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.
We held our annual year end insurance breakfast briefing on 28 November 2019 in the wonderful setting of the Banking Hall in the Westin Hotel. The presentations were provided by:
Click here to download the presentation slides (PDF, 1.4MB)
Dynamic Risk Assessment (DRA) is an evolution in risk management methodology designed to address the challenges in a world where economic and political volatility is becoming the norm and where traditional risk management methodologies are increasingly considered insufficient. It has been pioneered by a KPMG Global Lead Partner and a supporting team of data scientists, mathematicians and economists. The following article explores further the insights and benefits that DRA can bring to (re)insurance firms.
Click here to view the article (PDF, 546KB)
Recovery and resolution planning have been key areas of focus from European regulators over the past year. In Ireland the Central Bank of Ireland (CBI) plans to go to public consultation next year on proposals to introduce formal recovery planning requirements for insurers. The following article examines what is meant by ‘recovery’ and ‘resolution’, Regulators’ approach to recovery planning and the key ingredients of a recovery plan.
Click here to view the article (PDF, 1MB)
The FASB has issued ASU 2019-09, which amends the effective date for long-duration contracts: targeted improvements. The final ASU defers the effective date for all entities. For SEC filers, excluding those eligible to be ‘smaller reporting companies’, the effective date is January 1, 2022.
The overwhelming majority achieved by the UK’s Conservative Party, that campaigned with an “oven ready” deal, points to a UK departure from the EU on or before 31 January 2020 under the terms of the Withdrawal Agreement agreed between the EU and the UK on 17 October 2019.
Irish businesses need to understand the terms of the Withdrawal Agreement and what trading under the terms of a Free Trade Agreement (FTA) with mainland UK will mean.
The Withdrawal Agreement provides for a permanent solution to preventing a hard border on the Island of Ireland and contains a new consent role for the Northern Ireland Assembly. The UK and the EU have also agreed a new non-legally binding political declaration which sets out their aspirations of their future relationship – the most significant element of this is a future trading relationship based on a Free Trade Agreement.
We have set out below our initial analysis of the key areas business needs to focus on, including:
These and many other Brexit related issues are addressed in our Brexit Podcast series, ‘Navigating Brexit’.
The CBI has issued a Dear CEO letter (PDF, 280KB) on the 21 November 2019 informing insurers of the review of differential pricing in the motor and home insurance industries that will be conducted by the CBI from January 2020. The purpose of the review is to examine the extent to which the practice of differential pricing (whereby customers with the same risk and the same cost of service are charged different premiums) is consistent with the Consumer Protection Code 2012. The Bank has advised the Boards to be aware of their firms’ pricing policies and be satisfied that they are implemented in a manner compliant with the Code. Also, the Boards need to ensure that the requirement to treat customers fairly forms an integral part of their firms’ corporate culture.
The CBI has published its second financial stability review of 2019 (PDF, 3MB) on the 4th December 2019. The review outlines the key risks facing the financial system and the CBI’s assessment of the resilience of the economy and financial system to the adverse shocks.
While speaking at the launch of the second financial stability review of 2019, the Governor of the CBI, Gabriel Makhlouf spoke of the macro financial outlook for Ireland in terms of risks, resilience and policies. He explained the important components underlying the CBI’s mission; financial stability and the operation of the financial system. He discussed the risks to the financial stability highlighted in the financial stability review and the need for resilience in the financial system.
The Governor of the CBI, Gabriel Makhlouf, while speaking at the Joint Committee on Finance, Public Expenditure and Reform, shared some of his reflections on the CBI’s mandate to serve the public interest by safeguarding monetary and financial stability. He covered a number of principal issues that are being dealt with by the CBI currently, such as Financial stability review, Brexit, Consumer protection, Mortgage arrears and mortgage based finance and market based finance.
Delivering a speech at the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on the 12 November 2019, the Director General, Financial Conduct, Derville Rowland, spoke about the CBI’s work in regulating and supervising the Irish insurance industry and specifically the practices of differential pricing and dual pricing.
Reinforcing the significance of the Consumer Protection Code 2012 (Code) which protects the interests of consumers in their dealings with insurers, she highlighted that the Code is central to the conduct of the CBI’s business mandate. She further informed about the two key events where the CBI has further strengthened protection for consumers. Firstly, in November, when the CBI introduced new regulations requiring insurers to provide individual policyholders with details of the premium paid for private motor insurance renewals in the previous year and secondly, in September, when it introduced new rules to ensure transparency of commission arrangements between financial intermediaries and product producers.
The Director General, Financial Conduct, Derville Rowland, delivered remarks at the launch of the CBI’s Guidance on Administrative Sanction. The purpose of the guidance is to help the financial services industry and the wider public to understand CBI’s approach in sanctioning regulatory breaches under the Administrative Sanctions Procedure. In her speech, the Director General has explained the Administrative sanctions procedure, the need for the guidance, the aggravating and mitigating sanctioning factors and the need for a culture of high standards.
Speaking at a breakfast briefing by Grant Thornton, Gráinne McEvoy, Director of Consumer Protection at the CBI, shared some best practice insights on building a consumer-focused culture in Financial Services firms. She spoke of the role of the CBI and its sectoral risk analysis. In her speech, Gráinne has cited various examples to build a strong consumer focused culture in terms of values & behaviors; senior accountability and tone at the top and performance management, reward and incentives.
