KPMG Global Updates
A Strategic Partnership Role is the Future of Insurance
Welcome to the new reality - and with it a significant new role for the insurance finance function. Finance is poised for a shift from its traditional reporting, monitoring and planning duties to a significant new role as strategic partner to the business - driving informed, data-based decision making and helping to execute strategy, maximise growth and enhance profitability.
The Pressure is Rising
KPMG firms have updated their benchmarking of leading insurers’ readiness focusing on a selected group of 25 global insurers and national champions which have had IFRS 17 implementation programs running for several years. By sharing this intelligence on an anonymised basis, we hope to provide useful insights to companies large and small around the world as they work to make IFRS 17 a reality.
Can Capital Markets Save the Planet?
It’s now or never; no ifs, no buts. That is the ‘code red’ warning in the sixth report from the Intergovernmental Panel on Climate Change (IPCC), published in August 2021. Progress has been piecemeal, especially as governments have been preoccupied with rebooting their economies since the Covid-19 outbreak. It’s time to do a stock-take on the experiences to date of early adopters of climate investing and the changes they foresee over the next three years. The subject is timely and pertinent for two related reasons.
Central Bank of Ireland (CBI) Updates
CBI: The Insurance Quarterly – December 2021
The CBI has published the Quarterly Insurance Newsletter for the last quarter of 2021 on 15 December 2021. The Newsletter discuss topics such as Learnings from the 2021 thematic review of Own Risk and Solvency Assessments, EIOPA Internal Model Comparative Study, Private Motor NCID Report, Solvency II review and Update on Sustainable Finance initiatives relevant to the Insurance sector.
CBI: Cross-Industry Guidance on Operational Resilience
Following the publication last summer of Consultation Paper 140 which outlined the Central Bank’s proposed approach and perspectives in relation to how the financial sector should prepare for, respond and adapt to, and recover and learn from, an operational disruption that affects the delivery of critical or important business services, the Central Bank has published the Cross-Industry Guidance on Operational Resilience (December 2021). The Central Bank also published Feedback Statement – Consultation Paper 140: Cross-Industry Guidance on Operational Resilience. It is the Central Bank’s expectation that the boards and senior management of all regulated financial services providers, including (re)insurers, review the Guidance and adopt appropriate measures to strengthen and improve their operational resilience frameworks and their effective management of operational resilience in line with this Guidance. Regulated firms should be able to demonstrate that they have applied the Guidelines within an appropriate time frame.
EIOPA: 2nd Annual Report on Administrative Sanctions and Other measures under the Insurance Distribution Directive (IDD) (2020)
The European Insurance and Occupational Pensions Authority (EIOPA) has published its second annual report that provides an overview of the administrative sanctions or other measures imposed by national competent authorities (NCAs) that it is required to publish under the IDD. Overall, in 17 Member States, NCAs imposed a total of 1,942 sanctions in 2020 with administrative pecuniary sanctions of an aggregated value of EUR 793, 571.
EIOPA: Report on Limitations and Exemptions from Solvency II reporting during 2020 and Q1 2021
EIOPA has published an annual report focussing on the limitations and exemptions from regular supervisory reporting under Solvency II, as granted by the national competent authorities (NCAs) in the European Economic Area (EEA) to the 2020 year-end and in Q1 2021.
EIOPA: Results of the 2021 Insurance Stress Test published
EIOPA published the results of its 2021 Insurance Stress Test in which it assessed the industry’s resilience to a prolonged COVID-19 scenario in a “lower for longer” interest rate environment. EIOPA conducted a capital and solvency assessment and also examined participants’ pre- and post-stress liquidity positions.
EIOPA: December 2021 Financial Stability Report
EIOPA: Consultation on the application guidance on climate change risk scenarios in the ORSA
EIOPA has launched a public consultation on the application guidance on running climate change materiality assessment and using climate change scenarios in the Own Risk and Solvency Assessment (ORSA). The consultation gives general insights in the ORSA where undertakings have the possibility to address climate change risks and provides examples using both dummy non-life and life companies, which will help to design the steps for the materiality assessment and to run climate change scenarios.
Stakeholders are invited to contribute to this consultation by responding to the questions in the survey by Thursday, 10 February 2022.
EIOPA: Sets out forward looking digital transformation strategy
EIOPA published its Digital Transformation Strategy, to ensure a systematic, balanced and holistic approach to the technological transformation of the European insurance and pensions markets and their supervision that is currently underway. In its strategy, EIOPA addresses the challenges posed by the digitalisation of the insurance and pensions sector, while enabling stakeholders to harness the benefits that arise from new technologies and business models.
EIOPA: Sustainable Finance Roundtable
On the occasion of its 5th Sustainable Finance Roundtable, EIOPA announced its three year plan (2022-2024) to address sustainability risk. Through its work on sustainable finance, EIOPA aims to ensure that (re)insurers and occupational pension funds integrate sustainability risks in their risk management, to protect consumers and secure financial stability.
EIOPA: Pilot Exercise on Climate Change Adaptation in Non-Life Underwriting and Pricing
EIOPA has launched the voluntary Pilot Exercise to better understand how insurers integrate climate-related adaptation measures in non-life insurance products and to assess the appropriateness of the corresponding prudential treatment of these insurance products.
