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KPMG updates

Inside Insurance - Video Series

KPMG Ireland explores the future of the insurance sector through interviews with industry leaders and KPMG experts. It covers trends, challenges, and opportunities within the insurance landscape, emphasizing the importance of adapting to changes and leveraging new technologies. The two latest videos in the series are:

  • "Inside Insurance – Nonlife Technical" with Tom Donlon - Managing Director, Actuary Augmented Limited
  • "Inside Insurance - Personal Injuries Assessment Board" with Rosalind Caroll - Chief Executive of the Personal Injuries Resolution Board

Spotlight on Artificial Intelligence in Financial Services and Insurance

KPMG explores the integration of Artificial Intelligence (AI) within the insurance industry, highlighting both its benefits and associated risks. AI can streamline underwriting, improve fraud detection, and optimize pricing techniques. However, the adoption of AI introduces new risks, such as bias in decision-making and cybersecurity threats.

The article emphasizes the importance of managing these risks through enhanced model risk management frameworks and also discusses the regulatory landscape. The authors, Brian Morrissey (Partner, Head of Insurance & Actuarial) and Jean Rea (Partner in Actuarial and Applied Intelligence practices) stress the importance of transparency, ethical considerations, and regulatory compliance to fully harness the benefits of AI while minimizing its risks.

Internal Audit Insights 2025

KPMG (led by Patrick Farrell (Partner, Risk Consulting), Michael Daughton (Partner and Head of Risk & Regulatory) and Colm Laird (Director, Risk Consulting)) highlight the need for internal audit functions to be agile and responsive to economic, geopolitical, and technological changes. It emphasizes the importance of managing external pressures, operational challenges, and regulatory-driven risks to ensure organizational resilience. 

Harnessing AI in Financial Services and Insurance

Insurance companies are navigating a digital future that is more connected than ever. The need to modernize finance functions is critical to achieving growth and strategic objectives. Many insurance finance functions still rely on legacy platforms and manual processes, which strain their ability to meet reporting deadlines and add value. KPMG (led by Niall Naughton (Partner – Financial Services Audit) and James Dunne (Managing Director - Management Consulting)) highlight the need for insurers to modernize their finance functions to remain competitive. 

Quantum Computing in Financial Services

KPMG (led by Christopher Brown (Partner, Head of Strategy) and Gerard Duffy (Director, Financial Services Strategy)) discuss the transformative potential of quantum computing in the financial sector. It highlights how quantum computing can revolutionize complex problem-solving, such as derivative pricing, portfolio optimization, and fraud detection.

The article also addresses the risks associated with quantum computing, including data privacy and cybersecurity threats, and emphasizes the need for businesses to develop strategies to harness its potential while mitigating these risks.  

Central Bank Updates

DORA Industry Briefing

The Central Bank of Ireland (Central Bank) has published the remarks made by Gerry Cross, Director of Financial Regulations, Policy and Risk at the Digital Operational Resilience Act (DORA) Industry Briefing that took place on 6 November. Mr Cross highlighted the importance of DORA in strengthening operational resilience across the financial sector.

Mr Cross emphasised DORA’s role in establishing unified standards to mitigate technology risks, enhance cybersecurity, and improve oversight of third-party technology providers. Mr Cross also noted the necessity of industry preparedness and proactive engagement, stressing that firms should embed resilience in their operations to adapt to the evolving digital landscape and regulatory requirements.

CBI: Speech

The Central Bank have issued a speech, provided by Deputy Governor, Sharon Donnery at the Global Insurance Summit.  In her speech, Deputy Governor emphasised the insurance sector's critical role in addressing climate risks.  

In addition, highlighting the importance of integrating climate considerations into risk assessment, underwriting, and investment decisions, Ms Donnery called for enhanced transparency in how insurers address climate-related risks and opportunities, urging the industry to proactively adapt to a changing risk landscape.  

She also noted the significance of insurance in supporting societal resilience by incentivising risk mitigation and contributing to sustainable finance objectives.

