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Insurance Insights April 2021

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.

KPMG Updates

Individual accountability framework

In July 2018 the Central Bank of Ireland (CBI) proposed an Individual Accountability Framework (IAF) which incorporates many of the elements introduced by the UK Senior Manager and Certification Regime (SMCR) and includes the Senior Executive Accountability Framework (SEAR). Legislation to facilitate the introduction of the new Framework is expected in Q2 2021.

Using our experience of implementing regulatory change, as well as our experience of accountability regimes globally, KPMG, led by Gillian Kelly (Partner, KPMG Risk Consulting) outline the preparation required of independent non-executive directors both to prepare themselves for the personal implications and also how they can effectively challenge and oversee their firms, ultimately equipping INEDs to perform an effective and strong oversight role under the SEAR.

KPMG CEO Outlook Pulse Survey

Based on a survey of 500 Chief Executive Officers (CEO) in 11 key markets, the KPMG 2021 Pulse Survey provides a timely snapshot of CEOs’ views on business growth resumption, their top-of-mind organisational risks, and business transformation priorities going forward including the ESG agenda and the vital issue of climate change.

February infringement package - New tax opportunity for EU life insurers

On 18 February 2021, the European Commission (EC) sent a letter of formal notice to France regarding the withholding tax applied to dividends paid by French companies to life insurance companies established in another member state of the European Economic Area and used to remunerate unit-linked policies.

KPMG led by Cédric Philibert (Partner, KPMG Avocats Paris) and Frédéric Martineau (Partner, KPMG Avocats Paris) have described the new opportunity for life insurers to file a claim against the French tax authorities in respect of French withholding tax, potentially suffered by clients in the life / retirement insurance sector.

Central Bank of Ireland Updates

Joint Oireachtas Committee on Finance, Public Expenditure and Reform

The CBI has published a speech by Ms Derville Rowland, Director General, Financial Conduct at Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach. The speech covers a range of issues highlighted as of concern to the Committee, including the effects of COVID-19 on borrowers and in insurance, particularly in the area of business interruption.

Newsletter

The CBI has published an Insurance Newsletter, dated March 2021. The newsletter contains an update on insurance related activities underway in the CBI, latest developments on Sustainable Insurance, and the Demographic Analysis Report published in March 2021 in relation to applications for approval to occupy senior roles within regulated financial services firms in Ireland.

Consumer Protection Outlook Report for 2021

The CBI has published the Consumer Protection Outlook Report 2021. The report sets out the risks that pose the greatest potential for consumer and investor harm and outlines their consumer and investor protection priorities for 2021.

European and International Supervisory Authorities Updates

EIOPA: PEPP

Following the publication of the Pan-European Personal Pension Product (PEPP), the European Insurance and Occupational Pensions Authority (EIOPA) has launched a survey on the potential offering of PEPP. The aim of this survey is to understand the potential take-up by eligible PEPP providers, for example asset managers, insurance undertakings, banks and institutions for occupational retirement provision.

EIOPA: Insurance Distribution Directive

EIOPA has published answers to questions provided by the EC regarding the legal interpretation of provisions of the Insurance Distribution Directive (IDD) and its implementing measures.

EIOPA: Revised guidelines on use of LEI

EIOPA has published a consultation paper on revised guidelines on the use of the legal entity identifier (LEI). EIOPA intends to revise its existing guidelines on the use of the LEI as a unique identification code for the supervision of the insurance and occupational retirement provision sectors

EIOPA: 2021 EU-wide insurance sector stress test

EIOPA has created a webpage on the EU-wide insurance sector stress test to be held in 2021. The 2021 stress test exercise will focus on a prolonged COVID-19 scenario in a “lower for longer” interest rate environment and will evaluate its impact on the capital and liquidity position of the entities in scope.

EIOPA: Year-end 2019 comparative study on market and credit risk modelling under Solvency II

EIOPA has published a report setting out the findings from its YE 2019 comparative study on market and credit risk modelling undertaken in 2020. The full results of the study and necessary supervisory actions are set out in section 5 of the report. EIOPA states that the next study, based on year-end 2020 data, will follow the scope and extent of the current data request. This was launched on 15 January 2021 and the results will be published in early 2022.

EIOPA: IDD single rulebook

EIOPA has published a press release announcing that it has launched its IDD single rulebook. The single rulebook is an online tool that aims to promote the consistent implementation of the regulatory framework for insurance supervision. EIOPA has also published a user guide for the rulebook. The launch of the IDD single rulebook follows the launch of EIOPA's Solvency II rulebook in July 2020. 

EIOPA: Annual report on limitations and exemptions from reporting under Solvency II: 2019 and Q1 2020

EIOPA has published its annual report on limitations and exemptions from reporting by national competent authorities (NCAs) in different markets, during 2019 year-end and Q1 2020, under the Solvency II Directive. The report highlights differences with regards to last year's report. Following the approach taken last year, the report addresses the proportionality principle on the reporting requirements, in respect of which the limitations and exemptions on reporting are one of several proportionality tools.

EC: Draft delegated regulation: Pension scheme arrangements

The EC has published a Consultation on draft delegated regulation regarding Pension scheme arrangements and the exemption from clearing obligation. Under EU rules, entities can receive a temporary exemption from their central clearing obligation for pension scheme arrangements, given its potential impact on pensioners’ retirement incomes.

IAIS: Global ICS

The International Association of Insurance Supervisors (IAIS) has issued a press release regarding the completion of the first year of monitoring for the Insurance Capital Standard (ICS). The ICS aims to provide a globally comparable risk-based measure of capital adequacy of International Active Insurance Groups (IAIGs) and a common language to facilitate effective supervisory discussions of group solvency.

