insurance breakfast briefing recent events, key milestones ... · • stable over 2013 to 2016...

Insurance Breakfast Briefing

Recent events, key milestones and hot topics

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Copyright © 2016 Deloitte Development LLC. All rights reserved. 2

Eimear McCarthy

Opening



Sinead Minnock

IFRS 17

© 2018 Deloitte Ireland LLP. All rights reserved. 4

1997

IASC starts

project on insurance contracts

Phase I ImplementationPhase II In Force

2004

IFRS 4 Insurance Contracts

Phase I Interim Standard Issued

2021

IFRS 17 becomes effective

2007

Discussion paper

Preliminary views on insurance contracts

2010

Exposure Draft

Insurance Contracts

2013

Exposure Draft

Insurance Contracts

2016


Amendment

Applying IFRS 9 with


2017

IFRS 17

Publication May

2017 - 2020

Preparation for the new

standard

2018

TRG

4 meetings in 2018

2018

EU Endorsement

EFRAG and ARC

IFRS 17: Where are we now


IFRS 17: A year in review

EFRAG provide endorsement advice

October 2017Commission ask EFRAG for endorsement advice

Q3 2018EFRAG Draft Endorsement Advice

Q4 2018EFRAG Endorsement Advice

Accounting Regulation Committee votes on adoption

Challenges

• Significant potential for different interpretation of principles. Particularly in the areas of:

− Discount rates

− Contract Boundaries

− PAA onerous contracts test

− Transition rules

• Operationally complex and expensive

• Untested model

• Financial Reporting complexity

Benefits

• Promotes consistency and comparability, particularly among jurisdictions, preparers and with Solvency II

• Modern approach to measurement of insurance assets through the use of:

− Market consistent valuation

− Current estimates

− Risk-based approach

− Explicit Margins

• Enhanced financial reporting disclosures will lead to greater understanding and comparability

European Endorsement of IFRS 17



Supporting IFRS 17 implementation

TRG does not provide guidance but enhances the quality and consistency of implementation

4 meetings in 20186 February 2018

2 May 201826 September 20184 December 2018

2 May 2018

6 February 2018

26 September 2018

1. Combination of Insurance Contracts2. Determining the risk adjustment for non-financial risk in a group

of entities3. Cash flows within the contract boundary4. Boundary of reinsurance contracts held with repricing

mechanisms5. Determining the quantity of benefits for identifying coverage

units6. Implementation challenges outreach report

Implementation questions to be received before 20 July 2018

1. Separation of Insurance Components of a Single Insurance Contract

2. Boundary of Contracts with Annual Repricing Mechanisms3. Boundary of Reinsurance Contracts Held4. Insurance Acquisition cash flows paid on an initially written

contract5. Determining quantity of benefits for identifying coverage units6. Insurance acquisition cash flows when using fair value

transition

IFRS 17 Transition Resource Group


7.00%

15.00%

55.00%

23.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

How insurers are progressing


How insurers are progressing and what insights are people sharing

Large number of insurers believe they will need new processes to support the

disclosure requirements.

Insights

Most insurers have a disparate actuarial environment that may not be able to

capture the required data to be disclosed.

In the vast majority of firms boards and audit committees have received briefings

on IFRS 17

Senior finance (Financial Controllers and CFOs) are leading the projects in almost

half of the companies with IFRS 17 projects.

Current Market Status


IFRS 17: Where to next

Separate actuarial systems environment and the management of off-line actuarial processes –a very small number of firms reported having aharmonised actuarial environment

Creating shared processes between finance and actuarial teams

Contract aggregation and getting detailed information from across the systemsenvironment

Discounting cash flows especially for claims, and processes for applying riskadjustments

Supporting IFRS 17 disclosure requirements, and how to capture the granular data required. Resource constraints

Do you share any of these thoughts?

