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Insurance Insights June 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

Evolving themes in the ORSA process for life (re)insurers

Over the past five years, since the introduction of Solvency II, the focus areas and process around Own Risk and Solvency Assessment (ORSAs) have continued to evolve. The KPMG Actuarial Team, led by Brian Morrissey (Head of Insurance) and Marie Phelan (Director), share with you some general insights on evolving themes and development areas observed in relation to the ORSA process.

KPMG Connected Enterprise for Insurance

The ‘need for speed’ - as COVID-19’s impact continues to demonstrate – has never been more profound in today’s increasingly complex business environment. KPMG, led by Laura Hay (KPMG Global Head of Insurance) and Mark Longworth (KPMG Global Head of Insurance Advisory), discuss how insurers need to embrace digital transformation by getting connected.

The race to predictive: Predictive analytics in procurement

Chief Procurement Officers (CPOs) may have accepted business conditions of “disruption as the new normal”, but they are far from resigned. In our conversations with CPOs, they continue to search for solutions and approaches that will help them not only meet this year’s challenge, but also future-proof the business for as-yet-unseen developments. Predictive analytics is one of the most promising of these tools, an increasingly mission-critical enabler that will help procurement organisations more intelligently analyse spend, monitor supplier performance, and identify savings opportunities. KPMG, led by Dipan Karumsi (Principal, Procurement and Business Services, KPMG US), explore considerations for CPOs in establishing or refining predictive analytics capabilities.

Recovery Planning Survey

The Central Bank of Ireland (CBI) published Regulations for Pre-emptive Recovery Planning for (Re)insurers in April 2021, which require (re)insurers to establish and maintain plans for recovery which set out actions that could be taken to support business continuity in times of financial instability. To assist (re)insurers in understanding their level of preparedness, KPMG, led by Brendan McCarthy (Director, KPMG Ireland), have developed a short survey which sets out a number of questions covering the CBI requirements for Pre-emptive Recovery Planning. If you wish to participate in the survey you can do so through the KPMG online survey portal. The survey is relatively short and should take 10 - 15 minutes to complete and it would be great if you could find the time to participate. The deadline for completion of the survey is Friday 2 July 2021. On completion of this survey, we will provide an individualised report to participants summarising the key findings, setting out how their company compares with their peers, which we are hoping will provide some useful insight to the survey participants.

Central Bank of Ireland Updates

CBI publishes Annual Report & Annual Performance Statement for 2020

The CBI published its 2020 Annual Report and Annual Performance statement and its Protected Disclosures Annual Report 2020 on 2 June 2021. The reports provide an overview of the activities carried out by the CBI for the year 2020.

Understanding the future of Insurance: Climate and Emerging Risk survey

The CBI has published a Climate and Emerging risk survey to assess awareness, understanding and management of these risks across the Irish insurance sector. The results of the survey reflect on the level of exposure and preparedness of Irish (re)insurance undertakings to emerging risks, climate change and cyber underwriting risk specifically.

EIOPA Updates

EIOPA: Risk-free interest rate term structures

The European Insurance and Occupational Pensions Authority (EIOPA) has updated the technical documentation of the methodology to derive risk-free interest rate term structures (RFR). This is due to a technical amendment related to the data source of Denmark corporate bond rates.

Appointment of new Chair of EIOPA

In a press release issued by the Council of the EU, the Council notes it has adopted a decision to appoint Petra Hielkema as the new chairperson of the EIOPA. The appointment was based on the shortlist of candidates drawn up by EIOPA's Board of Supervisors (BoS) and following confirmation by the European Parliament. Ms Hielkema will take up her new role on 1 September 2021 for a period of five years.

EIOPA/European Ombudsman: Draft RTS on PRIIPs

The European Ombudsman published a decision concerning EIOPA's refusal to grant public access to the votes and debates of its BoS on draft regulatory technical standards (RTS) on packaged retail and insurance-based investment products (PRIIPs). The Ombudsman came to the preliminary assessment that draft RTS, as adopted by EIOPA's BoS, and any documents relating to their adoption, constitute important elements of the process for the adoption of the ensuing delegated act by the European Commission (EC).

EIOPA launches its 2021 insurance stress test

EIOPA has launched its 2021 insurance stress test for the European insurance market. The 2021 stress test will focus on a prolonged COVID-19 scenario - in a “lower for longer” interest rate environment. The scenario has been developed in cooperation with the European Systemic Risk Board (ESRB) and it will assess the impact of economic consequences of the COVID-19 pandemic.

Risk Dashboard: European insurers’ risk levels remain broadly stable

EIOPA has published its Risk Dashboard based on the fourth quarter of 2020 Solvency II data. The results show that insurers’ exposures to macro risks remain at high level while all other risk categories remain at medium level.

