
Authorisation and supervision of insurance branches
On 15 June 2023, the Prudential Regulation Authority (‘PRA’) published a consultation paper outlining the PRA’s approach to the authorisation and supervision of insurance branches.
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.
02 October: QRT S.37.01
EIOPA confirms in Q&A (#2715) that that the approach towards ratios and percentages did not change. Therefore, such values should be reported as decimal. Regarding the use of pure metric, we would like to note that this approach is also consistent with previous release. The pure item type is used for both percentages and ratios as provided in the EIOPA XBRL Taxonomy Documentation section VII.2.2 Metrics.
02 October: QRT S.05.01
EIOPA clarified in Q&A (#2587) that S.05.01 should be filled in according to the accounting principles used in the financial statements. However, it should be noted that under the principle of substance over form (see Article 6(1)(h) form the Directive 2013/34/EEC), ‘items in the profit and loss account and balance sheet shall be accounted for and presented having regard to the substance of the transaction or arrangement concerned’.
18 October: Reporting Templates
EIOPA confirms in Q&A (#2687) that the thresholds for QRTs S.18.01, S.19.01, S.20.01, S.21.01 and S.21.03 are gross of reinsurance and should not consider transitional measures.
19 October: QRT S.02.01 and S.06.02
EIOPA clarified in Q&A (#2577) that when cash is posted as collateral it is derecognised and a deposit is recognised, therefore only the deposit should appear in S.02.01 and S.06.02. The deposit that is recognised after the cash is posted as collateral should appear in S.02.01 in ‘Any other assets, not elsewhere shown’ (R0420). In S.06.02 the deposit should receive a CIC ##79 and it should be identified as pledged as collateral in C0100. The deposit should also be reported in S.03.01. Please also see Q&A 2211.
20 October: QRT S.01.02
EIOPA clarified in Q&A (#2805) that there is an inconsistency in S.01.02. Both ‘SFCR file not provided’ and ‘SFCR file provided’ options will be added in the 2.8.0 Hotfix release.
20 October: QRT S.04.05
EIOPA clarified in Q&A (#2780) that S.04.05 is to be filled on a gross basis. R1210 and R2510 in S.05.01 include the net technical expenses and as such shall not be included in S.04.05. R0550 from S.05.01 including all technical expenses incurred by the undertaking during the reporting period, on accrual basis corresponds to R0050 in S.04.05.
19 October: QRT S.04.05
EIOPA clarified in Q&A (#2755) that there is no threshold for S.19.01 in the (EU) 2023/895 - ITS for the disclosure of solvency and financial condition report. Therefore, the scope of the template should always include 100% of the non-life business, including lines of business considered immaterial in S.19.01.01.
19 October: QRT S.37.01
EIOPA clarified in Q&A (#2739) that regarding S.37.01, others direct exposures’ (C0270) encompasses the total amount of the exposures in other instruments toward the external counterparty that are to be reported but are not captured under the specified categories. Others can be described in ‘Description of others’ (C0280). Please note that for cell C0280 the reference to C0200 should be a reference to C0270, this will be corrected in the next ITS amendments.
19 October: QRT S.37.01
EIOPA clarified in Q&A (#2730) that the ‘special register’ should not be pledged as collateral, therefore not included in the scope of C0240 in S.37.01.
Further information
For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.
