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Insurance Insights

Insurance Insights

Insurance Insights

Actuarial Modernisation: How is innovation impacting the actuary?

With further tightening of Solvency II deadlines and with IFRS17 on the horizon, reserving processes need to be enhanced to remain fit for purpose in the future, writes Jean Rea, a Director in our Actuarial Services practice. Actuarial reserving methods have not changed very much throughout their history and it seems that this is a process which has dodged disruption. Jean explores the potential for disruption and the reserve modernisation journey.

Read more about actuarial modernisation here.

InsurTech10: Trends for 2019

The insurance industry will continue to face dramatic change in 2019 due to technological, economic and political shifts. For insurance CEO’s, the insurtech agenda is a top priority and in many cases, at the forefront of their strategy. In fact, 73 percent of insurance CEOs agreed that they are personally prepared to lead the organization through radical transformation to remain competitive as noted in KPMG International’s Global CEO Outlook.

In light of this, the KPMG network of insurtech professionals, in collaboration with The Digital Insurer, have published our key trends and technological predictions in our new report Insurtech 10: Trends for 2019.

We believe that these are the trends that will continue to be the positive force in these uncertain times, helping to unlock growth, lower operating costs and drive cultural change for insurance organisations.

Read more about InsurTech10 here. (PDF, 2.8MB)

Webinar invite: global state of intelligent automation report findings

Automation hype is dissipating. This year the reality of executing, scaling and changing bad habits is setting in. Organizations have multiple intelligent automation (IA) options, but now it's time to effectively integrate them.

IA includes change agent technologies, such as robotic process automation (RPA), artificial intelligence (AI), and smart analytics. Organizations deploy these technologies individually or in concert to help enterprises across the globe augment workers and enhance their IT and business processes automation.

Well-executed IA is the catalyst for digital transformation at the organization's core. It can fundamentally change how organizations execute business operations, connect front and back offices, and help develop new business models that hybrid digital and human workforces will drive. HFS, in collaboration with KPMG International, investigated the pace of change this IA phenomenon is having on enterprises. We surveyed 590 business leaders including 100 C-level executives across six industries and thirteen countries. We supplemented this quantitative analysis with detailed qualitative interviews with IA leaders at global brands to contextualize the trends with real-life examples.

Please join this webinar for a lively discussion about the study’s findings. The speakers will also highlight actionable recommendations to help organizations achieve integrated automation.

Read more about the webinar here.

Central Bank of Ireland update

Review of behaviour & culture in the Irish banking sector:

In a speech at the European Banking Institute Global Annual Conference on Banking Regulation, Director General Derville Rowland discussed insights from the CBI review of behaviour and culture in the Irish banking sector. In her speech, the Director General makes reference to the report on the existing cultures and behaviours in the retail banks, the risks associated, and the actions that could be taken to address them which was presented to the Minister of Finance. The report focused on five Irish retail banks.

However, the CBI believe its findings and recommendations have application across the financial services sector as a whole since the risks identified are common across the financial services industry, and that CBI’s response – in seeking to guard against misconduct – is therefore industry-wide. We believe that following the focus on Banks, (re)insurers will be the next focus on CBI’s agenda in minimising the risk of misconduct across the firms.

Read more about the review.

Publications: climate change and the Irish financial system

The Central Bank published an Economic Letter titled ‘Climate Change and the Irish Financial System’ in which Philip R. Lane, Governor of the CBI, discussed the impact of climate change on insurers and insurance consumers, as well as climate resilience.

Read this Economic Letter. (PDF, 66KB)

Press release -actively preparing for range of Brexit scenarios

Speaking at the European Financial Forum, Governor of the CBI, Philip R. Lane, discussed the potential impact of Brexit on the Irish economy and noted that the improvements in the resilience of the financial system over the last decade provide a vitally important buffer.

