The future reforms covering the insurance sector

Common wisdom has it that The sector lag and are less burdensome than regulations covering banking. To be revisited and tested in 2022 where major reforms await implementation: IFRS 17, updates of the Insurance distribution directive and CAA circulars on key functions, outsourcing, governance and remote working.

IFRS 17 will fundamentally change the way insurance companies measure, recognise and present revenues derived from insurance contracts and investment contracts. IFRS 17 replaces IFRS 4, which currently permits a wide variety of practices. Applicable as from fiscal year 2023, IFRS  17 will have wide ranging impacts, including on the tax position and the IT systems of the reporting entity which will need to conduct a gap analysis and impact assessment, as well as devise a detailed implementation plan.

CAA circular 21/12 on key functions takes its base on Solvency II and relevant provisions of the law of 7 December 2015 on the insurance sector, as well as guidelines published by EIOPA.  Parts of the Circular already became applicable late last year.

CAA Circular 22/15 on the Board of Directors of (re) insurance companies was published on 26 July 2022 (you may have missed it while on vacation!) after a period for comments opened in April. The Circular brings useful clarifications, guidelines and rules on topics such as the definition of executive v. non-executive directors, criteria to be considered an independent board member, required skillset of individual board members and of the board collectively, the composition of the board and desired number of independent members, functioning of the board and self-evaluation, board committees and their composition, duties and responsibilities of the board of directors, including approval of outsourcing and investment policies. In a twist of normal governance rules, the Circular foresees that the board of directors should ensure that shareholders holding a qualifying interest in the (re)insurance undertaking are of good repute and financially sound. Any doubt in this respect is to be reported to the CAA.

CAA Circular 22/16 on outsourcing was published on 19 August 2022 (you may also have missed that one during the hot summer), complementing the recent CAA circular on cloud computing. The Circular lays down in detail the analysis and due diligence to be performed at all levels of the organization to vet outsourcing agreements covering key functions, operations and other activities, all of which need to be kept in an up-to-date register. Interestingly, the same level of diligence is required for outsourcing to third parties than outsourcing to an affiliated company.

Also in August, the CAA published note 22/9 to make actors aware of the existing (SFDR, NFDR, taxonomy) and forthcoming (CSRD) regulatory texts governing sustainability in the insurance sector. The CAA expects undertakings to verify the scope of each text with respect to the undertaking’s business, size, and nature, implement measures to effectively meet the applicable requirements and be able to respond to ad hoc requests of the CAA.

On the heels of the CSSF, the CAA is working on a Circular on remote working, which staff members of many undertakings want to see institutionalized post Covid. To top-up the regulatory oversight and compliance, some (re)insurance undertakings have to prepare CAA on-site inspections or perhaps even an interview with the FATF!

Enough material and activity hence to keep boards busy. All interested parties wanting to know more about the above topics are encouraged to attend the second Forum for directors of (re)insurance companies organised by ILA on October 27 this year. Indeed, fellow board members, insurance CEO’s and insurance practitioners will share knowledge and insights with the participants on that occasion.

The Partners of The Directors’ Office are managers or directors in a variety of sectors, including the insurance sector. Information and experience are shared amongst us as we find that there are many commonalities across sectors. 

These thoughts were provided by David Arendt, Partner at The Directors' Office.