Challenges anticipated by Insurers



Danny Gaffney

Survey and Planning WorkshopVisit: menti.com


Industry Insight

What do we see happening in the industry

Technical Overview

Overview of key insights from our IFRS 17 training day which we have provided to multiple leading insurers and re-insurers

IFRS Programme Experience

Lessons learned from our experience in implementing IFRS 9 in the banking sector

Planning deep dive

Facilitated planning session focused on building out a high level IFRS 17 plan with key insights provided by Deloitte experts across the following domains; Insurance Industry, Actuarial, Accounting, System Architecture, and Programme Management

ProgrammeManagement

Focus on programme objective, scope, structure, high level planning, RAID and capability assessments

System Architecture

Consider end to end solution architecture required to deliver IFRS 17 compliance; actuarial systems, data warehouse, accounting systems, consolidation and reporting plus the underlying transactional and master data requirements

Accounting

• Fullunderstanding of impacts on statutory, regulatory and mgt reporting

• Beyond accounting; ability to greater leverage data to provide insights and analysis of performance

Actuarial

• Review impact of IFRS 17 on models.

• Ability to leverage Solvency II investments

1. AGENDA: Our planning lab will help focus your priorities

2. INSIGHT AND EXPERTISE: We will bring, end to end, all the expertise required to expedite your planning process. In particular we will bring expertise across the following areas

IFRS 17 Planning LabWe understand that IFRS 17 planning is (a) complex requiring input and insight from actuarial, finance, systems & data subject matter experts, (b) time sensitive as a regulatory deadline with a requirement to be in dry run by Q4 2019 and (c) far reaching as it significantly impacts reporting requirements. A Deloitte IFRS 17 planning lab will help bring clarity and perspective to yourplans and help you move forward with confidence.

3. PREPARATION: In advance of the lab, in order to drive maximum value from the lab, we would schedule a planning call to discuss

A. Attendees: we will discuss with you who should attend the lab

• Actuarial • Finance • IFRS 17 Programme • Other programmes

B. Planning documentation: we would like to review existing high level documentation to understand your as-is position

• IFRS 17 planning documentation

• System Architecture• Assumptions and

identified risks • Dependencies on BAU

and other programmes

C. Lab output: we will align on what the exact output of the lab should be in order to ensure the agenda facilitates

Industry Insight

• What are peers in the marketplace doing?• What does good look like?



Paul Connor

Industry Update


2017 v 2016 Gross Claims Ratios

Irish Motor Market

Source: 2016 and 2017 SFCRs

58%

91%

68% 69% 69% 73%

55% 52%

74%

84%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Com

bin

ed L

oss R

atio

2017 2016


The Cost of Insurance Working Group

Jan 2017 – Report on Cost of Motor

Insurance

Quarterly Updates – May, July, Oct

2017, Feb and May 2018

July 2017 - First Motor Insurance Key Information

Report

Jan 2018 – Report on Cost of EL and

PL Insurance

Recommendations Actions

Cost of Motor Insurance Theme

Protecting the consumer 5 1 4 16 1 4

Improving data availability 1 1 1 5 1 2

Improving the personal injuries claims environment 0 0 1 2 1 1

Reducing the costs in the claims process 7 1 2 13 2 2

Reducing insurance fraud and uninsured driving 0 1 5 8 1 7

Promoting road safety and reducing collisions 1 1 1 2 1 2

14 5 14 46 7 18

42% 16% 42% 65% 10% 25%

Completed

On track

Delayed / at risk of being delayed

May 2018 - Second Motor Insurance Key Information

Report



Report on Cost of Motor Insurance

National Claims Information Database

• Technical specification

• Bill to be drafted shortly

• Expected enactment 2018 Q4

Personal Injuries Commission

• Report Dec 2017 – Quebec Task Force Whiplash Associated Disorder (QTF WAD) grading scale

• Next report Q2 2018 – awards benchmarking

Cost associated with uninsured drivers

• Database of uninsured licence plates and driver numbers

• Automatic Number Plate Recognition (ANPR)

Fraud

• Insurance Fraud Database

First Motor Insurance Key Information Report

Private motor injury frequency (earned vehicle years)

• Stable over 2013 to 2016 (~0.84%)

• Compares favourably to ~1.05% for UK in 2015

Component of compensation

• Legal costs stable during 2013 to 2016 ~34%

• Other costs ~8%

PIAB settlement

• Pre or during PIAB settlement fell from 56% in 2013 to 52% in 2016

Average compensation settlement

• 2013: €22,091, 2016: €23,634

Next Report (target 2018 Q1)

