KPMG’s experience with neural networks is shared in the following paper. We give an overview of this new technology, including some examples and details to help you dive in to this rapidly-evolving area. The paper examines the application of neural networks in insurance, the future of neural networks from a risk and regulatory perspective, background and technical aspects on neural networks and tools to facilitate learning on this subject.
Rapid advancements in technology and shifts in market dynamics are changing the way consumers think about insurance. Insurers understand the urgent need to rethink their business models to meet ever-evolving customer demands and industry challenges – but where should they start? Laura Hay, KPMG’s Global Head of Insurance, believes challenging the talent model to be a fundamental step for insurers facing shifts in customer demand and rapid tech innovation.
The fintech space will remain robust in 2019 with the developments around open data, regtech and cross-border activity. More mature fintechs are expected to become digital banks and digital insurers, as well as incumbents looking to launch their own digital banking propositions. Ian Pollari, Global Co-Lead of KPMG's Fintech Practice, reveals three factors that will accelerate financial services transformation and impact both fintechs and incumbents.
Advanced analytics and big data are fundamentally changing actuarial work. Today's actuaries no longer have to follow the traditional methods, calculating reserves based on aggregate data patterns. Instead, robust software and vast computational power have unlocked new methods and models, including analyzing individual claim and policy data in real time. For fresh graduates and the top actuaries in the field, this reality is the new normal – and the impacts of this change are being felt throughout the industry and beyond. Harnessing the power of these new technologies, actuaries are more in demand than ever before, taking on new roles, working for new types of firms, and shaping the innovation agenda, as explored in the following article.
The CBI published its quarterly newsletter in December 2018 which addresses:
Read: Insurance Quarterly (PDF, 1.1MB)
Consolidated view of the Solvency and Financial Condition Reports (SFCR)
With a view to increasing the data accessibility and transparency of the publicly available information for insurance and reinsurance firms, the CBI has now published a consolidated view of publically available data by providing a set of tables covering all of the 2017 reports comprising key metrics that have been extracted from the templates attached to each firm’s SFCR. (PDF, 2.8MB)
There is also a data file being made available that allows further interrogation of the data contained in all the SFCR templates. These tables when read in conjunction with the narrative in the individual reports offer important insights into the activities of firms regulated by the CBI. CBI will publish this data on an annual basis following publication of the annual SFCRs.
Guidance on applications
The CBI has issued guidance on Solvency II applications to ensure an efficient application process and avoid unnecessary delays in the review of those applications. The CBI published guidance on applications for approval of ancillary own funds, approval of undertaking specific parameters, approval of basic own funds and capital contributions, among others.
CP-128 - Consultation on Anti-Money Laundering and Countering the Financing of Terrorism Guidelines for the Financial Sector
The CBI is proposing to introduce guidelines (the “Guidelines”) in order to supplement Part 4 of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended) which was recently amended to transpose, in part, the Fourth EU Anti-Money Laundering Directive (2015/849) (“4AMLD”) into national law. The Guidelines are included in Schedule 1 of Consultation Paper CP 128 (PDF, 238KB).
The CBI has invited general feedback on the Guidelines, in addition to responses to the specific questions contained in the Consultation Paper from interested stakeholders, including credit and financial institutions, representative bodies, industry consultancies and service providers. The consultation period commenced on 21 December 2018, and will close on 5 April 2019.
The December edition of the Intermediary Times (PDF, 786KB) focuses on the key supervisory and regulatory issues that affected insurance intermediaries in 2018, including Brexit, 2018 Retail Intermediary Roadshows, 2018 Funding Levy and findings from thematic inspections.
EIOPA publishes Opinion on non-life cross-border insurance business of a long-term nature
On the 21 December 2018, the European Insurance and Occupational Pensions Authority (EIOPA) published an Opinion on non-life cross-border insurance business (PDF, 1.5MB) of a long-term nature and its supervision. The Opinion is addressed to National Competent Authorities (NCAs) and outlines EIOPA's expectations on the calculation of technical provisions and the governance for cross-border business.
The objective of this Opinion is to ensure the appropriate application of the legal requirements and consistent supervisory practices with regards to the calculation of technical provisions and quantitative information on non-life long-term business with distinctive features or a high degree of local specificities. There are useful insights in the paper including on actuarial reserving practices which might be helpful for actuaries who may be involved in reserving but are removed from the actual local claims environment. Furthermore, the lower the data quality the more prudent the expert judgments are expected to be in the best estimate calculation.
Q&A on Delegated Regulation
EIOPA continues to publish Q&As in relation to the Solvency II Delgated Regulation on questions posed by European (re)insurers to EIOPA on specific matters.
Financial Stability Report
On the 20 December 2018, EIOPA published its December 2018 Financial Stability Report of the (re)insurance and occupational pensions sectors in the European Economic Area.
Customer Trends Report
On the 20 December 2018, EIOPA published its Seventh Consumer Trends Report outlining key developments in the insurance and pensions sectors impacting European consumers, highlighting Digital Technologies in Insurance and Pensions (PDF, 471MB) continue to grow alongside Cross-selling Practices and the sale of Add-on Insurance.
EIOPA publishes third annual report on the use of limitations and exemptions from reporting under Solvency II
On the 20 December 2018, EIOPA published its third annual report on the use of exemptions and limitations from the regular supervisory reporting during 2017 and Q1 2018 by national competent authorities (NCAs) under Solvency II. The report addresses the proportionality principle on the reporting requirements, from which the limitations and exemptions on reporting - as foreseen in Article 35 of the Solvency II Directive - are just one of the existing proportionality tools. Reporting requirements also reflect a natural embedded proportionality and in addition risk-based thresholds were included in the reporting Implementing Technical Standard (ITS).