Read this speech delivered to the 2019 European Financial Forum, Dublin Castle

CBI: thriving in challenging times:

The CBI hosted a conference for the insurance industry on 15 February 2019 with the theme “Thriving in Challenging Times”. Topics discussed by Ed Sibley (Deputy Governor Prudential Regulation), Sylvia Cronin (Director of Insurance Supervision) and Karel Van Hulle (Associate Professor at the Economics and Business Faculty of the KU Leuven) included the challenges facing the insurance industry, the introduction of proposed judicial guidelines on personal injury claims, the CBI's strategic priorities for the next 3 years and the 2020 Solvency II review. Please find link to the Press Release here. Ed Sibley’s speech is available here and Prof. Karel Van Hulle can be viewed here. (PDF, 2KB)

Demographic analysis – Pre-Approval Controlled Functions (PCF)

On the 8 March 2019 the CBI published an analysis of over 5,000 applications for approval to occupy senior roles within regulated firms in Ireland (under the Fitness and Probity regime) in 2018. The CBI has committed to publishing this analysis on an annual basis as part of its continued focus on the importance of diversity in regulated firms, and this is the third such publication.

Read the press release.

EIOPA / European Commission updates

New rules for insurers investing in equity & private debt

On 8 March 2019, the European Commission published a press release regarding its adoption of new rules to help insurers to invest in equity (including of small and medium enterprises (SMEs)) and private debt and to provide long-term capital financing. These rules allow insurers to hold less capital for such investments thereby intending to make it attractive for insurers to invest in the economy and help mobilise private sector investment. These new rules take the form of amendments to Commission Delegated Regulation (EU) 2015/35, whereby the capital requirements that apply to insurer’s investments in equities and private debt are lowered. Other amendments include:

  • new simplifications in the calculation of capital requirements,
  • improved alignment between the insurance and banking prudential legislations, and,
  • updated principles and standard parameters to better reflect developments in risk management and the most recent data (including a better treatment of financial hedging strategies).

The amendments will now be subject to a scrutiny period of 3 months by the European Parliament and the Council.

Read the press release.

Request to EIOPA for technical advice on Solvency II review

The European Commission published a request to EIOPA for technical advice (PDF, 469KB) on the review of the Solvency II Directive. The Commission seeks EIOPA's advice on:

  1. Long-term guarantee measures and measures on equity risk;
  2. Specific methods, assumptions and standard parameters used when calculating the standard formula solvency capital requirement;
  3. Rules and supervisory authorities' practices on the application of Article 129 (calculation of the minimum capital requirement);
  4. The supervision of insurance and reinsurance undertakings in a group; and

Other items related to the supervision of insurance and reinsurance undertakings.

Read the full request. (PDF, 469KB)

Recommendations for insurers in light of a no deal Brexit

On 19 February 2019, EIOPA issued recommendations for the insurance sector in the event of the United Kingdom (UK) leaving the European Union (EU) without a withdrawal agreement. The recommendations provide guidance on the treatment of UK insurance undertakings and distributors with regard to cross-border services in the EU, after the withdrawal of the UK from the EU without a withdrawal agreement, the objective being to minimise the detriment to policyholders with such cross-border insurance contracts.

Read the recommendations. (PDF, 327KB)

No-deal Brexit Memoranda of Understanding

EIOPA, along with all the Insurance National Competent Authorities (NCAs) of the European Economic Area (EEA), has agreed the following Memoranda of Understanding (MoUs) with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA):
• A Multilateral Memorandum of Understanding (MMoU) on supervisory cooperation, enforcement and information exchange between the EEA NCAs and the UK Authorities; and
• A Bilateral Memorandum of Understanding between EIOPA and the UK Authorities on information exchange and mutual assistance in the field of insurance regulation and supervision.

Read the press release. (PDF, 715KB)

Framework for assessing conduct risk throughout the product lifecycle

EIOPA published a framework in order to identify drivers of conduct risk throughout all stages of the product lifecycle and their implications for consumers. It provides an aid for understanding issues faced by consumers and input on the types of conduct risks EIOPA and NCAs should focus on. The framework focuses on the following risks:

  • Business model and management risks
  • Manufacturing risks
  • Delivery Risks
  • Product Management Risks

View the full framework. (PDF 2.2MB)

Final Report concerning amendments to the PRIIPs Key Information Document

EIOPA released a Final report on a consultation paper launched by the European Supervisory Authorities (ESAs) on 8 November 2018 on targeted amendments to PRIIPs Delegated Regulation concerning the Key Information Document (KID) for packaged retail and insurance-based investment products (PRIIPs). It summarises the responses received to that consultation and sets out the envisaged next steps.

