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Insurance Insights July 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

KPMG Insurance CFO Forum

KPMG Ireland, led by Niall Naughton (Partner, FS Audit), Charles Dixon (Partner, Insurance EMEA M&A) and Conor Holland (Director, ESG Corporate Reporting), recently held the KPMG Insurance CFO Forum on 6 July. The topics discussed focused on:

  • Mergers and Acquisition (M&A) outlook across Europe - with continued consolidation across the sector, Charles Dixon gave his perspective on emerging themes across life insurance, non-life insurance, reinsurance and distribution trends.

The recently published Corporate Sustainability Reporting Directive by the European Commission will strengthen the nature and extent of sustainability reporting in the EU. The proposed changes to sustainability reporting are profound, with the scope of impacted entities significantly expanded from existing regulatory requirements. Conor Holland outlined the key developments and explained what companies can do now to start preparing.

6 Questions on SEAR

Recent enforcement actions have renewed focus on the Central Bank of Ireland (CBI)’s proposals for an Individual Accountability Framework (“IAF”) and Senior Executive Accountability Regime (SEAR) originally proposed in 2018. The Irish government has confirmed that the legislative agenda will address the proposed legislation in Q3 2021. We expect that it will cover banks, insurers and medium to high risk investment firms.

KPMG’s Risk and Regulatory Consulting team (led by Gillian Kelly, KPMG Ireland Partner) comprise of experts in Fitness & Probity, Conduct Risk, UK SMCR and Australian Banking Executive Accountability Regime and Financial Accountability Regime and current CBI Fitness and Probity regime.

Consumer Protection Code Guidance 2012

In May 2021, the CBI updated the Consumer Protection Code (CPC) Guidance 2012. The guidance does not amend the CPC 2012, it is for information purposes only and is a supplementary document. The KPMG Ireland Risk team (led by Gillian Kelly) explain the key updates, including the provision of information, knowing the consumer and suitability and other issues.

COVID-19 and Miscellaneous Provisions

The release of the Government’s Finance (COVID-19 and Miscellaneous Provisions) Bill 2021 (“the Bill”) on 24 June 2021 is an important step in providing clarity and support for businesses as they re-open and resume normal trading following COVID-19 restrictions. The Bill provides a legal footing to the new and extended measures announced in the Government’s Economic Recovery Plan on 1 June 2021, which outlines a pathway for businesses emerging from what is hoped to be the worst of the pandemic. KPMG (led by Tom Woods, Head of Legal and Tax, KPMG Ireland) discuss the measures provided for in the Bill, including an extension of existing schemes and the introduction of an additional new business support scheme.

The Future of Insurance Finance

The Business & Finance Awards in association with KPMG have been launched for 2021, with this year’s awards ceremony set to be held in the Dublin Convention Centre on 17 February 2022. Nominations for this year’s Awards Programme are now open until Autumn 2021.

Central Bank of Ireland Updates

CBI publishes a speech on Supervisory Priorities in Uncertain Times

The CBI has published a speech by Domhnall Cullinan, Director of Insurance Supervision, regarding supervisory priorities in uncertain times. The speech:

  • highlights the key challenges that are faced by the insurance and reinsurance sectors;
  • talks about how these have shaped supervisory priorities; and
  • explains what the CBI expect of regulated firms and what firms can expect of the CBI. 

CBI publishes a revised version of AML/CFT Guidelines

The CBI has published a revised version of Guidelines regarding Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) in the financial sector. This is to assist firms to meet their anti-money laundering (AML) and countering the financing of terrorism (CFT) obligations.

EIOPA Updates

EIOPA: Artificial intelligence and financial services

EIOPA has published a speech by Ana Teresa Moutinho, Head Of Supervisory Processes Department at the Special Committee on Artificial Intelligence in a Digital Age and Econ Committee, European Parliament, regarding the joint public hearing on artificial intelligence and financial services.

EIOPA: Collaboration of EEA insurance supervisory authorities

EIOPA has published an amended decision of its board of supervisors on the collaboration of the insurance supervisory authorities of the EEA member states. The decision is accompanied by an annex. Both the decision and annex are dated 10 June 2021.

EIOPA: Annual Report

EIOPA has published its Annual Report 2020, setting out its activities and achievements of the past year. The Annual Report covers areas such as COVID-19, consumer protection, Solvency II, pan-European personal pension product (PEPP), digital technology, and sustainable finance.