European Insurance and Occupational Pensions Authority Updates

ESA: SFDR: PAI Disclosures

The European Supervisory Authorities (ESAs) have published their final report on principal adverse impact (PAI) disclosures under the Sustainable Finance Disclosure Regulation (SFDR). The report notes improvements in the accessibility and quality of PAI disclosures, particularly for retail investors, and in product-level disclosures, though it points out that overall compliance with SFDR provisions remains insufficient.

The ESAs recommend further efforts to achieve full compliance and suggest reducing the frequency of PAI disclosure assessments to every two or three years for more meaningful analysis.  They also provide recommendations to national competent authorities and the European Commission to enhance supervision and assessment practices.

EIOPA recommends a dedicated prudential treatment for insurers’ fossil fuel assets to cushion against transition risks

The European Insurance and Occupational Pensions Authority (EIOPA) has recommended additional capital requirements for insurers holding fossil fuel assets to better reflect transition risks. For equities, EIOPA suggests an increase of up to 17 percentage points to the 39% risk charge applied to Type 1 equities, which are those listed in regulated EEA or OECD markets.

Additionally, for spread risk on corporate bonds, a supplementary charge of up to 40% in multiplicative terms has been recommended. These changes are significant and aim to cushion insurers against the financial risks associated with the transition to a low-carbon economy.

EIOPA: Insurance Risk Dashboard

On 31 October, the European Insurance and Occupational Pensions Authority (EIOPA) published its October 2024 Insurance Risk Dashboard, indicating that risks in the European insurance sector are stable and generally at medium levels. However, market risks remain a top concern due to high market volatility and vulnerabilities in the real estate sector.

The report also highlights stable macro risks with steady GDP growth and easing inflation forecasts, while credit risks show little change except for a narrowing in financial unsecured corporate bond spreads. Liquidity and funding conditions have improved in the catastrophe bond market, and solvency ratios for insurance groups have slightly declined. 

EIOPA: Factsheet – Increasing share of green investments in EU insurer’s portfolios

On 5 November, EIOPA published its latest factsheet showing that the share of green investments in EU insurers’ portfolios is increasing. As of the second quarter of 2024, 4.5% of insurers’ direct corporate bond and equity investments are aligned with the EU Taxonomy for environmentally sustainable activities, rising to 10.7% when considering only non-financial exposures.

This marks a significant increase from 5.7% in 2022. Additionally, 20.5% of direct investments, or 48.6% of non-financial exposures, are in sectors eligible for the Taxonomy.  

EIOPA: Solvency II: Prudential Treatment of Sustainability Risks

On 7 November, EIOPA has published its final report on the prudential treatment of sustainability risks under the amended Solvency II Directive, reflecting feedback from previous consultations. The report addresses three key areas: 

  1. Market risk from climate transition: EIOPA recommends additional capital charges for fossil fuel-related assets, which carry higher transition risks, to ensure insurers are better protected against potential losses.
  2. Climate risk prevention measures: While climate-related adaptation actions by policyholders may reduce underwriting risks, EIOPA suggests further study when better data is available.
  3. Social risks: Due to limited data, EIOPA does not recommend specific treatment of social risks yet, but it aims to develop guidance to help insurers assess these risks in their own risk and solvency assessments.

The report, mandated by the European Commission, has been submitted for consideration on implementing additional capital requirements for fossil fuel assets.

EIOPA: Mass-Lapse Reinsurance and Termination Clauses

EIOPA has published a consultation paper on mass-lapse reinsurance and termination clauses, aiming to enhance guidance for risk mitigation under the Solvency II Directive. 

The paper includes two proposed annexes: one offering guidance for supervisors on mass-lapse reinsurance, focusing on risk transfer efficiency, solvency capital impact, and balance sheet considerations; the other addressing reinsurance termination clauses that may weaken risk transfer, such as those allowing reinsurers to retain premiums or evade obligations.  Stakeholders can provide feedback until 7 February 2025.

ESA: ESAs announce timeline to collect information for the designation of critical ICT third-party service providers under the Digital Operational Resilience Act

On 15 November, the ESAs announced the timelines to collect information for the designation of critical ICT third-party service providers under the Digital Operational Resilience Act (DORA). 

