Amendments to IFRS 17

Since the publication of International Financial Reporting Standard (IFRS) 17 in May 2018, the insurance industry has begun the implementation process in advance of the original effective date of 1 January 2021. However, following the tentative decision of the International Accounting Standards Board (IASB) in late 2018, the effective date is likely to be postponed to at least 1 January 2022.

As the industry has begun to implement the Standard, a number of issues, both practical and theoretical in nature, have been raised. These issues have been brought to the attention of the IASB through the Transition Resource Group (‘TRG’), and also through industry bodies and groups such as the CFO Forum.

At its October 2018 meeting, the IASB agreed a set of criteria by which any proposed amendment to IFRS 17 would be assessed:

• Any amendment should not result in significant loss of useful information in respect of relevance and faithful representation, comparability and internal consistency and complexity and understandability; and
• Any amendment should not unduly disrupt implementations processes or risk undue delays to the effective date.

At the January 2019 IASB meeting, four of these issues were discussed and the IASB tentatively approved a number of amendments to the Standard. This paper by Milliman’s Thomas Bulpitt provides an overview of those amendments and the outcomes of the discussions.

Solvency II reporting timeline

With Solvency II reporting becoming routine for companies, the focus now shifts to improving regulatory reporting processes and meeting the earlier deadlines.

This year, the deadline for submission of the 2019 quarterly quantitative reporting templates (QRTs) is a week earlier than the equivalent deadline in 2018 and the deadline for submission of the annual reporting requirements is two weeks earlier. In this briefing, Milliman’s Patrick Meghen and Ellen Matthews provide the timeline summarising the reporting requirements in 2019 for both solo entities and groups (assuming a year-end reporting date of December).

EIOPA proposes changes to Solvency II and the IDD on climate change and sustainability for life and non-life insurers

EIOPA’s consultation paper on the formal integration of sustainability risks into both Solvency II and the Insurance Distribution Directive (IDD) details a number of proposed changes to regulation which may lead to challenges for insurers. The consultation closed to responses on 30 January 2019 and technical advice to the European Commission is expected by the end of April.

Of particular interest are the following three changes which have been proposed to the Solvency II Delegated Regulation:

1. The risk management function would explicitly be required to have a role in identifying and assessing sustainability risks.
2. The actuarial function opinion on the underwriting policy would need to address sustainability risks.
3. Sustainability risks would be integrated into the requirements governing investments under the ‘prudent person principle.’

This latest consultation is part of the wider package of measures on sustainable finance which the European Commission adopted in May 2018. EIOPA has also issued a call for evidence to collect information from insurers regarding the integration of sustainability risks in the assessment of assets and liabilities. EIOPA will prepare its draft opinion to the European Commission on sustainability within Solvency II for consultation during the second half of 2019.

The Commission’s request for advice from EIOPA includes various wider Solvency II aspects. For example, the opinion should also highlight where the calibration of the standard parameters in the market risk module of the standard formula do not sufficiently account for sustainability factors, with particular regard to the climate risk that insurers are exposed to via their investments and how it should be addressed.

What is meant by sustainability risk?

While there is no universal definition of sustainability risk for insurers, we see this risk as having two key aspects:

1. It is the specific risk (mainly to non-life insurers) of additional claims brought about by increased incidence of environmental events or natural disasters.
2. It is the more general risk associated with having business models and/or investments that fall outside of the definition of ‘sustainable,’ and that are therefore threatened by events, market forces and new regulation that arise as a result of a general shift towards sustainable investments and business models.

Sustainable investments can be defined as investments in an economic activity that contribute to an environmental, social or governance (ESG) objective1. Sustainability risks stem from these ESG factors and could affect both the investments and the liabilities of insurers.

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Milliman actuary named first ever US-based Independent Expert after Oklahoma passes Insurance Business Transfer Act

Milliman today announced that Stephen DiCenso, FCAS, MAAA, has been appointed as the country’s first Independent Expert (IE) following the passage of Oklahoma’s Insurance Business Transfer Act. Effective as of November 1, 2018, the Insurance Business Transfer Act is the broadest legislation of its kind to-date in the United States.

