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
Driving change through conduct risk
In today’s fast-paced landscape where Environmental, Social and Governance (“ESG”) considerations are shaping investor perceptions, corporate reputation and sustainable business practices, the focus on Conduct Risk has never been more intense.
Whilst navigating the landscape of ethical conduct is complex, there are profound implications for an organisation’s ESG performance if prompt action is not taken. The KPMG team (led by Gillian Kelly, Head of Consulting and Patrick Farrell, Risk Consulting Partner) explores why organisations need to adapt swiftly to stay ahead of the curve to manage and mitigate the drivers of poor conduct and culture.
Taking charge of financial advice
In an era of unprecedented public and regulatory scrutiny, the need to address how financial services organisations provide financial advice is as pressing as ever and, in many ways, now faces a period of even more heightened challenge. Globally, there is a recognition that more can be done within the wealth management industry in this regard, and this has been exacerbated by evolving regulation, tech-driven changes in how financial advice is sought and delivered, and heightened risks related to data, fraud and vulnerable customers. The KPMG team (led by Shane Garahy, Risk Consulting Partner and Rosalind Norton, Risk Consulting Director) discuss the regulatory imperative and key considerations and solutions for firms.
Consumer reform
The New Consumer Agenda was published by the European Commission in November 2020 and provides a consolidated view for Consumer Policy within EU member states for the next five years, 2020 to 2025. Consumer protection is at the forefront of this Agenda and the Central Bank of Ireland’s priorities for 2021.
KPMG (led by Gillian Kelly) will be releasing a series of publications discussing a number of the key consumer related topics as part of our consumer reform series. We invite you to follow this series and contact us with any questions you may have.
Gaining Assurance Efficiencies
KPMG (led by Patrick Farrell) describe what an assurance map is and the process to develop your own assurance map to gain assurance efficiencies, avoid duplication and help focus on critical risks. It is useful to conduct assurance mapping to gain awareness of the way in which they are receiving assurance in relation to key areas of operations and over significant risks. It also supports the ability for these stakeholders to direct assurance activities into areas of higher risk, whilst ensuring both appropriate coverage and efficiency in the broader assurance activities across the enterprise.
What makes an effective board?
How do boards maximise their effectiveness and what should they focus on? How can directors maximise their positive impact in an increasingly complex world? KPMG (led by Ryan McCarthy of the Board Leadership Centre) provide insights on this. With business becoming more demanding, the role and composition of boards has never been more relevant. This is especially the case for a wide range of stakeholders, including current and aspiring board members. It also has implications for the evolving requirements for successful board members.
Central Bank of Ireland updates
The long-term outlook for the Irish economy
On 30 January, the Central Bank published a speech entitled “Looking over the Horizon: the long-term outlook for the Irish economy” delivered by Governor Gabriel Makhlouf. The opening part of the speech touched on the current developments in the Euro area economy with a focus on inflation and interest rates. The speech covered the following main topics:
- The Irish economy’s historic performance;
- The long-term outlook for the Irish economy, in particular the impact of transitions in demography, in climate and in technology, as well as the fragmentation of global trade; and
- Policy choices to support long-term growth in output and living standards.
Public Statement: Irish Financial Services Appeals Tribunal judgement
On February 14, the Central Bank published a public statement in relation to its decision to refuse an individual’s application to a senior role (pre-approval controlled function (PCF)) in financial services under the Central Bank’s fitness and probity (F&P) regime. IFSAT found a number of issues in how the Central Bank handled this application. Accordingly, the Tribunal has returned the application to the Central Bank for reassessment. The Central Bank has commissioned an independent review of its fitness and probity vetting regime for individuals taking up important finance sector position.
Central Bank publishes Governor’s Financial Regulation priorities letter
On 29 February the Central Bank of Ireland published its Regulatory and Supervisory Outlook 2024 (RSO) (PDF, 2.1MB) – the first of what will be an annual report setting out the Central Bank’s view on the key trends and risks facing the financial sector, as well as the regulatory and supervisory priorities and expectations it has set in the context of those risks, namely:
- Priority 1: Proactive risk management and consumer-centric leadership of firms.