Competent authorities are required to submit data on ICT contractual arrangements by 30 April 2025, aligning with oversight efforts starting January 2025. Draft tools and validation rules aim to facilitate compliance. Additionally, a stakeholder workshop on 18 December 2024,.

EIOPA: Releases opinion on the scope of DORA in light of the review of the Solvency II framework

On 15 November, EIOPA issued an opinion on aligning DORA with the Solvency II framework, addressing concerns about compliance burdens on smaller insurers.  EIOPA notes adjustments to Solvency II thresholds may exempt some entities from DORA, creating potential disparities when DORA takes effect in January 2025. 

EIOPA recommends regulatory actions to ensure proportionality and suggests deprioritising enforcement for smaller insurers during this transitional period.  EIOPA aims to balance operational resilience with fair compliance requirements.

EIOPA: Blueprint for an awareness tool for natural catastrophe risks and prevention measures

On 26 November, EIOPA published a consultation on a proposed digital tool to raise awareness about natural catastrophe (Nat Cat) risks and prevention measures. With climate change increasing the frequency and severity of natural hazards like storms, floods, and droughts, homeowners and businesses face growing exposure to damages.  EIOPA emphasises that understanding these risks is essential for both homeowners and insurers to promote proactive prevention and ensure affordable property insurance across Europe. 

The EIOPA-proposed tool would provide EU citizens with localised risk information, prevention tips, and insights into insurance implications.  It aims to help users assess their exposure, reduce risks, and engage more effectively with insurance providers.  

EIOPA is seeking input on the tool's design, its potential impact on prevention and premiums, and ways to integrate it into the insurance-buying process. Feedback is invited until 28 February 2025.

ESA: Publish Joint Guidelines on the system for the exchange of information relevant to fit and proper assessments

On 20 November, the ESAs published Joint Guidelines to enhance information exchange for fitness and propriety (F&P) assessments of key individuals in financial institutions.  

The ESAs note the guidelines aim to clarify the use of the ESAs F&P Information System and foster cooperation among competent authorities within the European System of Financial Supervision (ESFS). The ESAs’ initiative supports consistent supervision, safe financial management, and robust governance, ensuring investor protection and trust across the EU's financial sector.

EIOPA: Data Sharing & Re-Use

EIOPA has issued a letter to the European Commission, Council of the EU, and European Parliament outlining its support for the proposed Regulation on reporting requirements in financial services, while calling for clarifications on several points. EIOPA advocates that data sharing between authorities should prioritise common projects and shared database access to prevent redundant data flows and storage, which could lead to inconsistencies and increased costs. The Regulation should clearly define data-sharing conditions to ensure alignment with each authority’s mandates, especially concerning sensitive supervisory data.

EIOPA also calls for clarity on the governance, scope, and funding of the Single Integrated Reporting System (SIRS), noting it is a significant project needing adequate resources. Finally, EIOPA emphasises the need to avoid overburdening any single authority and suggests a thorough assessment of legal and operational costs.

EIOPA: Monthly update of the symmetric adjustment of the equity capital charge for Solvency II – end-October 2024

On 6 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 2024.

EIOPA: Monthly technical information for Solvency II relevant risk-free interest rate term structures – end-October 2024

On 6 November, EIOPA published its most recent technical information on the relevant risk-free interest rate term structures (RFR) with reference to the end of October 2024. 

UK Updates

FCA: Financial promotions quarterly data 2024 Q3

On 25 October, the FCA published a summary documenting their actions against firms breaching financial promotion rules, and referrals and investigations into unregulated activity between 1 July 2024 and 30 September 2024.

FCA: Culture and non-financial misconduct survey

On 25 October, the FCA published key findings from their culture and non-financial misconduct survey, which examined how firms detect and handle non-financial misconduct incidents.

FCA: Complaints Data

On 24 October, the FCA published details of the complaints received by banks, insurers, lenders and other firms, and what those complaints were about. These are released every 6 months.

FCA: Multi-firm review of consumer credit firms and non-bank mortgage lenders

On 23 October, the FCA published their observations from the multi-firm review (MFR) of the financial resilience of consumer credit firms and non-bank lenders.

