Remarks by Director of Insurance Supervision, Sylvia Cronin, at European Insurance Forum

16 March 2016 Speech
Good evening Ladies and Gentlemen,I would like to thank DIMA for inviting me to make the closing comments at this event and I support this year’s theme which looks at the need to revolutionise how we deal with the future risk landscape. In light of this theme, I am pleased to have this opportunity to outline to you how the Central Bank has shaped our supervisory strategy in order to align with Solvency II and meet upcoming challenges, on a national and international basis.

Supervisory Strategy

The implementation of the Solvency II regime requires more intrusive supervisory initiatives for the companies we supervise. Supervision all across Europe has to be more adaptable and have greater flexibility in the suite of supervisory activities and tools used. Strengthened supervision is a necessary condition if a new cycle of excessive risk taking is to be prevented. Executing more intrusive, forward-looking and proactive supervision will require a combination of approaches, including off-site activities and comprehensive on-site inspections. On-site inspections will provide the opportunity of first-hand verification of information and evidence provided by insurers, especially in the areas of insurance risks such as claims and underwriting. On-site inspections will provide information that can supplement the analysis of the supervision teams off-site and on-site inspections should help detect problems that may not be apparent solely through off-site monitoring. We have implemented a bespoke model for companies with a Low impact rating, which reflects a proportionate amount of proactive supervision for these firms. This is reflective of the Solvency II regime and the IMF’s recommendations relating to the supervision of low impact firms. Thematic reviews will be conducted on this category of firms by the on-site inspections team and this model has already commenced roll-out in Q1 this year. The focus of the thematic inspection has been on the governance, risk management and internal controls within low impact firms with a specific interest in outsourcing, intra-group transactions and reinsurance arrangements.This inspection has not yet concluded; therefore we are not in a position to share specific observations. These will be shared in due course with the individual entities and if appropriate with industry.

Recovery and Resolution

Recovery and resolution for insurers is an area of interest for the Central Bank, particularly during 2016. We are closely monitoring international developments on this topic and are contributing to EIOPA’s work in the area. As outlined in its work programme for 2016, EIOPA aims to actively contribute to the development of a European approach to crisis management with a particular focus on recovery and resolution plans as preventive tools. In doing so, EIOPA would provide strong input to the design and development of any new policy framework in Europe.

The Central Bank is considering its supervisory position on a recovery and resolution framework for insurers and will take these international developments into account in determining this position. We will consider, in particular, how local entities would fit into group resolution plans. This may be informed by experiences of group-wide resolution planning and resolvability assessments for Globally Systemically Important Insurers. Another key area for examination is the interaction between any recovery and resolution regime and the Insurance Compensation Fund.

The Central Bank recognises the potential advantages of a recovery and resolution framework for the insurance industry. These advantages largely relate to the challenges that can be posed by the cross-border nature of insurance undertakings and groups, for example, large, complex and evolving group structures spread across several jurisdictions. A formal framework could help ensure a structured and proactive approach amongst the various relevant authorities to the recovery and resolution of companies within such structures and would provide for appropriate tools and powers. Differences between home and host supervisor requirements in the availability and application of these tools are currently a barrier to effective cross-border recovery and resolution which would be addressed by a harmonised framework. An appropriate regime would ultimately facilitate greater certainty in these situations and stronger policyholder protection. In this sense, a recovery and resolution regime is a natural follow-on from Solvency II.                              

Risk Management

The Central Bank does not underestimate the balancing act faced by insurers in ensuring their risk management framework is embedded into their organization whilst at the same time providing a means of promoting effective and independent challenge to the accepted perceptions of risk. For many, it will be an evolving process. The Central Bank does expect to see Boards and management actively direct the use of the risk management tools required by Solvency II to look across the range of risks they face in the operating environment today. Emerging, intangible, or non-quantifiable risks are just as important considerations as the expected volatility in insurance, market, credit and operational risks used to calibrate regulatory solvency.

A successful insurance business is, at its heart, one which has mastered the art of risk management. To be of any real use, risk management must challenge accepted norms of thinking about risk in a firm. Only then can firms learn and evolve to meet the challenges of an ever changing risk environment. In my view, the creation of long-term value by the firm can only be assured by practical and effective risk management which pro-actively anticipates the comprehensive range of risks underlying every business.


We have recently completed a review of a number of 2015 ORSA reports for higher risk firms. We were, in general, very positive about the quality of the reports and the extent to which earlier feedback had been acted upon.

At the Central Bank, we see the ORSA as very much a process rather than a single report that is signed off by the Board. We've been pleased to see the active involvement of Board members throughout the process. We have watched a growing realisation that ORSA covers all of the material risks that firms face, whether quantifiable of not. We've seen better discussion, assessment and, where relevant, planning for risks, whether it be in global risk categories, such as operational or strategic risk or in specific and emerging risks, such as cyber risk. We've also noted more firms making progress on the technical aspects of the ORSA, concerning the quality and reach of their modelling and their ability to be confident in continuous compliance. It is evident that more firms are finding their ORSA process to be useful, and to be allied to their longer-term business planning. In future reports, we will expect to see more evidence of how the risk management system has affected strategy, decision making, product design and capital disposition.