• Incorporate ultimate projections of claims trends for 2011 to 2016 (Verisk)



Second Motor Insurance Key Information Report

Third Party Liability

• Average claim is €57,000 (€43,000 capped at €250k)

• Frequency is 0.579% per policy (0.559%)

• Now 77% of projected ultimate claim cost

• Claims below €250k increasing 7.3% p.a. (6.2% overall)

• Frequency increasing at approx. 1.2% p.a

• Claims greater than €250k decreased between 2011 and 2015 but have increased in 2016

• Frequency of claims above €250k has been increasing 5.0% p.a.

• Ratio of TPL to Damage has increased from 0.3 to 0.4

General

• Earned Premium has increased 22% between 2011 and 2016

• Claims have increased 14% in the same period

• Some evidence of increased level of uninsured drivers

Damage

• Total own damage costs have decreased 5.2%

• Average cost has increased while frequency has decreased (22% in 2016 alone)

Comparison to UK

• Third Party Injury €40,000 - €60,000 vs €12,500 - €15,000

• Frequency is considerably lower than in the UK 0.579% versus 1%


Latest News

Legislation Update

Ogden

• Ogden Discount rate reduced from 2.75% to -0.75% in Feb 2017

• Civil Liberty Bill gives scope for this to move to positive territory

• Currently has gone though 3 readings in the House of Lords

• Bill also provide guidance to curtail rising Whiplash claims

Periodic Pension Orders

• Passed all stage of Oireachtas in Nov 2017…….


Insolvency of Insurer

• Each member state to set up fund to compensate victims in the event of insurer insolvency

• May be same fund as covers victims of uninsured drivers

Claims history

• Requirement of insurer to take claim history from another member state into account

• No differentiation allowed based on nationality or country of claims history

Uninsured driving

• Additional powers for member states

• Provision for number plate checking technology at borders

Minimum level of cover

• Current minimum protection level differ between member states

• Amendment to harmonise minimum level across all states

New types of motor vehicles

• Electric bikes, Segways and electric scooters already covered by the directive

• Member states will have power to exempt types of vehicles

• Compensation fund must be set up for exempted vehicles

Strengthening of regulation

Proposed Amendment to European Motor insurance Directive


Supervisory Reporting

Failure to implement a Supervisory Reporting Policy

Board Governance

Boards not presented with the full suite of annual QRTs for approval

Second and Third Line of Defense

Minimal oversight or active engagement by the Risk and Compliance function nor have Internal Audit conducted a review

Key Controls

Key control points are not set out in detailed process documents and evidence of these checks is not always recorded

Process Documentation

Lack of documentation of the end-to-end regulatory reporting process

Error Management

Deficiencies in the error management process

Risk and Compliance

Actively engaged in SII regulatory reporting process

Reporting teams

Training delivered to the regulatory reporting teams involved in the QRT/NST regulatory reporting process

CFO

Checks performed by the Executive sign off are documented and evidenced

Internal Audit

• Conduct review ofelements of QRT/NST reporting process

• Conductsreview of end-to-end regulatory reporting process

• Review of the key control design

1. Observations: The CBI has observed the following in respect of SII undertakings

2. Good Practice Identified: The following are some of the good practice points for key personnel that have been identified.

On 16 April, the Central Bank issued a letter to insurance undertakings outlining it’s observations from SII QRT/NST submissions to date. The Letter tackles areas in which the performance of SII undertakings have fallen short and will be followed up on by the CBI. The letter also identifies areas of good practice which insurers should implement.

3. Action: Deloitte offers a range of SII Regulatory Services including the below which we would be happy to discuss further with you

A. Process Implementation: We have the tools and experience to oversee end-to-end implementation of SII regulatory reporting processes to improve the efficiency of the process.

B. Governance Review: The board is ultimately responsible for the implementation and governance of SII. Deloitte has expertise in reviewing the SII governance in place in several undertakings and advising on any action required to improve the governance to best practice.

