Insurance Newsletter. Quarter kpmg.com.mt. KPMG Malta

Transcription

1 Insurance Newsletter Quarter kpmg.com.mt KPMG Malta

2

3 Introduction Welcome to the first Insurance newsletter. The aim of this newsletter is to update you on some of the pressing issues facing the insurance industry that KPMG is talking to regulators about, both locally and globally, over the last quarter. Through these newsletters we will continue to share developments on these issues and any new issues that arise with you each quarter. We hope that you will find this newsletter interesting. If you would like further information on any of the topics here or have any other questions relating to Solvency II or other insurance topics, please feel free to contact any member of the KPMG Insurance Team. Contents 1. The Need for High Quality Public Disclosure Page 2. EIOPA Insurance Stress Test Macroprudential Approach to the Low Interest Rate Environment 4. Amendments to the Delegated Acts 5 5. Technical Information to be used 6 when calculating Technical Provisions and Basic Own Funds 4

4 The Need for High Quality Public Disclosure Back in June 2015, the European Insurance and Occupational Pensions Authority ( EIOPA ) had expressed its opinion on the importance of high level quality public disclosure to fulfil the goals of Solvency II. While there is a need for the IFRS financial statements and more recently the Solvency I figures to be externally audited, there are no equivalent requirements for any of the Solvency II figures to be externally audited. In its opinion, EIOPA recommends that at the individual and group level, the main elements of the Solvency and Financial Condition Report ( SFCR ) (i.e. the Solvency II Balance Sheet, Available and Eligible Own Funds and the Solvency and Minimum Capital Requirements) of all insurance and reinsurance companies could fall within the scope of an external audit. Up to now, a number of National Supervisory Authorities ( NSAs ) have publicly consulted on external audit requirements for supervisory reporting and regulatory public disclosures, other NSAs have drafted Solvency II external audit requirement but have not yet consulted on them, while others have not considered such requirements. This creates an un-level playing field across the Member States and results in divergence in the interpretation of the Solvency II objectives which are to ensure harmonised standards across Member States, transparency and policyholder protection. Companies should consider obtaining some form of external quality assurance Undoubtedly, external quality assurance provides significant trust, reassurance and reliability to policyholders, investors, the NSAs and various other stakeholders, the benefits of which are expected to outweigh the costs. In view of this, companies should consider obtaining some form of external quality assurance of the Solvency II figures to strengthen their financial and solvency standing and their reputation in the insurance and reinsurance industry. These can also be used to satisfy the four-eyed principle that is being reiterated by the NSAs. Published regulatory reports are constantly being referred to by investors, market analysts, the NSAs and various other stakeholders. The SFCR will be a published report that the industry will be interested in as it will contain the Solvency II financial and solvency position of the companies. It is expected that these reports will be closely scrutinized in 2017, as it would be the first time that these reports, together with the Solvency II figures of companies, are publicly disclosed by all insurers within the European Economic Area ( EEA ). 2 Insurance Newsletter - Quarter member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

5 EIOPA Insurance Stress Test In February 2016, EIOPA confirmed its intention to conduct a European insurance stress test in 2016, which will focus on a sample of solo insurance and reinsurance undertakings which are considered to be the most vulnerable in a persistent low interest rate environment and a double hit scenario where assets prices will also be stressed. NSAs in March 2016 if they are being invited to participate. Industry participants will be provided with regular status updates and all upcoming steps of the stress test. Further updates on the Insurance Stress Test are available on EIOPA s webpage. The exercise will run from May to July 2016, with the publication of the final report in December Selected companies should have been contacted by their respective member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Insurance Newsletter - Quarter

6 Macroprudential Approach to the Low Interest Rate Environment EIOPA published a paper entitled A potential macroprudential approach to the low interest rate environment in the Solvency II context on 23 March This paper builds on previously issued papers and findings from the 2014 EIOPA Insurance Stress Test and focuses on the issue of the low interest rate environment. Whilst no immediate action is required by the NSAs or insurance and reinsurance companies, EIOPA remains concerned about the long-term viability of elements of the insurance and reinsurance sector. Not all Member States are equally affected by this low interest rate environment and NSAs have applied different measures to understand and monitor the effect of this environment on the insurance market. The paper sets out the macroprudential approach which has the ultimate objective of achieving a stable financial system and stable economic growth across all Member States. Three operative objectives with supporting Solvency II compatible tools have been identified to achieve this ultimate objective. The three operative objectives being pursued are to: 1. Increase resilience of the insurance sector; 2. Limit the search for yield behaviour; and 3. Avoid procyclicality. The instruments that can be used to support the operative objectives include increased monitoring, analysis of ongoing risks, increasing capital requirements and strengthening the recovery and resolution framework. EIOPA believes that significant work still needs to be done to build, strengthen and harmonise the recovery and resolution framework in the European Union, and is initiating a Work Stream on Recovery and Resolution. EIOPA has also stressed the importance of closely following the work that is being done by the International Association of Insurance Supervisors on policy measures and the higher loss absorption capacity of Globally Systematically Important Insurers and its subsequent implementation. In view that Solvency II has just come into force on 1 January 2016, it is too early to gauge the macroprudential implications of some of these measures and the potential impact on insurers behaviours. More research is needed to better understand the sources of systemic risk and transmission channel. At this stage, it is still not clear if the banking-type framework can be used to address insurance-related systemic risk. 4 Insurance Newsletter - Quarter member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

7 Amendments to the Delegated Acts The European Commission released the amendments to the Delegated Acts and Annexes on 30 September 2015 which were approved by the European Council on 8 December Following the passage of the extended no objection period requested by the European Parliament, these amendments have been published in the Commission Delegated Regulation (EU) 2016/467 ( Official Journal ) and entered into force on 2 April The main amendments relate to: Qualifying Infrastructure Investments; Investments in European Long-Term Investment Funds ( ELTIFs ); Equities traded on multilateral trading facilities ( MTFs ); Standard Formula Calibration Changes; Extension of the Equity Transitional measure to Type 2 equities; and The change in the Group Day 1 reporting deadline to no later than 26 weeks from the reference date of the opening financial statements, from the original 20 weeks stated in Article 314(1)(a) Retrospective application is not mentioned in the Official Journal. Change in the Group Day 1 reporting deadline to no later than 26 weeks from the reference date of the opening financial statement, from the original 20 weeks member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Insurance Newsletter - Quarter

8 Technical Information to be used when calculating Technical Provisions and Basic Own Funds On 5 February 2016, the European Commission adopted an implementing regulation on the risk-free rate under the Solvency II Directive. This Commission Implementing Regulation (EU) 2016/165 lays down the technical information to be used by insurance and reinsurance companies when calculating technical provisions and basic own funds for reporting with reference dates from 1 January until 30 March EIOPA also publishes Technical Information to be used when calculating Technical Provisions and Basic Own Funds on a monthly basis, on its webpage. 6 Insurance Newsletter - Quarter member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

9 Contact Us: Juanita Bencini Partner Advisory Services Giselle Borg Director Audit Services Ranjini Paramalingam Associate Director Advisory Services Follow KPMG in Malta: Roberta Vassallo Manager Advisory Services Download the KPMG Malta App: member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).