- Priority 2: Firms are resilient to the challenging macro environment.
- Priority 3: Firms address operating framework deficiencies.
- Priority 4: Firms manage change effectively.
- Priority 5: Climate change and Net Zero transition are addressed.
- Priority 6: The Central Bank enhances how it regulates and supervises.
EIOPA updates
EIOPA: IORP Risk Dashboard
On 5 February, EIOPA published its first Risk Dashboard on Institutions for Occupational Retirement Provisions (IORPs). EIOPA’s IORP Risk Dashboard summarises the main risks and vulnerabilities in the IORPs sector of the European Economic Area for the different pension schemes i.e. Defined Benefit (DB) and Defined Contribution (DC) schemes. The dashboard includes a set of risk indicators covering traditional risk categories such as market and credit risk, liquidity risk, reserve and funding risks, as well as emerging threats like ESG and cyber risks.
ESAs: Monitoring of Big Techs’ financial services activities
On 1 February, the European Supervisory Authorities (ESAs) published a report setting out results of a stocktake of Big Tech groups providing financial services in the EU. Based on the survey responses received from NCAs, BigTechs have established e-money institutions, payment institutions, credit institutions, insurance intermediaries and insurance undertakings in the EU. 26. The ESAs will continue to strengthen the monitoring of the relevance of BigTech in the EU financial services sector including via the establishment of a new monitoring matrix
Technical information on the symmetric adjustment
On 5 February, 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 January 2024.
Technical information on risk-free interest rate term structures
On 5 February, EIOPA published its most recent technical information relating to risk-free interest rate (RFR) term structures with reference to the end of January 2024.
EIOPA: February Insurance Risk Dashboard
On 5 February, EIOPA published its February 2024 Insurance Risk Dashboard (based on Q3 2023 Solvency II data) that shows insurers’ exposure to market risk remains at high level and a main concern for the sector. EIOPA notes macro-related risks, as well as digitalisation and cyber risks are still relevant but have decreased to medium levels while the risk levels for the remaining risk categories are at medium levels.
ESA’s Joint Board of Appeal
On 6 February, EIOPA published the decision of the Joint Board of Appeal (“the Board”) of the European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) to dismiss the appeal brought by Dubai Commodities Clearing Corporation (“DCCC”) against the European Securities and Markets Authority (“ESMA”) and to therefore confirm the ESMA decision to withdraw its recognition.
EIOPA appoints National Bank of Belgium Vice-Governor
On 13 February, EIOPA announced the appointment of Mr Steven Vanackere, Vice-Governor of the National Bank of Belgium, to EIOPA’s Management Board. Mr Vaneckere begins his two-and-a-half-year term on 13 February 2024. He is taking over from Ms Else Bos, who stepped down from her position at De Nederlandsche Bank at the end of last year.
Shocked risk-free interest rate term structures
On 19 February, EIOPA published its first shocked risk-free interest rate term structures (RFR). These term structures are used to calculate the “Option-adjusted” duration of technical provisions to be reported in the context of the Guidelines for reporting for financial stability purposes (S.38.01.11 - Duration of technical provisions). The shocked RFR aims to ensure consistent calculation of the “Option-adjusted” duration. EIOPA will update the term structures and publish them twice a year on its website. The next update is coming in July 2024.
EIOPA seeks new members to join its Stakeholder Groups
On 26 February, EIOPA launched a call for expression of interest to select new members of the Insurance and Reinsurance Stakeholder Group (IRSG) and the Occupational Pensions Stakeholder Group (OPSG). EIOPA establishes these stakeholder groups to encourage feedback and foster constructive cooperation with a diverse range of relevant stakeholders in a structured approach. Application details can be found here.
Other updates
EC: Solvency II
The European Commission (EC) has published a consultation on a draft EC Delegated Decision on the renewal of its determination that the solvency regime in force in the United States (US) applicable to undertakings with their head office in that country is provisionally equivalent to that laid down in the Solvency II Directive. It applies from 1 January 2016 and expires on 1 January 2026.
