Tracker, Financial Services Regulation & Compliance - Insurance
CBI report on AML/CTF and financial sanctions in life assurance
On 8 March 2016, the Central Bank of Ireland (CBI) published a report on Anti-Money Laundering (AML)/Countering the Financing of Terrorism (CTF) and Financial Sanctions (FS) Compliance in the Life Insurance Sector in Ireland. Based on on-site inspections and off-site desktop reviews conducted during 2014/2015, the report identifies common weaknesses/deficiencies in a range of areas. Those areas include (a) adherence to AML/CTF and FS policies, (b) suspicious transaction reporting, (c) on-going customer/transaction monitoring, (d) adequacy of documentation related to current policyholders on-boarded prior to July 2010 and (e) policies and processes relating to outsourcing arrangements. The CBI also sets out practices which it expects firms to meet in order to achieve compliance. Notably, the CBI expects all regulated firms (not just life assurers) to consider the issues raised, and take them into account in their AML/CTF and FS frameworks.
Judgment in the Law Society of Ireland v MIBI appeal
On 2 March 2016, the Court of Appeal released its judgments in the case of The Law Society of Ireland v The Motor Insurers' Bureau of Ireland  IECA 60. The MIBI had appealed the High Court ruling that it was liable to pay out in respect of claims against persons who were insured with Setanta at the time of its entry into liquidation. The appeal was unanimously rejected. On the same day, Insurance Ireland released a statement reiterating its concerns that liquidation has become a viable option for imprudent insurers and its call for urgent legislative change on this issue. According to Insurance Ireland, the judgment will result in adding €90m in costs to the insurance sector; impacting pricing and creating uncertainty for the sector and customers.
CBI publishes Domestic Actuarial Regime and Related Governance requirements
On 9 March 2016, the CBI published its finalised Domestic Actuarial Regime and Related Governance Requirements under Solvency II. Amongst other matters, these require all (re)insurers to have an effective actuarial function in place (which is the responsibility of the Head of Actuarial Function (HOAF) - a PCF position). The CBI also highlights specific requirements that apply to sectors of the (re)insurance industry.
CBI warning – no insurance mediation services without authorisation
In the most recent edition of its Intermediary Times, the CBI warned that, while the Investment Intermediaries Act 1995 permits an individual to provide limited services under the 'full and unconditional responsibility' of an investment business firm; such permission does not exist under the European Communities (Insurance Mediation) Regulations 2005. Insurance intermediaries must be independently registered and compliant (including regarding professional indemnity insurance obligations and submission of regulatory returns).
CBI publishes latest Solvency II Matters Newsletter
On 29 March 2016, the CBI published its latest edition of Solvency II Matters. Among other matters, the newsletter (a) updated (re)insurers that the CBI had met with Charted Accountants Ireland to discuss the scope of auditing requirements for regulatory returns on or after 31 December 2016 and stated that the CBI is aiming to issue a public consultation paper in May 2016 with a view to finalising and implementing the requirements by September 2016, (b) reminded (re)insurers undertakings that the closing date for in-situ applications for the role of HOAF (PCF 48) is 31 May 2016, (c) discussed the issues raised by (re)insurance undertakings during workshops regarding regulatory reporting requirements and provided an update on the reporting requirements and (d) confirmed that the formal two week external testing period for the online reporting system (ONR) is planned to take place between 1 April and 14 April 2016. The newsletter also reminded (re)insurance undertakings that this was the final edition of the Solvency II Matters and will be replaced by a quarterly Insurance Newsletter from June 2016.
CBI publishes Consumer Research on Renewal of Private Health Insurance
On 11 March 2016, the CBI published its consumer research on the renewal of private health insurance. The main findings of the research concluded that annual renewal notices do not provide sufficient information to consumers to make informed decisions, the level of care offered differs by sales channel and a number of providers' websites do not offer consumers policies from their full range when recommending policies. As a result of this research, the CBI is requiring providers to enhance content and the presentation of information contained in policy renewal notices to (a) clearly explain to consumers that their policy will automatically renew on the same policy if they do not contact their insurer prior to their renewal date, and (b) encourage consumers to make contact during the renewal process to ensure the provider assesses if they are more suitable policies available. The CBI confirmed that there will be further supervisory work conducted in this area later in the year.
Notification Process for (Re)Insurance Undertakings
On 14 March 2016, the CBI published a Notification Process for (Re)Insurance Undertakings when Outsourcing Critical or Important Functions or Activities under Solvency II. The paper aims to assist undertakings in complying with their obligations under the European Union (Insurance and Reinsurance) Regulations, 2015. Solvency II does not require pre-approval from the CBI but prior-notification affords undertakings the opportunity to address any concerns which the regulator may have. The paper sets out the CBI's expectations with regard to the content, form and timing of the notifications. The level of due diligence undertakings are expected to engage in (prior to outsourcing) is also addressed. The paper applies to individual and group level notifications.
Insurance Ireland Chief Executive's Review - Annual Report 2015
On 14 March 2016, Insurance Ireland published the Chief Executive's review of the 2015 Insurance Ireland Annual Report. Among other things the review highlights: (a) how Insurance Ireland increased their advocacy capability through the appointment of their first ever Director of Government Affairs; (b) that Insurance Ireland responded to the joint CBI/Department of Finance consultation on a move towards full industry funding; and (c) how the Annual Report offers an outline of a small cross-section of the vast range of activities undertaken by Insurance Ireland on behalf of its members.
