Central Bank publishes programme of themed inspections in Insurance Supervision

• Programme reflects the implementation of  the Solvency II regime
• Domestic Non-life insurance a continuing area of focus for 2016

The Insurance Supervision Directorate of the Central Bank of Ireland has published its programme of themed-inspections for 2016. These inspections reflect a number of supervisory priorities for 2016 and anticipate areas of emerging risk.

Director of Insurance Supervision, Sylvia Cronin said: “Consistent with the Central Bank’s mandate of safeguarding stability and protecting consumers, and the Insurance Directorate’s strategic objective of effective implementation of Solvency II, we are embarking on a number of themed reviews and inspections for 2016. 

This work will be carried out through a combination of supervision, on-site inspections and actuarial teams.  We will also be developing data analytics and trend analysis to sharpen the focus of supervisory resources further in 2016. 

An underlying theme will be ‘cultural awareness’, covering board-room dynamics, risk culture and conduct culture.  Observation of company attitudes and behaviours will position supervisors to form a more rounded view on the effectiveness of governance, controls and risk management within supervised companies. 

“Following supervisory engagement, the Central Bank will communicate its assessment of the issues which have emerged and will use the full range of its powers to ensure that remedial actions are taken where the regulatory risks are unacceptable or where breaches have been identified,” Ms Cronin said. 

This programme of inspections reflects the full implementation of the Solvency II regime on 1 January 2016 and builds on the successful supervisory work undertaken in 2015.  These include  ‘Forward Looking Assessment of own Risks' (FLAOR), Solvency II Systems of Governance and thematic review of bodily injury claims assumptions for High Impact non-life companies.

The planned themed inspections for 2016 will be a mixture of company focused inspections combined with thematic reviews, and will supplement day-to-day supervision. Some of the themes that will be covered are outlined as follows:

• Risk management and Capital Planning – Evidence based assessment of risk management frameworks and risk culture within firms with a particular focus on operational risk management within the domestic non-life and life sectors.  Assessment of whether the ‘Own Risk and Solvency Assessment’ (ORSA) is embedded in the risk management and decision making process of companies. Detailed reviews of the ORSA documents, including Own Solvency Need assessments and the appropriateness of the standard formula, where relevant. 

• Motor Insurance Pricing Oversight & Governance Review – Given the risks faced by the general insurance sector this review will focus on the sustainability of premium levels within the market and the adequacy of pricing risk assessments carried out by firms.  The insights provided from the pricing review will feed into assessments of product oversight and product governance planned later in 2016.  

• Claims management and Underwriting discipline – Inspection of policies, procedures and the internal control frameworks within the claims and underwriting divisions of companies across the domestic non-life sector.  The underwriting inspections will also assess the maintenance of underwriting discipline and governance arrangements in relation to the existing books of business.

• Less complex companies – The Central Bank is increasing its inspection activities for firms that are low impact under PRISM.  These inspections will look at the governance and risk management frameworks of a sample of low impact firms and will test the effectiveness of internal controls, with a focus on reinsurance and outsourcing arrangements. For medium low impact firms, the Central Bank will look at outsourcing arrangements and the internal controls put in place to mitigate inherent operational risks arising from the outsourcing arrangements.