The Central Bank of Ireland (the Central Bank) has recently published its first Insurance Newsletter (the Newsletter) of 2020. Topics covered include navigating COVID-19 uncertainty; the role of actuaries in creating open and transparent cultures; regulations for pre-emptive recovery planning in light of CP 131; and emerging risks and climate survey.
The Newsletter also includes updates to the industry from the Central Bank and EIOPA.
Financial Resilience: Navigating the COVID-19 Uncertainty
While capital levels and solvency positions have generally remained robust across the (re)insurance industry throughout the COVID-19 pandemic, the Central Bank remarks that there is still a long way to go as the impact of ‘any lasting economic and social legacy remains very uncertain’. In terms of solvency measurement and monitoring, the Central Bank expects firms to be able to estimate technical provisions (TPs) and solvency capital requirement (SCR) coverage on a suitably regular basis in order to inform board and management decision-making and to underpin firms’ Solvency II compliance obligations.
Firms must regularly assess the adequacy of their TPs including updating their best estimate assumptions in line with their obligations under Solvency II and the Domestic Actuarial Regime. For example, updating assumptions in light of emerging actual experience and the impact of developing expert opinion on the long-term effects of COVID-19 on mortality and morbidity rates.
The Newsletter highlights the importance of the Own Risk and Solvency Assessment (ORSA) as a decision-making tool for firms, emphasising that the Central Bank expects firms to have considered worst-case scenarios when assessing the levels of capital to hold, liquidity risk exposures, and contingency plans in stressed situations. More generally, firms should assess whether circumstances have changed such that scenarios considered in previous ORSAs are no longer adequate.
The Central Bank also urges firms to review their business plans and ensure that they reflect a realistic assessment of the future in light of emerging risks.
CP131 – Regulations for Pre-Emptive Recovery Planning for (Re)insurers
The Newsletter encourages firms to respond to the Central Bank’s recent consultation paper, CP 131 “Regulations for pre-emptive recovery planning for (re)insurers”. Our briefing on this consultation paper is available here. The closing date for submissions (30 October 2020) is fast approaching.
Actuaries Creating Transparent and Open Cultures
The Central Bank notes an improvement in transparency amongst firms through the disclosures on key limitations relating to Actuarial Opinions on Technical Provisions. However, the Central Bank believes there are still opportunities for firms to improve including through firm specific limitations and more transparency on the sensitivity of TPs to key assumptions.
Emerging Risks & Climate Survey
The Newsletter notes that firms must consider emerging risks, and climate change in particular. Firms’ risk management frameworks and ORSAs should reflect these considerations and there is an expectation from the Central Bank of “robust analysis and challenge, including from the board, and timely and effective action”. The Central Bank will issue an emerging risk survey later this year, with a particular focus on climate risk (including flood cover) and cyber underwriting risks.
The Newsletter includes various other updates from the Central Bank including updates on:
- ‘COVID-19 and Business Interruption Insurance Supervisory Framework’.
- Thematic assessment of diversity & inclusion in insurance firms.
- Request for quarterly SCR calculations updates.
- Differential pricing review.
- The Central Bank’s new online portal for (re)insurers.
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Contributed by Claire O’Connor