EIOPA publishes second annual report on the use of capital add-ons under Solvency II
EIOPA published on the 20 December 2018 its second annual report on the use of capital add-ons by NCAs under Solvency II. The objective is to contribute to a higher degree of supervisory convergence in the use of capital add-ons between supervisory authorities in the different Member States and to highlight any concerns regarding the capital add-ons framework. The analysis is based on 2017 year-end Solvency II data. Albeit a slight increase in the use of capital add-ons can be seen, the overall usage remains extremely limited. During 2017 six NCAs have set capital add-ons to 23 solo insurance and reinsurance undertakings. This limited usage might be due to the negative image that is attributed to capital add-ons or to the level of judgement that is associated to the decision and calculation of the capital add-ons which in turn inhibits supervisors from using it.
EIOPA calls for input on Solvency II reporting and disclosure requirements
EIOPA launched a call for input on Solvency II reporting and disclosure requirements as part of the 2020 Solvency II review. EIOPA will review these requirements with the aim to assess if they remain fit-for-purpose and particularly if they allow for a risk-based and proportionate approach. With this call for input EIOPA invites all stakeholders to provide already at this early stage, general or specific input on all the areas included in the call bearing in mind that evidence-based inputs and concrete proposals will facilitate the reviewing process. During 2019 EIOPA will publicly consult the conclusions of its assessment and carefully consider the input received and respectively reflect it in the consultation. The deadline for submission of the input is Thursday, 21 February 2019.
EIOPA reports on Group Supervision and Capital Management of Insurance and Reinsurance Undertakings
On the 19 December 2018, EIOPA published a Report on Group Supervision and Capital Management of (Re)Insurance Undertakings (PDF, 2.4MB) and on specific topics related to Freedom to Provide Services (FoS) and Freedom of Establishment (FoE) under Directive 2009/138/EC (Solvency II Directive).
EIOPA finds a number of gaps in the regulatory framework that lead to divergent supervisory practices, such as:
In the report EIOPA also identifies that effective supervision of insurance groups will benefit from a harmonised approach in a number of areas, for example as regards early intervention, recovery and resolution and the assessment of group own funds.
EIOPA publishes its third annual analysis on the use and impact of long-term guarantees measures and measures on equity risk
On the 18 December 2018, EIOPA submitted to the European Parliament, the Council of the European Union and the European Commission, its 2018 and third Annual Report on Long-Term Guarantees Measures (LTG) and Measures on Equity Risk.
Compared to the 2017 annual report, this year's annual report includes also an analysis on risk management aspects in view of the specific requirements for LTG measures set out in Article 44 and 45 of the Directive as well as an analysis of detailed features and types of guarantees of products with long-term guarantees.
737 (re)insurance undertakings in 23 countries with a European market share of 74 % use at least one of the following voluntary measures:
The average Solvency Capital Requirement (SCR) ratio of undertakings using the voluntary measures is 231 % and would drop to 172 % if the measures were not applied. This confirms the importance of these measures for the financial position of (re)insurance undertakings.
EIOPA announces results of the 2018 Insurance Stress Test
On the 14 December 2018, EIOPA announced the results of the fourth Stress Test for the European insurance sector. Overall, the exercise confirmed the significant sensitivity to market shocks combined with specific shocks relevant for the European insurance sector. On aggregate, the sector is adequately capitalised to absorb the prescribed shocks. One of the objectives of this year's exercise, in line with the recent recommendations from the European Court of Auditors, was to increase transparency by requesting the voluntary disclosure of a list of individual stress test indicators by the participating groups. To date, four of the 42 participating groups provided consent to the publication of the individual results.
Report on costs and past performance of insurance pension products
EIOPA published its first report on Costs and Past Performance of insurance and pension products (PDF, 10.5MB) following a request of the European Commission to the European Supervisory Authorities (ESAs) to periodically report on costs and past performance of insurance-based investment products (IBIPs) across the EU and, to a limited extent, certain personal pension products (PPPs).
Regulatory sandboxes and innovation hubs
ESAs publish joint report on regulatory sandboxes and innovation hubs (PDF, 479KB). In recent years competent authorities in the EU have adopted various initiatives to facilitate financial innovation. These initiatives include the establishment of ‘innovation facilitators’. Innovation facilitators typically take the form of ‘innovation hubs’ and ‘regulatory sandboxes’. Innovation hubs provide a dedicated point of contact for firms to raise enquiries with competent authorities on FinTech-related issues and to seek non-binding guidance on regulatory and supervisory expectations, including licensing requirements.
Regulatory sandboxes, on the other hand, are schemes to enable firms to test, pursuant to a specific testing plan agreed and monitored by a dedicated function of the competent authority, innovative financial products, financial service or business models. In this report the ESAs set out a comparative analysis of the innovation facilitators established to date in the EU, further to the mandate specified in the European Commission’s March 2018 FinTech Action Plan.
EIOPA evaluates European Insurance Intermediaries Market
EIOPA has published a report – Insurance Distribution Directive – Evaluation of the Structure of Insurance Intermediaries Markets in Europe together with an annex containing a Country-by-Country Analysis.
The following updates, while UK specific, may be of interest to Irish based (re)insurers:
Every month KPMG Ireland’s IFRS team is producing an update on the progress of the industry to date on the implementation of the new insurance accounting standard.