On 13 December 2023, the Central Bank of Ireland (the CBI) published its quarterly Insurance Newsletter for Q4 2023 covering a range of topics of note for Irish (re)insurers (the Newsletter).

In particular, the CBI sets out its key supervisory priorities for 2024.

In this article, we have highlighted the four key takeaways from the Newsletter:

  • The current risk environment in the sector;
  • The CBI's supervisory priorities for 2024;
  • Guidance on change of business plan notifications; and
  • The CBI's expectations regarding the materiality assessment and governance elements of its Guidance on Climate Change Risk (see previous article here).

1. Risk Environment

The CBI commenced the Newsletter by examining the risk environment of the insurance sector. It noted that the Irish insurance sector has undergone considerable evolution since 2016, partly owing to Solvency II, but more so owing to Brexit. This has resulted in about 40% growth in (re)insurers' balance sheets, with much of this growth in the international insurance and reinsurance space (82% growth between 2019 and 2022).

The CBI identified the following risks as key concerns for 2024:

  • Financial: Elevated financial risks are expected to remain over the next two years due to inflation uncertainty. This may accentuate pricing and reserving risks due to uncertain non-life claims settlement costs and operating expense pressures.
  • Geopolitical: Deepening geopolitical tensions and continued conflicts may directly impact insurers with a wider geographical footprint or exposure to specialty lines.
  • Operational: Threats to operational resilience remain prominent notably cyber threats, outsourcing, and recruitment / talent retention.

2. Supervisory Priorities for 2024

The CBI emphasised that its supervision will remain focused on its core mission of safeguarding the financial and operational resilience of (re)insurers while ensuring consumer's best interests are protected. For 2024, the CBI has prioritised the following areas of supervisory focus:

  • reserving assumptions in light of 'higher for longer' inflation and interest rate scenarios;
  • governance and underwriting in sectors or lines of business that have been subject to significant growth or changes in risk profile;
  • the adequacy of governance arrangements where a Branch in a Third Country is used to conduct regulated functions or activities; and
  • oversight of critical outsourcing relationships and maturity of operational resilience frameworks.

Other key priorities for the CBI are the continuing review of Solvency II, work on the implementation of EU legislation (e.g. the Motor Insurance Directive), the review of the Domestic Actuarial Regime, and continued work related to climate change, sustainable finance and the ethical use of data. The CBI also highlighted the growth of the digitalisation of financial services and the CBI's intention to deepen the understanding of innovation in the insurance sector.

3. Change of Business Plan Notifications – Guidance and Checklist

In the Newsletter, the CBI stresses the importance of (re)insurers complying with the notification process mandated by the standard Condition of Authorisation on material changes in business plans. It highlighted the continuing relevance of its September 2019 article (which can be viewed here), which outlined the fundamental principles in the notification process.

From a review of over 30 change of business plan notifications since Q4 2022, the CBI noted that these show considerable variances in terms of substance and complexity. In most cases, (re)insurers could proceed with the proposed changes within two months of the initial notification to the CBI.

Importantly, the CBI provided the following clarifications and guidance on the notification process:

  • The CBI plans to develop and publish a 'checklist' outlining the specific information required by them to undertake an assessment of a material change of business.
  • The CBI plans to undertake additional engagement (through a workshop, or similar) to further outline the review process undertaken by it, and to clarify its expectations.
  • Where business is transacted in a new territory, additional queries and requests for information may arise from the supervisory authority in the 'new' territory in which business is to be transacted. The CBI will include examples of what is typically requested in any checklist developed to enable firms to prepare in advance.
  • The CBI also noted the importance of early engagement with their supervisory team and ensuring adequate time and resources are available to provide the supporting information needed to avoid any unnecessary delays.

4. Climate Change Risk – Materiality Assessment and Governance

In the Newsletter, the CBI provided an overview for (re)insurers of its main expectations in relation to the materiality assessment and governance aspects of its Guidance on Climate Change Risk published in March 2023. These areas will be the initial supervisory focus for the CBI and form part of its supervisory plans for 2024.

The Newsletter also mentions some topics covered in more detail by previous updates:

  • The Conduct Standards and Fitness & Probity Regime becoming applicable from 29 December 2023 under the Individual Accountability Framework. Please see here and here for our previous articles on the topic.
  • The CBI Consultation Paper on Innovation Engagement (CP156). Please see here for our previous article on the topic

To view the Newsletter in full, please click here.

If you have any questions on any item covered in the Newsletter, please contact any member of the Insurance team or your usual William Fry contact.

Contributed by Catherine Carrigy and Caitlin Lenihan

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.