An insurance business transfer (IBT), which is subject to state insurance regulatory and court-sanctioned review and approval, allows insurers with run-off business to transfer that business to another entity without obtaining shareholder consent. IBTs create considerable flexibility and financial security, and can help eliminate uncertainty, reduce administrative expense, simplify regulation, and free up capital for more profitable enterprises. Oklahoma’s IBT legislation applies to life, health, and property-casualty liabilities, and is open to both run-off and active books of business.

Modeled after an approach that has been successful in Europe, US actuaries are ideally suited to serve in the role of IE, as they possess the education and training needed to ensure policyholders involved in these IBTs are protected and treated fairly.

“I am proud of my work as co-author of the Insurance Business Transfer (“IBT”) Act, while a member of the Oklahoma House of Representatives. Now as the Oklahoma Insurance Commissioner, I am committed to an efficient and transparent approval process,” stated Commissioner Glen Mulready.

“I’m honored to serve as the country’s first Independent Expert following Oklahoma’s success in creating a market for insurance business transfers,” said DiCenso, a principal and consulting actuary with Milliman. “The US runoff market is estimated to be $350 billion for non-life insurance, and could reach $1 trillion when factoring in life insurance and long-term care. There are major financial implications for US-based insurers of all types.”

To learn more about Oklahoma’s IBT Act and the role of the IE, click here.

Milliman wins two InsuranceERM awards with latest European insurtech offerings

Milliman is pleased to announce that it has won two 2018-2019 InsuranceERM Awards for the firm’s insurtech offerings. Milliman Mind, a cloud-based platform which automatically converts Excel spreadsheets to more powerful models, was named “Best end-user computing risk management solution,” while Milliman CHESS (Cloud Hosted Economic Scenario Simulator), a cloud-based ESG web application, has won in the “Best ESG Software” category. Both insurtech products demonstrate the firm’s ability to solve important industry problems by pairing Milliman’s subject matter expertise with innovative thinking and solutions.

“Model risk is a unique and rapidly developing area of Enterprise Risk Management, thanks in part to the implementation of Solvency II and the focus on internal model validation,” said Pierre Miehe, director of the Milliman Mind teams. “Milliman Mind manages this risk by automatically converting Excel models into more powerful and robust C# models – allowing firms to continue to benefit from the ease of Excel model design, while improving efficiency, accuracy, and collaboration. We believe this is a powerful and valuable tool for both life and non-life insurers, and we’re thrilled it has been recognized by InsuranceERM as the best end-user computing risk management solution.”

InsuranceERM U.K. & Europe awards 2018-2019 are the most prestigious in the rapidly changing area of risk and capital management in the insurance sector. Senior industry experts from across Europe and the U.K. served as judges for the awards.

“More and more, insurers are looking for economic scenario generator (ESG) software that is not only rapid, but intuitive and user-friendly,” says Alexandre Boumezoued, one of the product leaders for Milliman CHESS. “As a cloud-based web application, Milliman CHESS can quickly run multiple, complex calibrations and intensive simulations while simultaneously ensuring instant deployment and maintenance of the solution – all via a web browser. This power and ease-of-use can greatly increase efficiencies for insurers, and we’re pleased to be recognized by InsuranceERM.” The Milliman CHESS team is led by Alexandre Boumezoued, Pierre-Edouard Arrouy, and Paul Bonnefoy in Paris.

Critical Point: Blockchain (Part 2)

In this episode of Critical Point, the second in a series on blockchain, Anders Larson and Shea Parkes dive into the technical side of blockchain. They discuss hashing and how it relates to bitcoin and other cryptocurrencies, and also discuss public key cryptography. In addition, Shea and Anders touch on the strengths and weaknesses of blockchain and potential applications.

To listen to the entire podcast, click here.