17 December: Projection of the future SCR for the Risk Margin
EIOPA clarified in Q&A (#2343) that the projection of the future Solvency Capital Requirement (SCR) for the Risk Margin should be consistent with the assumptions underlying the rest of the Technical Provisions, in particular the amount of future premiums within the contract boundary. If the best estimate of the earned premium during 2021 is within the contract boundary as at FY2020, then the calculation of SCR (1) for FY2021 should include the claims reserve for Accident year 2021 (generated by the earned premium during 2021 for the transferred business as a closed portfolio).
17 December: Guidelines on application of outwards reinsurance
EIOPA clarified in Q&A (#2307) the assumption that a CAT treaty with one reinstatement which is exhausted in the calculation of the Nat Cat submodule cannot be available for the Man Made CAT. However, it should be noted that the capacity of the reinsurance treaty should not be allocated to the different submodules arbitrarily. If the capacity of the treatment is not enough to cover a full submodule (Nat Cat or man-made) and there are no reinstatements, the allocation to one of these two submodules is up to the undertaking. However, in case there is one or more reinstatements, both submodules (Nat Cat and man-made) should benefit from reinsurance cover, of course never exceeding the total capacity of the reinsurance treaty.
Regarding the allocation of a reinsurance treaty with one or more reinstatements within Nat Cat submodule, if an event combining two perils is possible and would be covered as a single event, then the allocation should be split between both perils for each event. If a combined event is not possible, therefore each reinstatement should be assigned independently trying to avoid concentrating all the risk-mitigating effect of the contract in one single peril.
Other European and International Supervisory Authority Updates
European Commission (EC):
EC: Sustainability disclosures under Article 8 of EU Taxonomy Regulation
The European Commission (EC) and EU Platform on Sustainable Finance has published further information to support disclosures under Article 8 of the EU Taxonomy Regulations, which requires large public interest entities to include additional information in their non-financial statement on how and to what extent their activities are associated with environmentally sustainable economic activities that are aligned with the EU Taxonomy Regulations.
PRA: Technical information for Solvency II firms
The PRA (Prudential Regulatory Authority) published the technical information for UK insurance firms subject to Solvency II to calculate technical provisions for the month of November on 09th December 2021. From 31 December 2020 (RFR data) and 31 March 2021 (SAECC and Volatility Adjustment data) UK firms must use the data which is published by the PRA rather than EIOPA.
PRA: PS29/21 | CP11/21 – Review of Solvency II: Reporting (Phase 1)
PRA published PS29/21 that provides feedback to responses to Consultation Paper CP11/21 (“Review of Solvency II: Reporting (Phase 1)”). It also contains the PRA’s final rule instrument, UK Technical Standards amendment instrument, and updated Statement of Policy (SoP) and Supervisory Statements (SS).
The PRA has considered the responses to CP11/21, as a result, the PRA has:
- Changed the implementation date so that firms will not be required to report the quarterly or annual quantitative reporting templates proposed for deletion in CP11/21 from 31 December 2021; and the modification by consent to limit the quarterly reporting requirements as set out in SS11/15 will apply from 31 December 2021;
- Reduced the reporting frequency of templates S.28.01 and S.28.02 from semi-annually to annually for all firms; and
- Eliminated all quarterly reporting requirements for pure reinsurance branches, and further removed the reporting requirements at Q1, Q3, and Q4 for firms eligible for a quarterly reporting waiver.
FCA: PS21/24: Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers
The Financial Conduct Authority (FCA) published PS21/24 which introduced a new Environmental, Social and Governance (ESG) sourcebook containing rules and guidance. These rules will directly impact asset managers, life insurers and FCA-regulated pension providers. They relate to a firm’s role as a fiduciary – that is, how it takes climate-related matters into account in its management or administration of assets on behalf of clients and consumers, both at entity level and for specific portfolios or financial products and services. New climate-related disclosure rules will apply from 1 January 2022 for the largest in-scope firms and 1 year later for smaller firms.
Transition to IFRS 17
Every month KPMG CD IFRS team produces an update on the progress of the industry to date on the implementation of the new insurance accounting standard.
A note from Desmond Yegon, Audit Senior Manager at KPMG in the Crown Dependencies:
"As the implementation date for IFRS 17 of 1 January 2023 draws ever closer, we continue to see our clients and other insurance industry stakeholders make strides to ensure all is ready for go-live! We’ve observed that these concerted efforts have led to some unexpected beneficial outcomes. One of these has been in the greater collaboration between the traditionally distinct accounting and actuarial science professions.
Accounting & financial audit professionals are being forced to build greater understanding of the IFRS 17 actuarial production process as the outputs of the process are now the primary ingredient in the preparation of the financial statements. Elements such as insurance service revenue & disclosures are ceasing to be solely accountant-derived & will be actuarially determined. Accountants will need this deeper understanding to be able to explain & validate changes in financial results.
Similarly, actuarial professionals are needing to work ever more closely with accountants to better understand the data requirements to support their process. These requirements have become ever more onerous & have a much greater impact on the quality and consistency of outcomes.
We expect the push to full implementation to continue deep into 2023 as insurance companies come to grips with the compliance requirements of the standard. We remain committed in supporting our audit and advisory clients throughout this process".