Financial Services Regulation and Compliance - Insurance January 2023

Domestic

CBI publishes Guidance for (Re)insurance Undertakings on Intragroup Transactions and Exposures (see Guidance and see webpage)

Following a consultation last year, the CBI issued its finalised Guidance for (Re)insurance Undertakings on Intragroup Transactions and Exposures (the guidance) on 30 January 2023 along with a feedback statement. Broadly speaking, the guidance outlines the CBI's expectations in relation to governance and risk management of material intra-group transactions / exposures (IGTs) focusing on:

  • intragroup assets
  • intragroup reinsurance
  • cash pooling / treasury function arrangements

Among others, CBI expectations for (re)insurers outlined in the guidance include that:

Captives and third-country branches should consider the guidance with regard to material IGTs:

  1. (re)insurers should  take appropriate measures to mitigate against risks posed by IGT
  2. boards / management of Irish (re)insurers should consider their duties and obligations to the Irish-authorised undertaking (i.e. not simply follow group expectations / instructions)

The feedback statement published with the guidance intends to clarify the CBI's expectations in relation to certain aspects of material IGTs. In particular, the CBI explains that the guidance does not introduce any new requirements for (re)insurers.

European

EIOPA publishes Cost and Past Performance Report (see here)

On 17 January 2023, EIOPA published its Costs and Past Performance Report (the report). The report provides an overview of the costs and returns associated with insurance and pension products in 2021. The objective of the report is to enhance the EU's Capital Markets Union by facilitating comparison between similar products and improve transparency.

EIOPA analysed over 1,000 insurance-based investment products (IBIPs) and noted that positive returns for IBIP investors in 2021 demonstrates that IBIPs benefited from post-pandemic market recovery. The report highlighted an average net return of 9.4% for unit-linked products, 4% for hybrid products and 1.3% for profit participation products. While net returns were at an overall high, EIOPA expects that future inflation will weigh on real returns for consumers going forward. Costs, on average, remained generally stable with profit participation products continuing to be cheaper than unit-linked and hybrid products. 

EIOPA also commented that, based on a limited sample, preliminary findings for 2021 point to products with sustainability features being cheaper and higher-yielding than their non-ESG comparators.

EIOPA publishes opinion on draft standards governing corporate sustainability disclosures (see here)

Following a request of the European Commission, EIOPA published its opinion on the European Financial Reporting Advisory Group's technical advice concerning European Sustainability Reporting Standards (ESRS) on 26 January 2023.

In its opinion, EIOPA assesses whether the draft ESRS:

  • promote the disclosure of high-quality material sustainability information
  • facilitate interoperability with other EU legislation and global standards
  • can be consistently and proportionately applied by undertakings

EIOPA is satisfied that the draft ESRS met the above objectives but commented that some aspects could be enhanced. For example, EIOPA noted that it was essential that any upcoming amendments to the Sustainable Finance Disclosure Regulation be reflected in ESRS. EIOPA also stressed the importance of ensuring compatibility between ESRS and International Financial Reporting Standards, so that European companies complying with the ESRS are automatically considered compliant with the IFRS framework.

EIOPA's Consumer Trends Report 2022: Consumer trends report sees progress on consumer-centric products with room for further improvement (see here)

EIOPA published its Consumer Trends Report 2022 (the report) on 18 January. The report's key findings include that:

  1. access to insurance investment products remains low with motor and home insurance making up the largest share of insurance products purchased in the EU
  2. the continued digitalisation of the insurance sector could lead to expanded access to insurance products for consumers
  3. the increasing frequency of systemic events such as pandemics, extreme weather events and cyberattacks may make policies that cover those risks unaffordable
  4. consumer appetite for sustainability related insurance based investment products is growing with regulator interest in tackling greenwashing also on the rise

EIOPA publishes technical information update (see here & here)

EIOPA published its monthly technical information on 5 January 2023 regarding the relevant risk free interest rate term structures with reference to the end of December. This technical information is used for the calculation of technical provisions for (re)insurance obligations.

It also published technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of December 2022.

EIOPA updated the Solvency II list of validations for the Insurance Data Point Model and taxonomy on 19 January 2023.

EIOPA's Prudent Harmonized Reduced Set of Scenarios – First Information Request

EIOPA has published its first information relating to the adoption by Commission (subject to the Council and Parliament agreeing) of EIOPA's recommendation under the Solvency II review to allow prudent deterministic valuation of contracts with options and guarantees, where it is proportionate to do so. The Prudent Harmonized Reduced Set of Scenarios framework's aim is to provide undertakings a way in which to reflect a prudent level of the time value of options and guarantees in their calculation of technical provisions.

This information will be collected by national supervisory authorities (i.e. the CBI in Ireland) contacting a representative sample of undertakings to populate the information requested by EIOPA. The undertakings who information will be sought from are those already performing a full stochastic valuation of their technical provisions. For more information and to view the technical documents and information related to the request see here. 

For more information on these topics please contact any member of A&L Goodbody's Insurance & Reinsurance team.

Date published: 8 February 2023