The Central Bank of Ireland (CBI) has just published its Regulatory & Supervisory Outlook Report 2025.

As part of the new supervisory approach introduced by the CBI in January, Insurance is one of the three overarching industry categories (which covers domestic life and non-life insurance, reinsurance and international insurance). The Report notes that the majority of Irish (re)insurers are subsidiaries in large international groups and that the sector remains very internationally oriented, with c.70% of gross premiums in the 12 months to September 2024 coming from over 70 countries.

Key risks

Based on the Report, the key risks for the Irish (re)insurance sector for 2025 are:

1. Financial risks and resilience – the CBI notes that the (re)insurance sector has proved resilient through recent geopolitical crises and the on-going effects of increased inflation and interest rates, due to the fundamentals of pricing and underwriting discipline, reserving and capital adequacy. However, it notes possible liquidity challenges (in event of confluence of extreme events and exposure to illiquid assets), while stating that credit and counterparty risks remain stable given limited exposure for (re)insurers to direct lending and that 90% of bond assets held by (re)insurers are investment grade. Direct exposure to private debt, property and equity-type investments remains small. From a consumer perspective, the CBI also emphasises the risk of consumer detriment arising from underinsurance in the life and home insurance sectors due to the impact of inflation.
2. Culture, governance and risk management – the CBI flags the risk of poor or unfair consumer outcomes where their best interests are not central to decision making throughout the product lifecycle.
3. Business model and strategic risks -the CBI sees increasing risks for the (re)insurance sector due to rapid growth and expansion into new product areas or geographies, where these are not underpinned by strong technical, operational and risk management capabilities. The need for adequate substantive local presence and board oversight is also emphasised, noting that in times of stress, assistance from other parts of an insurers group may not be available.
4. Operational risks and resilience – the CBI sees this as a severe, increasing risk for all regulated firms, due to increase reliance on third parties (such as cloud service providers) and cyber threats. In the (re)insurance sector, the CBI notes that reliance on legacy IT systems or manual processes also represent a risk for the sector. While cyber risk can be mitigated by insurance cover, stricter underwriting criteria and increasing claim costs could lead to insurance protection gaps for cyber risk.
5. Climate and other environmental risks – flagged as an increasing risk by the CBI for all regulated firms. However, (re)insurers have direct exposure to physical, transition and litigation risks from climate change. In addition, increasingly extreme climate events may affect the affordability and availability of insurance cover (and reinsurance capacity, terms and pricing), resulting in increased protection gaps that weaken financial resilience, affect property values and cause disruption to critical infrastructure. In Ireland’s case, flood risk is particularly relevant – the CBI’s Flood Protection Gap Report highlighted the existing flood risk protection gap, which is set to grow in future. 

Artificial intelligence

The Report also casts a spotlight on the impact of AI on regulated firms. The CBI expects to be designated as a market surveillance authority (MSA) under the AI Act by the Irish government in relation to life and health insurance risk assessment and pricing. The CBI notes that the use of AI is already gaining traction in personal lines and pricing in the (re)insurance sector, as well as underwriting and reserving. While the AI Act is a complex piece of cross-sectoral legislation involving numerous supervisory authorities, the CBI states that the tasks to be carried out by MSAs will need to align with the existing body of regulation for (re)insurers.

Intermediaries

In relation to insurance intermediaries, the CBI notes the risk of conflict of interests which is inherent in the remuneration model in the intermediary sector, and the need for effective disclosure to consumers of key information regarding product risks and remuneration. Taken together with a renewed focus on value for money questions, it would seem this will be an area of clear focus for the CBI in 2025. See also our previous article on the EIOPA Methodology on Value for Money Benchmarks for further details of how the CBI might assess value for money questions for unit-linked products.

Related Insights

Central Bank introduces its New Supervisory Approach

Central Bank Regulatory & Supervisory Outlook 2025: Banks, Payment and E-Money Firms, Retail Credit Firms, Investment Firms and Securities Markets – Arthur Cox LLP

Central Bank’s Regulatory & Supervisory Outlook 2025: Funds Sector Impact

To discuss the Report in more detail, please get in touch with your usual contact in our Financial Regulation, Asset Management and Investment Funds and Insurance groups.