In Ireland, we have a large number of captives and subsidiaries and we see the subsidiary-relevant components of group reporting. The degree to which the ORSA process and the local report is tailored to reflect local conditions can be a challenge. Possibly connected with this, the date of the data in most of the latest reports we have seen was 31 December 2014. Almost half of the reports were presented to us in the last calendar quarter of 2015. That seems like a long time between the data date and the report, which may reflect the work involved and logistical challenges at group level. We are encouraging Boards to think about the timing of their ORSA processes, relative to their business planning and financial reporting cycle.

Capital Management

Effective capital risk management by insurers is critical in a Solvency II environment and insurers will be required to detail their capital management plans in their solvency and financial condition reports and their regular supervisory report. EIOPA guidelines (Ref: Guideline 36 and 37) outline the expected content in a firm’s capital management policy and in the medium term capital management plans.

Areas to be covered in a capital management policy include the classification of own fund items, the on-going compliance of such items to the tiering criteria, the contractual and legal obligations of own fund items, highlighting of circumstances under which own fund items may become ineligible, and the impact of stresses on the availability of such own fund items.

The medium term capital management plan of firm, which is to be approved and monitored by the Board, should include any planned capital issuances, the contractual arrangements of existing own-fund items including any medium term maturities, the impact of the firm’s dividends policy, and the impact of any stresses identified from the ORSA on the capital management plan.

I would highlight that capital management plans should be consistent with outputs from a firm’s risk management framework and should be on a realistic basis so that firms can actively manage their financial performance on a forward looking basis. A consistent and realistic capital management plan will ensure that firms are well prepared for challenges and opportunities that their business may face in the future.

Investment Performance

The conference today has robustly discussed the challenges facing the re/insurance sector in a low interest rate environment. The impact investment strategy has on the performance of a business affects not just bottom line profitability but the overall success of the business model. The sustainability of a medium to long term investment strategy needs to be considered in all key business aspects such as product offering, capital planning and risk management to mention but a few. In a Solvency II world there has to be consideration given to the prudent person principle in the search for yield. Boards through the ORSA process must monitor the effect investment performance is having on their business and ensure that adequate on–going evaluation is performed that aligns to their stated risk tolerances.


New technologies are rapidly changing the way we communicate with each other. This in turn is clearly having a direct impact on how insurers can interface with their customers including how they can price and underwrite their business. The advent of big data and smart analytics provide potential tools for unique product personalisation as well as the capability for sophisticated risk assessment and enhanced underwriting techniques. Particular benefits can also be gained from a claims management point of view. While digitalisation can radically improve information capture and the analysis of this information, the threat from emerging risks particularly cyber risks should not be underestimated.

It has been suggested that the next major financial shock could be from a succession of successful cyber-attacks on financial services firms. Companies are investing more now in security budgets, employee awareness programmes and formal standards and strategies than ever before. Robust strategies including IT policies, procedures and technical controls should be in place. This should include incident reporting and response plans, recovery and business continuity plans, patch management, and employee access rights. Given the complex, rapidly changing and borderless nature of cybercrime, no single firm or regulator can successfully tackle the risk alone. Cybercrime’s international nature will require a collaborative response from governments, regulators and industry.

Product Oversight and Governance (‘POG’)

EIOPA conducted a public consultation on the product oversight and governance (‘POG’) arrangements by insurance undertakings during the period October 2014 to January 2015. EIOPA invited comments on the Guidelines for insurance distributors (Chapter 2) and these comments are under review. We expect further information on the outcome later on this year.

The overarching message from the Guidelines is that insurance undertakings, which manufacture any insurance product for sale to customers, shall maintain, operate and review a process for the approval of each insurance product, or significant adaptations of an existing insurance product, before it is marketed or distributed to customers. The Guidelines take account of certain objectives of Solvency II, the main objective of which is to ensure ‘adequate protection of policyholders and beneficiaries’.

It is the manufacturers of insurance products (Chapter 1) in Ireland that the prudential Insurance supervision directorate of the Central Bank will focus on. This will encompass companies domestically as well as a focus on cross border companies, which although whose products may be sold in different jurisdictions, are prudentially supervised by the Central Bank. Supervisory teams across the domestic, cross border, health and Variable Annuity sectors will perform in-depth reviews of POG in 2016


The support for this conference and the large number of attendees present reflects the positive attitude of directors and senior executives towards embedding and improving risk management practices.

That brings me to the end of my closing address today. I have spoken publically several times on the importance of an embedded risk management function within regulated firms and I would like to round-up with the overall message that the Central Bank views a healthy risk culture as a critical prerequisite to successful risk management.