EIOPA/CBI: Bankruptcy of Gefion Finans A/S under frivillig likvidation (formerly Gefion Insurance A/S)

EIOPA has issued a press release regarding the bankruptcy of Gefion Finans A/S (formerly Gefion Insurance A/S). The company operated in Denmark, France, Germany, Ireland, Italy, Poland and the United Kingdom under “freedom of services” offering mainly motor insurance and motor liability insurance. The Danish Guarantee Fund will only cover risks (within the scope of coverage) in Denmark for insurance policies written in Denmark. This means that European policyholders outside of Denmark need to check with their national insurance guarantee scheme whether their losses are protected. The CBI has also issued a press release on the matter.

EIOPA: PEPP supervisory reporting

EIOPA has published guidelines on supervisory reporting for the PEPP under the PEPP Regulation. The aim of the guidelines is to ensure the common, uniform and consistent application of PEPP supervisory reporting requirements regarding the details of the nature, scope and format of the information to be submitted by PEPP providers to competent authorities at predefined intervals and on occurrence of predefined events. They will apply from 22 March 2022.

EIOPA publishes its Discussion Paper on the Methodological Framework for Stress-Testing IORPs

EIOPA published its Discussion Paper on the Methodological Framework for Stress-Testing Institution for Occupational Retirement Provision (IORPs) for consultation with stakeholders. The methodological framework for stress-testing IORPs sets out theoretical and practical rules, guidance and possible approaches to support future IORP stress test exercises.

EIOPA publishes first quarterly set of Occupational Pensions Statistics

EIOPA published its first set of quarterly comprehensive statistical information on the European occupational pensions sector. The data is based on pensions data regulatory reporting. The statistics contain up-to-date and high-quality data and provide a comprehensive picture of the European occupational pensions sector, including country breakdowns that allow for comparability. The statistics will be published on both a quarterly and annual basis, starting with the fourth-quarter of 2020.

Other European and International Supervisory Authority Updates

EC: Motor Insurance

The European Commission (EC) has welcomed agreement between the European Parliament and Council to update the 2009 Motor Insurance Directive. This Directive ensures that vehicles can freely circulate in the European Union while using the same compulsory insurance.

Government/Insurance Ireland: Anti-competitive practices in the Irish motor vehicle insurance market

The Minister of State with responsibility for Financial Services, Credit Unions and Insurance and Chairperson of the Office to Promote Competition in the Insurance Market, Sean Fleming TD, has noted the preliminary findings of the EC’s antitrust investigation into competition in the Irish motor vehicle insurance market. The EC considers that Insurance Ireland arbitrarily delayed or de facto denied access to the Insurance Link platform to companies that had a legitimate interest in joining it. The Minister has also taken note of the comments made by Insurance Ireland (II) in this matter.

IAIS: Benchmark transition

The International Association of Insurance Supervisors (IAIS) has published a statement on benchmark transition. The IAIS endorses the Financial Stability Board's (FSB) recent statements and related reports regarding a smooth and timely transition away from LIBOR by the end of 2021.

IAIS: Draft papers on supervisory colleges and on culture

The IAIS has launched a consultation on a draft revised application paper on supervisory colleges and a draft issues paper on insurer culture. The application paper on supervisory colleges, first published in October 2014, provides guidance on best practices, together with examples, throughout all phases of the supervisory college process, explaining the work of supervisory colleges and the role and involvement insurers may have in them. The deadline for comments on the proposed revisions is 24 August 2021. The draft issues paper on insurer culture explores the concept of insurer culture as a point of intersection for prudential and conduct risks and includes selected examples to illustrate the broader role of culture in this regard. The deadline for comments on the draft paper is 23 August 2021. The IAIS held a public background session on the two papers via webinar on 30 June 2021.

IAIS: Supervising control functions and resolution powers and planning

The IAIS has published the following application papers:

  • Application paper on resolution powers and planning. In this paper, the IAIS provides supporting materials for supervisors and resolution authorities on the practical application of resolution powers, as well as on co-operation and co-ordination between authorities when planning for, and exercising, these powers.
  • Application paper on supervision of control functions. In this paper, the IAIS describes practices aimed at helping supervisors address issues relating to supervising control functions, as described in the ICPs and ComFrame. This paper is largely based on the results of a survey of the experiences and supervisory practices of IAIS members.

Both application papers were adopted by the IAIS Executive Committee in June 2021.

