Financial Services Regulation and Compliance - Insurance July 2022
Financial Services Regulation and Compliance - Insurance July 2022
Domestic: In domestic news, the CBI has published guidance for re-insurance undertakings in respect of intragroup transactions and exposures. The Insurance (Miscellaneous Provisions) Act 2022, has been commenced as of 7 July 2022. The CBI insurance quarterly newsletter has also been published; most notably addressing the results of the CBI questionnaire to stakeholders in respect of their exposures due to the Russian invasion of Ukraine.
European: In European news, EIOPA has published a staff paper on the proposal for an Insurance Recovery and Resolution Directive and a consultation paper on supervisory statement regarding non-life insurance differential pricing practices. Additionally EIOPA has published guidance on integrating the customer’s sustainability preferences in the suitability assessment under the IDD.
CBI: Guidance for (Re)Insurance Undertakings on Intragroup Transactions & Exposures
On 4 July 2022, the Central Bank of Ireland (the CBI) published a consultation paper on Guidance for (Re)Insurance Undertakings on Intragroup Transactions & Exposures (the guidance). The draft guidance seeks to 'level the playing field' for intragroup transactions and exposures in (re)insurance entities, though the CBI has noted that it does not introduce any new requirements. In particular, the draft guidance underlines the CBI's expectations that (re)insurers who deviate from the approach to intra-group transactions and exposures outlined in the guidance will be expected to explain their reasoning for doing so to the CBI, and any such deviation will require board approval. The consultation on the draft guidance runs until 22 September 2022.
Commencement of the Insurance (Miscellaneous Provisions) Act 2022
On 7 July 2022, Minister Fleming signed a Commencement Order enacting part of the long awaited Insurance (Miscellaneous Provisions) Act 2022 (the Act). The Act introduces amendments to various pieces of domestic insurance legislation, including:
amendments of the Insurance Regulations 2015, to give proper effect to the operation of the Temporary Run-off Regime for UK-authorised insurers
amendments to the Consumer Insurance Contracts Act 2019 (CICA), imposing an obligation on insurers to disclose deductions from claims settlements to consumers and granting additional powers to the CBI to collect data about the deduction of state payments from settlements of certain insurance claims for the purposes of the National Claims Information Database (NCID)
other technical amendments to CICA, including to section 18(4) relating to the effect of fraud on innocent co-insureds, and clarifying on the scope of information to be disclosed under section 16
While the majority of the Act is now in effect, the amendments outlined at (2) above will come into effect on 1 January 2023. You can find a more detailed commentary on these changes in our recent article.
CBI Insurance Quarterly Newsletter
The CBI recently published its Insurance Quarterly Newsletter for Q2 2022. Key matters addressed include the results from the CBI's self-assessment questionnaire issued to stakeholders on their exposures arising from the Russian invasion of Ukraine and the Second Annual Report of the NCID. The newsletter also features several industry updates at a European level, including the publication of EIOPA's Annual Report 2021. Looking ahead, the newsletter reminds readers that the outsourcing register submission to aid the identification of critical service providers is expected to issue in early Q3.
EIOPA publishes revised guidelines on contract boundaries and valuation of technical provisions
Following its final report issued in April, the European Insurance and Occupational Pensions Authority (EIOPA) published on 6 July 2022, its revised guidelines on contract boundaries and the valuation of technical provisions. The revised guidelines provide guidance to (re)insurers regarding certain obligations and requirements under Solvency II and the Commission Regulated Delegation and are to be considered alongside the existing guidelines on contract boundaries and valuation of technical provisions. The revised guidelines will apply from 1 January 2023.
EIOPA publishes monthly technical information for Solvency II risk-free interest rate term structures
On 5 July 2022, EIOPA published monthly technical information on the relevant risk free interest rate term structures with reference to the end of June 2022. This technical information is used for the calculation of technical provisions for (re)insurance obligations.
EIOPA publishes consultation paper on supervisory statement regarding non-life insurance differential pricing practices
On 11 July 2022, EIOPA published a consultation paper seeking stakeholder views on a draft supervisory statement regarding non-life insurance differential pricing practices. The draft supervisory statement is intended to strengthen consumer protection by preventing unfair treatment of consumers and promoting convergence in the supervision of differential pricing practices through adequate product oversight and governance (POG) processes. EIOPA expects that non-life insurers using differential pricing practices to demonstrate they have adequate POG measures in place to ensure the fair treatment of consumers and the mitigation of consumer risks. Stakeholders are invited to provide feedback on the consultation paper by 7 October 2022.
EIOPA publishes guidance on integrating the customer’s sustainability preferences in the suitability assessment under the IDD
On 20 July 2022, EIOPA published its guidance on integrating the customer’s sustainability preferences in the suitability assessment under the Insurance Distribution Directive. The guidance follows a public consultation held by EIOPA earlier this year on draft guidelines on customers' sustainability preferences. Following the consultation, EIOPA decided to pause its work on issuing the guidelines in order to focus on providing competent authorities, insurers and insurance intermediaries with simpler, more user-friendly guidance in advance of the application of Commission Delegated Regulation (EU) 2021/1257 on 2 August 2022.
EIOPA: Peer review on outsourcing - final report of the review by peers
On 19 July 2022, EIOPA published its report following the peer review it led alongside several National Supervisory Authorities (NSAs) considering NSA frameworks relating to the supervision of services and/or activities outsourced by (re)insurers. Among its key takeaways, the report targets NSAs with recommended actions in areas that require improvement. In respect of the CBI, it was identified as an authority with a "robust" notification assessment system as well as intensive ongoing supervision but did need to make improvements, predominantly in relation to document and information management. EIOPA will monitor and assess relevant NSAs and their compliance with the recommendations made.
United States and European Union Hold Fifth Joint Committee Meeting under the Bilateral Agreement on Prudential Measures Regarding Insurance and Reinsurance
The United States and the European Union held the fifth meeting of the Joint Committee on Bilateral Agreement on Prudential Measures Regarding Insurance and Reinsurance on 14 July 2022. The agreement, which was signed by the United States and the European Union on 22 September 2017, entered into force on 4 April 2018. The agreement covers three areas of prudential oversight – reinsurance, group supervision and co-operation between supervisory authorities regarding the exchange of insurance information. During the Joint Committee meeting, both sides provided updates on the implementation of the agreement and reaffirmed their commitment to continual review of progress on the agreement.
EIOPA staff paper on the proposal for an Insurance Recovery and Resolution Directive
On 6 July 2022, EIOPA published a staff paper providing an overview of the proposal for an Insurance Recovery and Resolution Directive (the IRRD) put forward by the European Commission in September 2021. EIOPA believes that the proposal includes all the relevant building blocks of a solid framework taking into account the insurance-specific features. A few of the main benefits of the IRRD noted by EIOPA are:
the creation of one single framework across the EU which seeks to minimise the potential impact on policyholders in case of insurance failure
the appointment of resolution authorities with specialised knowledge of insurers and resolution processes
the promotion of preventive planning with the underlying idea that crisis prevention is less expensive and more effective than crisis management
Sanctions imposed in response to the crisis in the Ukraine
Since February, the EU imposed a number of sanctions in response to the crisis in the Ukraine. Given that the crisis is developing and sanctions are continuing to evolve, the CBI is publishing details of new restrictive measures/sanctions that are adopted in this regard, as well as any associated EU/UN guidance, on their dedicated webpage.