C. Board Training: We have facilitated SII Board Training for several small, medium and large insurance undertakings.

The Board

• Review full suite of annual QRTs provided• Formal training provided to board in

advance of QRT approval• Evidence of discussion and challenge

Senior Management

• Hold review meeting to discuss results and prior period deviations/ expectations

• Errors included as standard agenda item at Senior Management review meetings

Dear CEO – SII Regulatory Reporting


Gerard Power

Regulatory Updates

Recent regulatory updates

CBI activity

- Focus on risk culture

- Brexit

- New requirements on authorisation and supervision of third-country insurance branches

- Feedback on regulatory reporting

- CBI statistics division started publishing quarterly statistical series on insurance corporations.

EIOPA activity

- Recently published an expanded set of Solvency II statistics on the European Insurance Sector for 2017 Q4

- Published a third opinion on matters related to Brexit – calling upon national supervisory authorities to ensure that insurers properly address all risks to their solvency position in light of the Brexit

- Publication of EIOPA’s 2nd set of advice to the European Commission on the Solvency II Delegated Regulation

Introduction

Q42016

Q12017

Q22017

Q32017

Q42017

Q12018

Q22018

Q32018

Q42018

Q12019

Discussion Paper on the Review of Specific Items in the Solvency II Delegated

Regulation

EIOPA consultation on first set of advice to EC

for SII review

EIOPA’s first set of advice to the EC for SII review

EIOPA consultation on second set of advice to

EC for SII review

EIOPA’s second set of advice to the EC for SII review

Possible approval of advice by EC

ORSA projections?

Pillar 1 reporting

High impact

Medium impact

Low or no impact

Legend

Interest Rate

Equity

Spread

Property

Currency

Concentration

Market Risk

Mortality

Longevity

Disability/ Morbidity

Lapse

Expense

Revision

Life Risk

CAT

Premium & Reserve

Lapse

CAT

Non Life Risk

CAT

Mortality

Longevity


Lapse

Expense

SLT Health

Revision

Health Risk

Premium & Reserve

Lapse

Non SLT Health

Default

BSCRAdjustments

(LACDT, LACTP)Operational Risk

SCR

Modules to be impacted

Interest rate risk

• Criticism of current approach

• Key changes

- Proposal of a relative shift approach

• Impacts

- (Potentially) large increase in SCR for insurers writing long term business.

- Material impacts for insurers having investment guarantees.

• Other things to note

- Implementation phased over a 3 year period.

Interest Rate

Equity

Spread

Property

Currency

Concentration

Market Risk

Market Risk

Equity Risk

• Certain unlisted equities can be classified as Type 1 provided certain criteria are met.

Interest Rate

Equity

Spread

Property

Currency

Concentration

Market Risk

Credit ratings

• Simplifications for CQS (e.g. use of average CQS).

Unrated debt

• Potential rating to be obtained via:

– Internal assessment by insurers; or

– Where a bank and insurer co-invest; an approved internal model of the bank.

Interest Rate

Equity

Spread

Property

Currency

Concentration

Market Risk

Market Risk

Currency Risk for groups

• Flexibility to select a ‘local’ currency other than the one used for their consolidated accounts.

Interest Rate

Equity

Spread

Property

Currency

Concentration

Market Risk

Market risk concentration

• Current issues

– Inconsistent use of Single Name Exposures (“SNEs”)

– Unavailability of credit ratings from nominated ECAIs

• EIOPA advice

– Use of solvency ratios to determine CQS.

– EIOPA to consider the necessity of further advice on definition of SNEs.

Interest Rate

Equity

Spread

Property

Currency

Concentration

Market Risk

Market Risk

Mortality

Longevity


Lapse

Expense

Revision

Life Risk

CAT

Mortality Risk

• No changes to the calibration.

• Correction of formulae in the simplified calculation for mortality SCR.

Mortality

Longevity


Lapse

Expense

Revision

Life Risk

CAT

• Simplification of lapse risk.

• No other significant changes.

