On 16 June 2021, the Central Bank of Ireland (CBI) released its quarterly Insurance Newsletter (Newsletter). Below is an overview of the contents of this quarter’s issue.

Exposure and Management of Cyber Underwriting Risks

The CBI detailed the findings of its “Climate & Emerging Risk Survey”.  It noted that the exposure of Irish (re)insurers to affirmative underwriting cyber risks is limited, with those firms that offer cyber insurance mainly doing so as a standalone product. There were more significant concerns regarding disclosure of cyber data and silent cyber risks, as less than half of the respondents that offered cyber insurance could provide information about cyber-related premiums. Regarding silent cyber risks, only 10 respondents reported quantitative data on this risk.  

The 2021 IT Risk Questionnaire Survey

The CBI released the results of their November 2020 “IT Risk Questionnaire”. IT risk continues to be a growing topic, and the questionnaire sought to collect information through the lenses of “IT Risk Level self-assessment”, “IT Risk Control self-assessment”, and “General Data”. The CBI have highlighted that IT outsourcing and IT security risks are the areas that create the largest amount of exposures for (re)insurers, with the inherent exposure caused by IT security risk often being underrated. 

The CBI recommends that (re)insurers refamiliarize themselves with the industry letter from 10 March 2020 in relation to IT risk, so they know the CBI’s expectations in this area.

Review of Intragroup Exposures

The CBI recently conducted two desk-based thematic reviews on intragroup transactions. It found that most (re)insurers, even where there were good risk management frameworks, do not consider the risk of transactions with related group entities to the correct degree, and most (re)insurers consider the risk of group distress as low.

The CBI reminds (re)insurers that their board of directors, and senior management, is responsible for the local undertaking and all counterparty risk within it, and that they should be investing more time and resources to addressing the following issues:

• Implementation of the Prudent Person Principle; 
• Risk Management Framework; 
• Stress Testing; and 
• Counterparty Risk Policy.

Irish Flood Insurance Study

The CBI reiterated that it is unable to intervene on the pricing of a specific insurance product as this is wholly a commercial matter for the individual insurers due to the constraints of their mandate. The CBI commented that insurance undertakings appear to consider fixed defences more effective in mitigation than demountable defences, with 72% of policies relating to demountable flood defences. Based on its Public Consultation on Climate Change and Insurance from 2019, the CBI will engage with stakeholders to inform future policy development, as up to 97% of all Irish property insurance policies contain flood cover.

IMF 2022 Financial Sector

The IMF will be conducting their Financial Sector Assessment Program, which is required every five years, and will include Ireland. This assessment is believed to include risk analysis, oversight, crisis management and safety nets in relation to insurance. The assessment will consist of quantitative, qualitative, and principle-based aspects. 

When looking to the stress testing exercises, the IMF will adopt both a top-down solvency stress test, which will be based upon Solvency II quantitative reporting from Q2 2021, and a bottom-up liquidity stress test, which will be based upon the liquidity element of the EIOPA 2021 stress test. 

The results should provide a rounded picture of the insurance sector’s financial resilience. 

Recovery Planning Requirements

The Newsletter discusses the Recovery Planning Requirements. These were initially outlined in the CBI’s Consultation Paper CP 131 (link here for William Fry’s briefing), published under the Central Bank (Supervision and Enforcement) Act 2013 (Section 48 (1)) (Recovery Plan Requirements for Insurers) Regulations 2021, on 27 April 2021. The Newsletter discusses the aims and requirements of the new Recovery Planning Requirements and signals an intention to discuss CBI expectations for Recovery Plans  in the next quarterly update. 

Survey on Emerging Risks, including Climate Risk

The CBI highlights the results of its survey of insurance firms’ exposures to emerging risk.  It found that 84% of firms have management structures in place for oversight of climate risks, however firms need to take further steps to fully assess the impact of these risks on their business models. 

Sustainable Insurance Forum: Application Paper on the Supervision of Climate-related risks

The International Association of Insurance Supervisors and Sustainable Insurance Forum launched their Application Paper on the Supervision of Climate-related Risks in the Insurance Sector. The CBI explains that the Application Paper covers recommendations for:

• The Role of the Supervisor;
• Corporate Governance;
• Risk Management;
• Investment Policy; and 
• Disclosures.

EIOPA Opinion – Climate Risk scenarios in the ORSA

Lastly, the  Newsletter discusses EIOPA’s opinion on supervision of the use of climate risk scenarios in (re)insurers’ ORSA. It helpfully highlights that the opinion covers the following topics;

• Time Horizon; 
• Breadth; 
• Materiality; 
• Scenarios; and 
• Reporting. 

If any of the topics highlighted from the Newsletter are of interest to you, please contact any member of the Insurance team or your usual William Fry contact to discuss in more detail.

Contributed by Conor Forde