The Solvency II Directive provides that provisional equivalence is subject to renewals for further periods of ten years where certain specified criteria continue to be met. Since it has been concluded between EC services and EIOPA that the factual statements set out in EC Delegated Decision relating to the US have not changed, the draft EC Delegated Decision will renew the US provisional equivalence for ten years starting from 1 January 2026. The consultation closes to feedback on 5 March 2024 and the EC intends to adopt the EC Delegated Decision in Q1 2024.
EP/CoEU: Delay to Sustainability Reporting Standards
The European Parliament (EP) and the Council of the EU (CoEU) have announced that they had reached a provisional agreement on the proposal to postpone by two years the deadline for adopting European Sustainability Reporting Standards (ESRS) for certain sectors and for certain third-country undertakings.
The proposal postpones the deadline for the European Commission (EC) to adopt sector-specific standards and standards to be used by certain non-EU companies by two years to 30 June 2026. This will give companies more time to comply with the horizontal standards adopted in July 2023. The provisional agreement supports the objectives of the ECs proposal but, during trialogue negotiations, the legal format of the proposal was changed from being a Decision to a Directive. Member states will not need to transpose this Directive however, since the targeted amendments concern the empowerment to adopt delegated acts granted to the EC.
IE: Consumer hub showcases new practices
On 6 February, Insurance Europe (‘IE’) updated its Consumer Hub that highlights the continuous efforts across Europe’s various insurance markets to innovate and to enhance products and services for consumers. The Consumer Hub provides a non-exhaustive list of examples of pro-consumer initiatives in a number of areas including:
- Innovative products and services;
- Digitalisation;
- Enhanced claims management;
- Transparency and financial education;
- Clarity of covers and exclusions;
- Innovative risk management techniques;
- Initiatives to fight insurance fraud; and
- Good practices in conduct of business.
IE: Concerns about EU tax plans
On 24 January, IE published its views on the European Commission’s proposal for a ‘Business in Europe: Framework for Income Taxation’ (‘BEFIT’) (PDF, 501 KB). IE notes the Insurance Industry supports the goal of harmonising corporate tax rules across the EU, but that it raises serious reservations about the current draft EU directive. IE notes the Insurance Industry is concerned about the interplay between the proposed European Framework and existing legislation, most notably the EU’s Minimum Corporate Taxation Directive and the Country-by-Country Reporting (‘CbCR’) Directive.
IAIS: Newsletter December 2023 – January 2024
On 31 January, the International of Association of Insurance Supervisors (‘IAIS’) published its newsletter for December 2023 (PDF, 1.2 MB) – January 2024. The newsletter focuses on the recent publications by the IAIS, including the 2023 Global Insurance Market Report (‘GIMAR’), the 2024 Roadmap, the Issues Paper on Roles and Functioning of Policyholders Protection Schemes, and the members-only Report on Artificial Intelligence and Machine Learning in the Insurance Sector.
UK updates
PRA: Insurance Supervision: 2024 priorities
On 11 January, the Prudential Regulation Authority (PRA) published a letter from Charlotte Gerken and Shoib Khan to Chief Executive Officers of PRA-regulated Insurance to outlining their priorities for the coming year.
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.
8 January: QRT S.01.01
EIOPA clarified in Q&A (#2848) that insurance and reinsurance undertakings which are not part of a group referred to in points (a), (b) or (c) of Article 213(2) of Directive 2009/138/EC and the parent undertaking of which is a mixed-activity insurance holding company shall submit annually the S.36s templates.
8 January: QRT S.01.01
EIOPA clarified in Q&A (#2799) that, every income protection insurance or reinsurance obligation, other than workers' compensation insurance or reinsurance obligation, included in LoB 29 should be taken into account in the first part of the formula set out in Article 163(1) DR and every medical expense insurance obligation, other than workers' compensation insurance or reinsurance obligation, that is included in LoB 29 and that covers medical expenses resulting from an infectious disease should be taken into account in the second part of the formula set out in Article 163(1) DR.
Further information
For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.