The Deputy Governor at the CBI, Ed Sibley spoke at the University College of Cork about the Regulator’s perspective on innovation in financial services. In terms of role of innovation in insurance, the Deputy Governor stated that telematics and wearable technology are identified as one of the key technologies driving innovation in insurance. He mentioned concerns over the potential for Cyber exposure to disrupt the property and casualty line of business as another potential impact of technology in insurance.
The Director of Policy & Risk, Gerry Cross, spoke at the Digital Finance Summit 2019 in Brussels on the topics of Regulation and Fintech, which he stated are high on the agenda of the CBI.
He explained how the CBI is working to respond to the overwhelming challenges posed by the developing technological innovations - one such tool being the launch of “Innovation hub” that is designed to facilitate an open and active engagement with the FinTech sector. He also discussed the CBI’s approach to Technological innovation, consumer protection, use of Big Data by insurers, Crypto Assets and Anti-money laundering.
On 14 November 2019, EIOPA welcomed the adoption of the first global frameworks for supervision of internationally active insurance groups, including an Insurance Capital Standard Version 2.0, and for the mitigation of systemic risk in the insurance sector.
In particular the adoption of the Insurance Capital Standard (ICS) Version 2.0 for the monitoring period to enhance convergence towards a global group capital standard over time is a major milestone.
EIOPA also underlines its support to the Common Framework establishing supervisory standards and guidance and the Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector.
Gabriel Bernardino, EIOPA Chairman, said 'Today's developments represent a major step in ensuring an effective supervision of the insurance sector globally. Together, these frameworks take us one step closer to a sound and consistent global insurance regime. EIOPA will continue its commitment and play an active role in the work of the IAIS to strengthen a global approach to supervision and its implementation in the future.’
The theme of EIOPA's 9th Annual Conference was Leading the Future with areas of discussion including:
On the 19 November 2019, EIOPA published its second annual Insurance Overview report (PDF, 1.5MB). The report focuses on the annual review for solo undertakings for the year end 2018 covering the following areas:
Investments: Asset type breakdown, credit quality steps, location of assets, use of derivatives & sector distribution
On 2 December 2019, EIOPA launched the public consultation of its approach to the regulatory and implementing standards, and technical advice to the European Commission on delegated acts, as mandated by the Pan-European Personal Pension Product (PEPP) Regulation. The Consultation Paper sets out EIOPA's current stances to approach the regulation of key aspects of the PEPP, underpinning the idea of establishing a simple, safe and cost-efficient savings product.
The Council of the EU published an outcome of proceedings document (14823/19) (PDF, 287KB) enclosing the conclusions on strategic anti-money laundering (AML) and countering terrorist financing (CTF) priorities adopted at the Council's meeting. Generally, the Council stresses that the fight against money laundering and terrorist financing remains a high propriety for the EU and notes the significance of a number of recent changes to the legal framework. However, it recognises that further work is needed to determine the areas in which the current legal framework could be further harmonised throughout the EU.
The European Commission published a speech by Valdis Dombrovskis, European Commissioner for Financial Stability, Financial Services and Capital Markets Union (CMU), given after the conclusion of the Economic and Financial Affairs Council (ECOFIN) meeting. In the speech, Mr Dombrovskis notes that some member states, such as France, Germany and Malta, have introduced national crypto-asset legislation. However, he states that most agree with the advice of the European Supervisory Authorities (ESAs) that crypto-asset markets go beyond borders and so a common European framework is needed.
At its Annual General Meeting in Abu Dhabi, in November the International Association of Insurance Supervisors (IAIS) adopted a comprehensive set of reforms to promote effective cross-border supervision of insurance groups and enhance global financial stability.
The reforms include:
The IAIS has published documents (dated November 2019) that set out the main comments received on its consultations on revisions to the IAIS supervisory material and on ICP 22 (the insurance core principle on anti-money laundering and combating the financing of terrorism), together with its feedback to those comments. The consultations were part of the IAIS's mid-2019 public consultation package of IAIS supervisory material published in June 2019.
The IAIS published a report setting out the aggregate assessment results and observations from the IAIS peer review process (PRP) on the mandate for supervisors and supervisory powers. The PRP covered IAIS insurance core principle (ICP) 1 (Objectives, powers and responsibilities of the supervisor) and ICP 2 (Supervisor), which were adopted in October 2011. A total of 72 authorities participated in the PRP.
The IAIS published for consultation a draft application paper on liquidity risk management. The purpose of the draft application paper is to provide guidance to supervisors about the application of liquidity risk management standards in the Insurance Core Principles (ICPs) and the Commons Framework (ComFrame).
The IAIS has published an application paper on recovery planning. The paper aims to provide: 1) Recommendations and guidance to supervisors regarding recovery planning, and co-operation and co-ordination between supervisors; 2) Additional information for insurers about recovery planning; 3) Examples to illustrate the application of principles, standards and guidance relevant to recovery planning.
The IAIS has published a document setting out the main comments received on its consultation on revisions to the holistic framework for systemic risk in the insurance sector, together with its feedback to those comments. The IAIS published this consultation in June. On 14 November 2019, at its 2019 Annual General Meeting, the IAIS adopted and published the finalised holistic framework.
The Financial Stability Board (FSB) today published its 2019 Resolution Report. The report provides an update on progress in implementing policy measures to enhance the resolvability of systemically important financial institutions and sets out plans for further work. For Insurance, resolvability monitoring in the insurance sector highlighted in particular challenges stemming from group-internal interconnectedness.
Insurance Europe has published responses or position papers in relation to a number of issues over the past month:
A new publication from Insurance Europe urges policymakers to make sure the industry’s special features are taken into account when developing insurance regulation.
For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.