Read the final report. (PDF, 949KB)

Joint ESA supervisory statement on the PRIIPs Key Information Document

This supervisory statement of the European Supervisory Authorities (ESAs) addresses the response to concerns that the information in the Key Information Document (KID) for PRIIPs describing what the retail investor could get in return (performance scenarios). The statement recommends the points that the PRIIP manufacturers need to take into account in relation to the presentation of performance scenarios.

Read the full statement. (PDF, 966KB)


ESAs propose amendment to PRIIPs Key Information Document

Following a recent decision by the European co-legislators to amend Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs Regulation) to extend the transitional period for which UCITS and relevant non-UCITS are exempted from preparing a PRIIPs KID by two years (from 31 December 2019 to 31 December 2021), the ESAs have submitted to the European Commission, for its endorsement, draft regulatory technical standards (RTS) proposing an amendment to Commission Delegated Regulation 2017/ 653 to align the date of application of Article 14(2) with the revised date specified in Article 32 of the PRIIPs Regulation relating to the use of key investor information documents (KIID) by PRIIP manufacturers where at least one of the underlying investment options is a UCITS or non-UCITS fund.

Read the proposal.

PRA related updates

The following updates, while UK specific, may be of interest to Irish based (re)insurers:

5 March: Liquidity risk management for insurers

The PRA issued a consultation (CP4/19, PDF, 986KB) on a draft supervisory statement on liquidity risk management for insurers supervisory statement to supersede a legacy supervisory statement SS2/13 (PDF, 235KB) on collateral upgrade transactions. The draft supervisory statement sets out the PRA's expectations on liquidity risk management around: 

  1. the key elements of an insurer’s liquidity risk management framework (including the development and maintenance of proper policies, systems, controls and processes)
  2.  the identification of material sources of liquidity risk
  3. the design and conduct of forward-looking scenario analysis and stress testing
  4. liquidity buffers and the assessment of asset liquidity
  5. quantitative metrics and tools for monitoring and reporting of liquidity risk
  6. effective contingency planning

The consultation is open until 5 June 2019 and the final supervisory statement is expected in the second half of 2019.

20 February: Solvency II: Adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down

The PRA issued updated guidance to reflect changes to the UK tax regime (PDF, 346KB) applicable to hybrid instruments, particularly in relation restricted Tier 1 (rT1) own funds instruments. The PRA expects insurers to deduct the maximum tax charge generated on write-down when including paid-in subordinated mutual member accounts, paid in subordinated liabilities or other own fund instruments approved by the supervisory authority to be recognised as restricted Tier 1 own funds. The new policy became effective for all instruments issued on or after 21 February 2019.

5 February: Longevity risk transfers - simplified pre-notification process

The PRA has issued a consultation paper (PDF, 818KB) (CP3/19) that proposes to update the notification requirements relating to longevity risk transfers outlined in Supervisory Statement (SS18/16, PDF, 560KB).

The PRA proposes that:

  1. Firms include basis risk arising between annuity contract terms and the risk transfer mechanism within their risk management framework
  2. Firms must continue to pre-notify the regulator of large and/or complex transactions. Firms can report “other transactions” shortly after reinsurance has been placed using a standardised and streamlined template
  3. Large or complex transactions display at least one of the following characteristics:
  • have a value/financial impact that are larger than typically transacted on a business as usual basis;
  • have a structure that is more complex than business as usual transactions (for example, where the risk transfer is structured using instruments less tested in the market such as insurance linked securities, or by the firm, such as automatic reinsurance pools); or
  • have a material incremental impact on the firm’s ability to meet its Solvency Capital Requirements under Solvency II.

The consultation is open until 6 May 2019.