On 23 June 2021, the Director of Insurance Supervision at the Central Bank of Ireland (CBI), Domhnall Cullinan, delivered the keynote address at the CBI's insurance industry event, setting out the regulator's main supervisory priorities for the (re)insurance sector. The CBI's priorities primarily focus on the fundamentals of effective supervision, strengthening regulatory and supervisory frameworks to reflect best practice and address vulnerabilities, and assessing insurance firms' evolving business models and strategies in response to systemic change.

Notwithstanding the resilience demonstrated by Irish (re)insurers during the COVID-19 pandemic, the CBI seeks to remind (re)insurers that significant uncertainty remains. (Re)insurers need to  consider the potential impacts on their capital and reserving positions as the fiscal and monetary supports provided during the pandemic unwind. Mr Cullinan took the opportunity to emphasise the importance of (re)insurers maintaining their longer-term focus on the impact of climate change and the increased digitalisation of financial services.

Effective Supervision

Mr Cullinan stated that the CBI will place increased emphasis across three pillars to ensure the continued viability of (re)insurers post COVID-19, as follows

  • Capital adequacy: the CBI will employ regular stress and scenario analysis and testing, 
  • Operational resilience: the CBI recently sought industry views on implementing "Cross Industry Guidance on Operational Resilience" (see article here), 
  • Own Risk and Solvency Assessments (ORSA): Mr Cullinan expressed the CBI's dissatisfaction with the focus of many ORSAs.  He remarked that the ORSA process should be dynamic and in line with risk, capital and business planning.

Key Challenges

Mr Cullinan noted that both life and non-life (re)insurers faced unique challenges in the past year, and the CBI has set out its expectations from (re)insurers with regard to these challenges, including:

  • Differential pricing; 
  • Business interruption insurance;
  • The effect of 'long COVID' on mortality and morbidity; and
  • Value for money risk in unit-linked products.

Strengthening Regulatory Frameworks

The CBI continues to focus on strengthening regulatory frameworks in areas of vulnerability for the (re)insurance sector. Mr Cullinan highlighted the following as core areas of focus:

  • Senior Executive Accountability Regime (SEAR) is one of the key forthcoming developments from the CBI. For more information, you can refer to our cross-departmental briefing on SEAR here. 
  • Behavioural & Culture Framework – the CBI is currently designing a framework that builds upon the foundations of previous reviews undertaken by the CBI and takes account of international best practices;
  • Diversity & Inclusion – the CBI continues to monitor (re)insurers' activities.  The CBI regards diversity and inclusion as an important component of a solid organisational culture; and
  • PRISM risk-based supervisory framework – the CBI notes that this framework is already in line with international best practices but remains subject to regular review.

Key takeaways for (re)insurers

The varied challenges and supervisory expectations facing the insurance sector, as outlined by Mr Cullinan, means that there is much to occupy Irish (re)insurers Boards of Directors and senior management for the remainder of 2021.

In particular, (re)insurers are well aware that the CBI requires them to consider, and integrate into their risk assessments, climate and digitalisation risks. In relation to climate risk, Mr Cullinan indicated that the CBI will communicate directly with (re)insurers on this topic over the coming months to set out its expectations to further integrate climate risk within its supervisory framework.

Firms should be planning ahead for the implementation of SEAR and should be ready to review their internal processes as soon as the draft heads of bill are published (expected later this month). For more insights on SEAR readiness, please refer to our article here.

In line with new Regulations, which commenced in April 2021, (re)insurers must prepare and maintain a pre-emptive recovery plan, the first of which should be prepared by 31 March 2022. An assessment of these recovery plans will be an area of specific focus for the CBI in 2022.

Contributed by Cliodhna Hand

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