FCA: Premium Finance Market Study

On 16 October, the FCA published a proposed Terms of Reference for a market study into the provision of premium finance for motor and home insurance.

PRA: Responses to CP6/24: OCP policy statement

On 31 October 2024, the PRA published feedback to responses they received to consultation paper (CP) 6/24 – Occasional consultation paper: April 2024.

PRA: Speeches

The PRA published the following speeches:

  • Enhancing our national asset: Maximising the value of data collections across the financial sector − speech by James Benford, 3 October 2024
  • Competing for growth − speech by Sam Woods, 17 October 2024
  • Engaging with the machine: AI and financial stability − speech by Sarah Breeden, 31 October 2024

PRA: CP13/24 – Remainder of CRR: Restatement of assimilated law

On 15 October, the PRA published a consultation paper which sets out the PRA’s proposals to restate the relevant provisions in the assimilated Capital Requirements Regulation No 575/2013 in the PRA Rulebook.

PRA: Regulatory Digest

On 1 October, the PRA published their regulatory digest for September 2024.

PRA: Financial Policy Committee Record - 2024 Q3

On 2 October, the PRA published the record of the Financial Policy Committee meeting held on 19 September 2024. This committee meets to identify risks to financial stability and agree policy actions aimed at safeguarding the resilience of the UK financial system.

EIOPA Q&A

15 November: QRT S.14.04; S.14.05; S.38.01


EIOPA revised in Q&A (#2476) the guidance they issued on 21 October 2022 regarding the following:

  • For life liquidity risk, aggregating product level information to portfolio level by assets held in unit/index-linked contracts; fiscal treatment of products; county; and exit conditions.
  • For non-life liquidity risk, the requirements for reporting at a portfolio level considering the non-life business as a whole.
  • For duration of technical provisions, material optionalities shall be reported based on the specificities of the technical provisions and portfolio of the undertaking, when possible, with reasonable effort.

20 November: QRT S.26.13

EIOPA clarified in Q&A (#3179) that catastrophe risk should be provided per catastrophe risk peril as opposed to per line of business. They have provided an example elaborating on this.

20 November: Intra-group transactions

EIOPA clarified in Q&A (#2958) the correct method for calculating group Solvency Capital Requirement (SCR) where an insurance holding company provides a loan to a majority-owned insurance undertaking which uses method two to consolidate the SCR, while there are other financial & insurance undertakings within the group that use method one. EIOPA provided the following guidance: “the group SCR should be the sum of the consolidated group SCR of the part of the group under method 1 and the proportional share of the solo SCR of the method 2 undertaking, gross of any intra-group transactions.” They also clarified that no adjustments should be made to the group own funds due to the intra-group transaction if the loan does not result in double use of eligible own funds.

 

Other European and International Supervisory Authority Updates

IAIS: Newsletter September

On 31 October, the International Association of Insurance Supervisors (IAIS) published their newsletter for October. The newsletter covers various in focus and topical areas for the Insurance sector as well as the IAIS strategic direction for 2025-2029, the aggregate report on the Peer Review Process for Insurance Core Principle (ICP) 16, Holistic Framework assessments performed by supervisors, and providing updates on memberships. events, forums and committee activities.

IE: Appointment of Director General

On 3 November, Insurance Europe (IE) announced that Thea Utoft Høj Jensen has been appointed as the new director general. Thea Utoft Høj Jensen is joining IE from a consulting firm where she held the role of Senior Managing Director and Head of Financial Services based in Belgium. Thea took over on 4 November from Michaele Koller whom served as the director general for the previous 18 years. 

CoEU: IRRD and Solvency II

The Council of the EU (CoEU) has published a press release announcing it has adopted:

  • ·     The Insurance Recovery and Resolution Directive (IRRD).  
  • ·     The Directive amending the Solvency II Directive (Solvency II Amending Directive).