Other European and International Supervisory Authority Updates

ESA: Decision on admissibility of appeal concerning EIOPA involvement in review of member state insurance sector

The Joint Board of Appeal of the European Supervisory Authorities (ESAs) has published its decision in an appeal case brought by Societatea De Asigurare-reasigurare City Insurance SA against EIOPA. The case concerned a balance sheet review (BSR) exercise of the Romanian insurance sector carried out by the Romanian financial services regulator (ASF).

IAIS: Comparable outcomes and high-level principles

International Association of Insurance Supervisors (IAIS) has published a document setting out the main comments received on its consultation on comparable outcomes and high-level principles. In November 2020, the IAIS consulted on a draft definition and high-level principles to inform the criteria that will be used to assess whether the aggregation method (AM) provides comparable outcomes to the insurance capital standard (ICS).

IAIS: Application paper on supervision of climate-related risks

The IAIS has published an application paper on the supervision of climate-related risks in the insurance sector. The paper aims to support regulators in their work to integrate climate risk considerations into the supervision of the insurance sector. The IAIS consulted on the application paper in October 2020, and comments have been made available on its webpage.

IAIS: Revising application paper on combating money laundering and terrorist financing

The IAIS has published for consultation a revised application paper on combating money laundering and terrorist financing. The IAIS originally published the application paper in October 2013 to provide additional guidance regarding money laundering and terrorist financing risks affecting the insurance industry. Following various updates in recent years of the Financial Action Task Force (FATF) recommendations, and publication in 2018 of the revised FATF guidance for a risk-based approach in the life insurance sector, the IAIS revised ICP 22 (the insurance core principle on anti-money laundering and combating the financing of terrorism).

IAIS and SIF set out key recommendations for insurance supervisors to strengthen efforts to address climate-related risks

The IAIS, in partnership with the United Nations-convened Sustainable Insurance Forum (SIF), published the Application Paper on the Supervision of Climate-related Risks in the Insurance Sector. The Paper provides insurance supervisors with concrete tools to further strengthen their efforts in assessing and addressing risks from climate change.

Other Updates

OJ: Implementing Regulation on technical information for calculating technical provisions and basic own funds for Q2 2021 reporting under Solvency II

Commission Implementing Regulation (EU) 2021/744, which lays down technical information for the calculation of technical provisions and basic own funds for reporting under the Solvency II Directive, was published in the Official Journal of the EU (OJ) on 6 May 2021.

Insurance Europe: 2020-21 Annual Report published

Insurance Europe has published its 2020-21 Annual Report, which examines key issues related to building resilience in European societies and economies.

Insurance Europe: Open Insurance framework offers potential benefits for consumers and insurers, but rules must not copy PSD2

Insurance Europe has published a paper that examines proposals by the EIOPA for a framework for Open Insurance, which focuses on access to and sharing of insurance-related data.

Insurance Europe: Workable, clear and consistent disclosures are needed for taxonomy-related information

Insurance Europe has published its response to a consultation conducted by the ESAs on a single template for product disclosures under the Taxonomy Regulation. The Taxonomy Regulation empowers the ESAs to develop additional disclosure obligations for sustainable products that invest in Taxonomy eligible activities. To do so, the ESAs will amend the regulatory technical standards (RTS) of the Sustainable Finance Disclosure Regulation (SFDR) to create a single template for sustainability disclosures.

Insurance Europe: Outdated VAT rules must be reformed to remove unfair disadvantages for insurers

Insurance Europe has published its response to a consultation conducted by the European Commission on its review of VAT rules for financial and insurance services. The VAT Directive is outdated and is not correctly applicable to modern financial services, which it puts at a disadvantage compared to other sectors. Europe’s insurers are therefore calling for the VAT Directive to be reformed to reduce hidden VAT and to increase the possibilities for VAT to be reclaimed by financial companies in general, and insurers in particular.

Iris Oifigiúil: European Union (Insurance and Reinsurance) (Amendment) Regulations 2021

Iris Oifigiúil published a newsletter that announces that Finance Minister Pascal Donohoe signed a statutory instrument which transposes the changes of the ESA-Review to Solvency II (Art. 2 of the ESA-Review Directive, Directive (EU) 2019/2177). The European Union (Insurance and Reinsurance) (Amendment) Regulations 2021 (S.I. No. 240/2021) amend the European Union (Insurance and Reinsurance) Regulations 2015 (S.I. No. 485/2015 – the Solvency II Regulations) and will come into operation on 30 June 2021.

PS12/21 – Solvency II: Deep, liquid and transparent assessments, and GBP transition to SONIA

This Prudential Regulation Authority Policy Statement (PS) provides feedback to responses to Consultation Paper 1/21 ‘Solvency II: Deep, liquid and transparent assessments, and GBP transition to SONIA’ . It also contains the PRA’s final policy, as an updated Statement of Policy ‘The PRA’s approach to the publication of Solvency II technical information’.

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.