IAIS: Results of holistic framework baseline assessment

The IAIS has published an aggregate report containing results and observations from the baseline assessment (BLA) of the implementation of supervisory material related to the IAIS holistic framework for the assessment and mitigation of systemic risk in the insurance sector. The BLA was conducted with the participation of supervisors from 26 jurisdictions covering over 90% of the global insurance market. The BLA results are summarised by theme and standard in section three of the report. There are five themes:

  • Macroprudential supervision.
  • The role of the supervisor.
  • Requirements on insurers relating to corporate governance and enterprise risk management.
  • Crisis management and planning.
  • Powers of intervention.

IAIS: concludes mid-year committee and stakeholder meetings

IAIS made a press release which concludes its mid-year Executive Committee meetings, the 14th annual IAIS Global Seminar and its CRO roundtable. This allowed the stakeholders and members to review progress on the IAIS work programme, set the direction for future work and share important learnings from the COVID-19 crisis.

IAIS: Resolutions to Public Consultation Comments on Development of Liquidity Metrics: Phase 1 – Exposure Approach

IAIS published the resolutions to public consultation comments on Development of Liquidity Metrics: Phase 1- Exposure Approach. Next Step: During Phase 2 the IAIS will develop other liquidity metrics. This includes but is not limited to the development of a company projection (CP) approach and further refinement of the Insurance Liquidity Ratio (ILR).

Other Updates

OJ: Three Delegated Regulations on supervisory reporting and product intervention under PEPP Regulation

The following were published in the Official Journal of the European Union (OJ):

  • Commission Delegated Regulation supplementing the PEPP Regulation with regard to product intervention.
  • Commission Delegated Regulation supplementing the PEPP Regulation with regard to additional information for the purposes of the convergence of supervisory reporting.
  • Commission Delegated Regulation laying down implementing technical standards (ITS) for the application of the PEPP Regulation with regard to the format of supervisory reporting to the competent authorities and the co-operation and exchange of information between competent authorities and with EIOPA.

The Delegated Regulations entered into force on 24 June 2021 (that is, 20 days after their publication in the OJ).

Insurance Europe: Preliminary figures 2020 published

Insurance European has published a report which is based on the preliminary figures available from 26 of Insurance Europe’s 37 members. While it will take time for the full effects of the pandemic to materialise, this publication gives a very first indication of how the European insurance industry fared in this exceptional year, showing early indications of the percentage changes in premiums and investments from 2019 to 2020 and a glimpse of the evolution of claims.

Insurance Europe: How to improve the new e-Privacy Regulation to benefit consumers and road safety

Insurance Europe has published a paper on how the European Commission’s proposal to revise the e-Privacy Directive can be improved to benefit consumers and help to improve road safety. The proposal for the e-Privacy Regulation is currently being discussed by the three institutions — i.e. the Commission, the European Parliament, and the Council of the EU — and seeks to update privacy rules for the digital age.

EIOPA Q&As

18 June: Solvency Capital Requirement – Operational risk in risk margin

EIOPA clarified in Q&A (#1925) that even though the risk margin is based on the assumption that the liabilities are transferred to another undertaking which has not written any business previously, the calculation of operational risk necessitates to reflect the premiums of the business in the operational risk calculation for the purpose of the risk margin.

18 June: Own funds

EIOPA clarified in Q&A (#1885) that the overall assessment of the availability of own funds at group level according to Article 330 of the Delegated Regulation, which is carried out by the NCAs, is subject to supervisory review processes set out at national level.

18 June: Solvency Capital Requirement – Counterparty Default Risk

EIOPA clarified in Q&A (#1861) that the provisions in Article 199(3) of the Delegated Regulation do not apply where the single name exposures consist of exposures to different legal entities.

18 June: Solvency Capital Requirement – Risk adjusted collateral

EIOPA clarified in Q&A (#1543) that where mortgage loans are provided as collateral, they have to be adjusted for market risk (interest rate and currency risk sub-module, if relevant). In fund-withheld situation, the liability towards the reinsurer should not be considered in the calculation of the hypothetical capital requirements for market risks.

25 June: Solvency Capital Requirement – Credit Derivatives

EIOPA clarified in Q&A (#2162) that if a credit derivative hedges a risk on a particular investment and complies with Articles 209 to 215, then the changes in values of the investment and of the credit derivative resulting from the spread shock should be included when determining the capital requirement for spread risk on bonds and loans respectively on securitisation positions.

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.