Life Risk

Advice issued in relation to two key areas within the premium & reserve risk submodule:

• Recalibration of standard deviation parameters for premium and reserve risks for certain lines of business

• Reassessment of the definition of the volume measure for premium risk. Premium & Reserve

Lapse

CAT

Non Life Risk

Premium & Reserve

Lapse

CAT

Health (NSLT) Risk

Non-life and Health (NSLT) underwriting risk

• A recalibration exercise was carried out for the non-life & health (NSLT) premium and reserve risk standard deviation for the five lines of business listed below. The following updates are recommended:

Recalibration of parameters for premium and reserve risks for certain lines of business

Premium & Reserve

Lapse

CAT

Non Life Risk

Premium & Reserve

Lapse

CAT

Health (NSLT) Risk

Line of business Current Proposed Current Proposed

Medical expense 5.0% 5.0% 5.0% 5.7%

Workers' compensation 8.0% 9.6% 11.0% 11.0%

Credit and suretyship 12.0% 19.0% 19.0% 17.2%

Legal expenses 7.0% 8.3% 12.0% 5.5%

Assistance 9.0% 6.4% 20.0% 22.0%

Premium risk Reserve risk


FPfutExcluded

FPfut

IRD

P(last,s) Ps FPexisting

Ps Excluded

P(last,s)

P(last,s) Ps

Ps

Ps Excluded

t-1 t t+1 t+2 t+3

IRD

IRD FPfut

Reassessment of the definition of the volume measure for premium risk for continued appropriateness.

Premium & Reserve

Lapse

CAT

Non Life Risk

Premium & Reserve

Lapse

CAT

Health (NSLT) Risk


• Undertakings to be provided with a simplified calculation that allows the calculation to be based on the same homogeneous risk groups that are used for the calculation of the Best Estimate.

• The discontinuance of 40 % should be applied to those homogeneous risk groups where it would result in an increase of technical provisions without the risk margin.

• This simplified calculation should only be applied where the (re)insurance undertaking can demonstrate that the particular grouping used for calculating the best estimate does not allow for material compensations between policies in case of lapse events.

Premium & Reserve

Lapse

CAT

Non Life Risk

Premium & Reserve

Lapse

CAT

Health (NSLT) Risk


Advice requested for all CAT modules:

• Assess if the complexity is proportionate to the nature, scale and complexity of the risk, in particular for small and medium-sized undertakings.

• Where appropriate, develop suggestions for simpler structures for this module, respecting the existing scope.

Changes to:

• Natural Catastrophe Risk

• Man-made Catastrophe Risk

• Mass Accident Risk

• Pandemic Risk

Premium & Reserve

Lapse

CAT

Non Life Risk

Premium & Reserve

Lapse

CAT

Health (NSLT) Risk


EIOPA Objectives

• Provide information on the relative significance of capital requirements related to these modules.

• Assess if this complexity is proportionate to the nature, scale and complexity of these risks, in particular for small and medium-sized undertakings.

• Where appropriate, develop suggestions for simpler structures for these modules, respecting their existing scope.

Default

Counterparty default risk

Provide information on the relative significance of capital requirements related to these modules.

Average SCR CDR/BSCR

Small Medium Large All

Life 16% 10% 10% 11%

Non-life 22% 18% 12% 17%

Composite 17% 13% 10% 13%

Total 21% 15% 10% 15%

Default

Counterparty default risk

Risk Margin

• EIOPA is recommending to keep the cost of capital at its current level of 6%

• It is recommending that the risk margin methodology is reviewed by the EC in 2021 (5 years after Solvency II implementation)

Undertaking Specific Parameters (USPs)

• EIOPA advises a new standardised method for the calculation of the adjustment factor for non-proportional reinsurance in the case of stop-loss treaties.

Loss Absorbing Capacity of Deferred Taxes

• EIOPA has advised not to introduce a simplified calculation for LACDT

• NSAs have similar approaches with respect to more than 75% of almost 100 billion euros in LACDT across the EEA15.

• The actuarial function (or the risk management function if more appropriate) should formally be required to assess and validate the underlying assumptions applied to future profit projections, both for the valuation of deferred tax assets and for the LACDT element of the SCR.

Other notable considerations



Ciara Regan

Closing

This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London, EC4A 3BZ, United Kingdom.

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