Financial Services Regulation and Compliance - Insurance Sept 2021

Domestic

CBI publishes Quarterly Insurance Newsletter

On 15 September 2021, the Central Bank of Ireland (CBI) published the latest issue of its Insurance Quarterly Newsletter. Updates on recovery planning for (re)insurance undertakings, a review of the use of telematics in the private motor insurance sector and the CBI's differential pricing review are among the topics covered in the newsletter. An update on sustainable finance incentives relevant to the insurance sector is also provided.

CBI updates its COVID-19 Regulated Firms FAQ Guidance

On 27 September 2021, the CBI updated its COVID-19 Regulated Firms FAQ. The CBI has decided to modify its expectation of (re)insurance firms regarding distributions and variable remuneration, with effect from 1 October 2021. This follows the decision of the European Systemic Risk Board (ESRB) to allow its Recommendation of 15 December 2020 on dividend distributions during the pandemic (ESRB/2020/15) to expire at the end of September 2021.

The CBI continues to expect all (re)insurance firms and their boards to exercise prudence in respect of dividend distributions, share buy-backs or other similar transactions, and variable remuneration. (Re)insurance firms are expected to carefully assess the impact of such proposed distributions on their financial resilience and, in particular, their solvency and liquidity positions on a forward looking basis. The CBI expects (re)insurance firms to continue to notify their supervisors in advance of any proposed dividend distributions, share buy-backs or other similar transactions. The CBI will adopt a risk-based approach in determining if further information is required from firms. Where no communication is received from the CBI within 30 days of the notification, the firm is free to proceed with the dividend distribution.The CBI will continue to keep this position under review and may update it at a later date.

CBI publishes speech given by Director General of the Central Bank of Ireland Derville Rowland

On 29 September 2021, the CBI published a speech given by its Director General, Derville Rowland at the Deloitte 2022 Insurance Industry Trends event. In her speech, the Director General addressed the position of the insurance sector in Ireland, the effect of the COVID-19 pandemic, and the CBI's expectations of the sector into the future. The CBI's current regulatory priorities, including an emphasis on conduct, culture and customer treatment, particularly around Business Interruption Insurance and Differential Pricing were also discussed. Looking to the future, the Director General addressed the challenges facing the sector in the years ahead, including climate change and increased digitalisation.

European

EIOPA updates representative portfolios to calculate volatility adjustments to the Solvency II risk-free interest rate term structures

The European Insurance and Occupational Pensions Authority (EIOPA) has published updated representative portfolios to be used for calculation of the volatility adjustments (VA) to the relevant risk-free interest rate term structures for Solvency II.

Commission Delegated Regulation amending the regulatory technical standards laid down in Commission Delegated Regulation (EU) 2017/653 published

This recently published Delegated Regulation amends Delegated Regulation (EU) 2017/653 on regulatory technical standards by setting out, in particular:

• new methodologies underpinning the calculation of appropriate performance scenarios and a revised presentation of these scenarios
• revised summary cost indicators and changes to the content and presentation of information on the costs of packaged retail and insurance-based investment products (PRIIPs)
• a modified methodology underpinning the calculation of transaction costs to address practical challenges that have arisen when applying the existing rules and issues regarding the application to certain types of underlying investments
• modified rules for PRIIPs that offer a range of options for investment to ensure more clarity of the information on their cost implications

EIOPA publishes the criteria for the independence of supervisory authorities

On 13 September 2021, EIOPA published its criteria for assessing the independence of supervisory authorities. EIOPA emphasised that the independence of supervisory authorities is crucial for the legitimacy and credibility of the supervisory process. EIOPA has devised four principles to provide clarity on its expectations of supervisory authorities regarding independence and these four principles are:

1. operational independence
2. accountability and transparency
3. financial independence
4. personal independence

EIOPA intends to publish a report providing an analysis of the independence of supervisory authorities in line with the four principles detailed above.

European Commission publishes communication to the European Parliament and the Council on the review of the EU prudential framework for (re)insurers in the context of the EU’s post pandemic recovery

On 22 September 2021 the European Commission (the Commission) published its communication to the European Parliament and the Council on its review of the EU prudential framework for (re)insurers in the context of the EU’s post pandemic recovery. The Commission outlined that the review aims to;

1. provide incentives for insurers to contribute to the long-term sustainable financing of the economy
2. improve risk-sensitivity and proportionality
3. mitigate excessive short-term volatility in insurers’ solvency positions
4. enhance quality, consistency and coordination of insurance supervision across the EU, and improve the protection of policyholders and beneficiaries, including when their insurer fails
5. better address the potential build-up of systemic risk in the insurance sector
6. improve preparedness for extreme scenarios that may make recovery or the resolution of a failing (re)insurer necessary

In relation to sustainability, the Commission confirmed that it took into account a separate opinion from EIOPA on this topic and in line with that opinion, proposes to amend risk management requirements for (re)insurers by adding an obligation in relation to long-term climate scenario analysis. Following this review, the Commission is putting forward legislative proposals to amend the Solvency II Directive and create a resolution framework for insurers (as further described in article entitled "European Commission publishes proposal for a Directive of the European Parliament and of the Council amending the Solvency II Directive" below).

EU Proposal for new Insurance Recovery and Resolution Directive

On 22 September 2021, the Commission published a proposal for a new Insurance Recovery and Resolution Directive (the proposed Directive). The proposed Directive aims to address the absence of harmonised procedures at European level in the event of a (re)insurer failing, especially in a cross-border context. A minimum harmonised set of tools and powers are included in the proposed Directive and national resolution authorities are designated in each Member State. The next step is for the European Parliament and the Member States in the Council to negotiate the final legislative text on the basis of the Commission’s proposed Directive.

European Commission publishes proposal for a Directive of the European Parliament and of the Council amending the Solvency II Directive

On 22 September 2021 the Commission published its proposed directive amending the Solvency II Directive in relation to a number of key areas, including proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, group and cross-border supervision.

The Commission proposes a number of amendments to Solvency II Directive including:

• proportionality – amending the scope of the Solvency II framework to exclude certain smaller undertakings
• reporting – modifications to reporting requirements for low risk profile undertakings and to the structure of the Solvency and Financial Condition Report by undertakings and group;
• supervision – amending certain aspects of the principles relating to group supervision and the supervision of cross-border insurance business
• European Green Deal – introducing new requirements in relation to climate scenario analysis and sustainability risks
• long-term guarantee measures – amending aspects of the Solvency II framework in relation to long term guarantee measures

The European Parliament and the Council will discuss the Commission's proposed directive in the coming months.

For more information on these topics please contact any member of A&L Goodbody's Insurance & Reinsurance team.

Date published: 18 October 2021