IAIS: Newsletter

The IAIS has published its Newsletter dated February – March 2021. Among other things, the Newsletter covers topics such as climate change, its roadmap for 2021-2022, its projects, global ICS, corporate governance and conduct related topics and macroprudential supervision.

IAIS: Draft application paper on macroprudential supervision

IAIS has published for consultation a draft application paper on macroprudential supervision. The draft application paper aims to help with practical application of the supervisory material related to macroprudential supervision in Insurance Core Principle 24.

OJ: Delegated Regulation on framework for design and delivery of RTS under PEPP Regulation

Commission Delegated Regulation supplementing the PEPP Regulation was published in the Official Journal of the European Union (OJ). The Delegated Regulation specifies regulatory technical standards (RTS) relating to information documents, the costs and fees included in the cost cap, and risk mitigation techniques for the PEPP Regulation. The Delegated Regulation entered into force on 11 April 2021 (20 days after its publication in the OJ).

OJ: Two EEA Joint Committee Decisions amending Annex IX (Financial Services) to EEA Agreement

A Decision of the EEA Joint Committee that amends Annex IX (Financial Services) to the EEA Agreement was published in the OJ: Decision Annex IX (Financial Services) to the EEA Agreement, which incorporates the IDD, together with Directive amending the IDD as regards the date of application of member states' transposition measures. The Decision also repeals the Insurance Mediation Directive (IMD) under the EEA Agreement, since this Directive was repealed by the IMD.

UK Updates

CP11/20 Solvency II: The PRA’s expectations for the work of external auditors on the matching adjustment

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 11/20 ‘Solvency II: The PRA’s expectations for the work of external auditors on the matching adjustment’. It also contains the PRA’s final policy in the form of an updated Supervisory Statement (SS) 11/16 ‘Solvency II: External audit of, and responsibilities of the governing body in relation to, the public disclosure requirement’ (Appendix).

Dear CEO letter on the transition from LIBOR to Risk Free Rates

The PRA has published a letter from David Bailey (Executive Director, PRA), Sarah Breeden (Executive Director, PRA) and the Financial Conduct Authority (FCA): ‘Transition from LIBOR to Risk Free Rates’

CP29/19 Operational Resilience: Impact tolerances for important business services

This policy statement provides feedback to responses to CP 29/19 ‘Operational resilience: Impact tolerances for important business services’. It also contains the PRA’s final policy on a new Operational Resilience Parts of the PRA Rulebook, amendments to the Group Supervision Part of the PRA Rulebook, a new SS 1/21 ‘Operational resilience: Impact tolerances for important business services’, and a new Statement of Policy ‘Operational resilience’.

Supervisory Statement 2/21: Outsourcing and third party risk management

This Supervisory Statement sets out the PRA’s expectations of how PRA-regulated firms should comply with regulatory requirements and expectations relating to outsourcing and third party risk management.

PRA Regulatory Digest – March 2021

The PRA has published the PRA Regulatory Digest for March 2021.

Other Updates

Government Reform Plan Progress

The Tánaiste and Minister for Enterprise, Trade and Employment, Leo Varadkar TD chaired a meeting of the cabinet committee sub-group on insurance reform. The meeting considered the progress made in the first three months of the Government’s Action Plan for Insurance Reform. Actions delivered in first three months include:

  • New personal injuries guidelines adopted and published.
  • New office to promote competition established.
  • Public consultation on enhancing role of the Personal Injuries Assessment Board (PIAB) commenced.

Priorities for the next three months include: reform of the duty of care, strengthening the laws on perjury, enhancing the enforcement powers of the Competition and Consumer Protection Commission (CCPC), expanding the National Claims Information Database and reforming PIAB and responding to the CBI report on dual-pricing. 

IE: Non-life underwriting and pricing in light of climate change

Insurance Europe (IE) has published its response to a discussion paper by EIOPA on non-life underwriting and pricing in light of climate change. IE are of the view that focusing only on pricing and deductibles will not constructively contribute towards tackling challenges and improving climate change adaptation, mitigation and prevention. Coordinated industry solutions and public/private partnerships, however, do have an important role to play. Insurers also contribute to reducing exposures to climate risks through the features of their products and their investment strategies.

IE: COVID-19: Response to a questionnaire by EIOPA on a supervisory statement on the ORSA

IE has published its response to a consultation by the EIOPA on proposals to develop a supervisory statement regarding the own risk and solvency assessment (ORSA) in the context of COVID-19.

IE: ESAP for ESG data

IE has published its response to a consultation by the European Commission on a European Single Access Point (ESAP) for environmental, social and governance (ESG) data. The availability of reliable public ESG data is currently limited and should be improved. A centralised ESAP would therefore help to achieve better comparability, increased transparency and lower barriers and costs, as well as help data preparers by eliminating multiple different requests for information.

IE: Cyber security rules

IE has published its position on the review of the Security of Network and Information Systems (NIS2) Directive. The Directive’s minimum harmonisation principle has resulted in a fragmented landscape for Europe’s insurers. In practice, this means that firms in three member states have been identified as operators of essential services and, as a result, some of them have been subjected to burdensome and costly requirements. Access to cyber incident data reported under the NIS2 Directive would greatly help insurers provide cyber security solutions. Insurers are also calling for increased harmonisation of reporting information between countries under the NIS2 Directive, to promote a uniform and common understanding of cyber threats and incidents across the EU.

Transition to IFRS 17

Every month KPMG Ireland’s IFRS team produces an update on the progress of the industry to date on the implementation of the new insurance accounting standard.

Further information

For more on any of the items above, or any Insurance-related queries, contact Brian Morrissey, Head of Insurance.