The European Parliament approved this legislation under the corrigendum procedure on 8 October 2024. The CoEU published the text of the legislation on 16 October 2024. The next step is for the legislation to be published in the Official Journal of the European Union. Both the IRRD and the Solvency II Amending Directive will enter into force 20 days after publication. The provisions of both Directives will generally apply 24 months and one day from the date of entry into force.

IAIS: Application Paper on the supervision of artificial intelligence (AI)

The IAIS is seeking feedback on its draft paper addressing AI supervision in insurance.  It offers guidance on applying Insurance Core Principles (ICPs) to manage risks tied to AI systems, covering governance, accountability, safety, transparency, fairness, and societal impacts, for example, granular risk pricing.  The paper links to ICPs on risk management, corporate governance, and business conduct to ensure robust oversight.  Responses are invited on the application paper until 17 February 2025.

IAIS: ComFrame

The IAIS has released an explanatory note detailing amendments to the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) due to the upcoming adoption of the Insurance Capital Standard (ICS). The IAIS plans to adopt the ICS at its annual general meeting on 5 December. This note aims to inform IAIS members and stakeholders about these changes.

The ICS, a group-wide capital standard for IAIGs, will be adopted as two documents: Level 1 (principles and concepts) and Level 2 (detailed specifications). These documents must be read alongside ComFrame.

The proposed amendments are listed in the explanatory note and aim to clarify the transition without introducing new substance. Future phases will consider further integration of the ICS into ComFrame standards.

OJEU: Q4 Own Funds Reporting

The Official Journal of the European Union (OJEU) has published European Commission (EC) Implementing Regulation, which lays down technical information for calculating technical provisions and basic own funds for reporting under the Solvency II Directive.  

The Implementing Regulation, which was made under Article 77e(2) of the Solvency II Directive, sets out the technical information for insurers and reinsurers to use when calculating technical provisions and basic own funds for reporting with reference dates from 30 September 2024 until 30 December 2024.  In October 2024, EIOPA provided the European Commission with the technical information relating to end of September 2024 market data.  

The Implementing Regulation, which was adopted on 18 November 2024, will enter into force on 20 November 2024 (that is, the day after its publication in the OJEU). It has applied since 30 September 2024.

IAIS: Supervising DEI

The IAIS has published an application paper on supervising diversity, equity, and inclusion (DEI) in the insurance sector.  Developed by the IAIS governance working group, the paper:

  • Highlights DEI's relevance to Insurance Core Principles (ICPs) 7 and 8, focusing on corporate governance and culture.
  • Offers practical guidance for supervisors evaluating insurers' DEI strategies.
  • Identifies governance, risk management, and cultural focus areas for DEI, outlining warning signs and recommending actions, from soft approaches (e.g., speeches, letters) to stricter measures (e.g., requirements).
  • Encourages supervisors to lead by example by improving DEI within their organisations.

A draft of the paper was consulted on between March and June 2024, with feedback from 12 respondents summarised in a related document.  The paper complements ongoing work by IAIS on DEI in market conduct (ICP 19) to ensure fair treatment of diverse consumers.  A final application paper on this topic is expected in mid-2025.

IAIS: Consultation on ancillary risk indicators in the Global Monitoring Exercise

The IAIS has published a consultation on ancillary risk indicators within its global monitoring exercise (GME), part of its holistic framework.  The GME's annual individual insurer monitoring (IIM) assessment evaluates systemic risks at the insurer level, potentially using ancillary indicators for additional context.  The IAIS seeks feedback on:

  • New ancillary indicators related to credit risk, derivatives, reinsurance, and mark-to-model assets.
  • Updates to existing liquidity metrics introduced in November 2022 for monitoring liquidity risk.

The consultation closes on 3 February 2025. Feedback will inform the 2025 review of the GME methodology, with updates to be published later that year.

European Insurer Ratings Unaffected by Proposed Fossil-Fuel Capital Surcharges

Fitch Ratings explains that European insurers' ratings will not be affected by the proposed capital surcharges on fossil fuel-related assets by EIOPA. Fitch's impact assessment shows that these changes would have a limited effect on Solvency II ratios due to insurers' low exposure to fossil fuel assets. 

Further information

For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance. We'd be delighted to hear from you.

Contact our team