CBI's Director of Insurance Supervision speaks at European Insurance Forum
On 16 March 2016, the CBI's Director of Insurance Supervision, Sylvia Cronin, spoke at the European Insurance Forum held in Dublin. Among other things, Ms. Cronin highlighted (a) the implementation by the CBI of a bespoke model that allows for a proportionate amount of proactive supervision for companies with a Low impact rating; (b) that the CBI expects to see Boards/management actively direct the use of Solvency II risk management tools to assess risks faced in the operating environment; (c) the CBI was generally positive about the quality of recent Own Risk Solvency Assessment (ORSA) reports for higher risk firms and will expect more evidence of how risk management systems have affected strategy, decision making, product design and capital disposition in future reports; and (d) in relation to EIPOA's public consultation on Guidelines on product oversight and governance arrangements by insurance undertakings and insurance distributors, the CBI's Prudential Insurance Supervision Directorate will focus on manufactures of insurance products in Ireland (including cross border companies) prudentially supervised by the CBI.
CBI Presentation - Solvency II in Practice
On 30 March 2016, the CBI published Solvency II in Practice, a presentation given by the Deputy Head of Insurance of the CBI. The presentation consists of five sections under the following headings: (i) Recap on Solvency II; (ii) Regulatory Framework under Solvency II; (iii) Pillar I – Capital; (iv) Pillar II – ORSA; and (v) Pillar III – Reporting.
Central Bank updates Solvency II reporting and data processing material
On 11 March 2016, the CBI published a number of updates to its materials relating to National Specific Templates (NSTs) (i.e. reporting formats to be used for reporting to the Central Bank under Solvency II). These updates are highlighted in Appendix 1 of the accompanying document, CBI Solvency II NST Release Notes 1.0.1.
Decisions on equivalence of Bermuda and Japan – now in force
On 4 March 2016, Commission Delegated Decisions under Solvency II on the equivalence of solvency regimes in force in Bermuda and Japan were published in the Official Journal of the EU. These came into effect on 24 March 2016 (stated to apply retrospectively from 1 January 2016). Other than for captives and special purpose insurers, the Commission considers the Bermudan regimes regarding (a) reinsurance, (b) insurance activities and (c) prudential supervision of groups, fully equivalent for Solvency II purposes. For Japan, temporary equivalence has been granted for reinsurance activities (until the end of 2020) and provisional equivalence in respect insurance activities (for ten years from 1 January 2016).
EIOPA publishes monthly technical information
On 7 March 2016, the European Insurance and Occupational Pensions Authority (EIOPA) published technical information on the relevant risk free interest rate term structures with reference to the end of February 2016. Minor updates reflect, in particular, the market development of negative euro swaps. EIOPA also published technical information on symmetric adjustment of the equity capital charge with reference to the end of February 2016.
European Commission requests technical advice on IDD
On 3 March 2016, the European Commission published a letter to EIOPA requesting technical advice on certain aspects of the Insurance Distribution Directive (IDD). The Commission requires advice in relation to delegated acts to be adopted on issues including (a) product oversight and governance, (b) conflicts of interest, (c) inducements and (d) assessment of suitability and appropriateness of investment-based insurance products. EIOPA's advice (to include a cost/benefit analysis) is requested by 1 February 2017.
EIOPA speech on Solvency II implementation
On 3 March 2016, EIOPA published a speech delivered by its Chairman on Solvency II implementation and the challenges associated with it. Key points highlighted include that Solvency II seeks supervisory convergence and has three core aims. These are to (a) ensure application of regulation, (b) guarantee a level playing field and prevent regulatory arbitrage and (c) safeguard equivalent levels of policyholder protection, across Europe. The main challenges to implementation were identified as being (a) embedding and utilising the Own Risk and Solvency Assessment, (b) engaging with and understanding Solvency II public disclosure and (c) creation of a consumer-centric culture. EIOPA will assess implementation of Solvency II annually, until 2020.
Insurance Europe: exceeding OECD tax proposals could harm EU competitiveness
On 7 March 2016, Insurance Europe published a position paper on the European Commission's anti-tax avoidance package, which includes a proposed Anti-Tax Avoidance Directive (the ATA Directive). Insurance Europe comments on issues it views as important to the insurance sector. Amongst other matters, it calls for external and intra-group hybrid regulatory capital to be exempted from any additional tax burden. It also points out that, while the OECD BEPS recommendations included a "Public Benefit Project" relief (which would benefit insurers investing in certain such projects), the proposed ATA Directive does not include this.
Insurance Europe publishes response to Retail Financial Services Green Paper
On 21 March 2016, Insurance Europe published a press release highlighting the reasons for its response, published on 18 March 2016, to a consultation on the European Commission Green Paper on Retail Financial Services. Insurance Europe stated that the European insurance sector is embracing digitalisation to respond efficiently and in a timely manner to consumer demands and that digitalisation can provide significant benefits to policyholders. In its response, Insurance Europe outlined several areas where action by the European Commission would be welcomed and include (a) polices to ensure that consumers decide who has access to their data and for what purposes, (b) the development of an EU-wide compliance standard for e-ID providers to securely verify consumers' identity and (c) raising awareness of FIN-NET, a financial dispute resolution network of national out-of-court complaint schemes in the EEA countries.
European Commission overview of level 2 legislative measures for financial services
On 8 March 2016, the European Commission published a table that provides the date of adoption or, if as-of-yet unadopted, the planned year of adoption of level 2 financial services measures. Some of the level 2 measures to be adopted in relation to Solvency II include: (a) recovery plans and the finance scheme (Art.143 s.2); (b) enforcement measures in groups (Art.258 s.3); (c) qualified holdings - adjustments to L1 criteria, information to be notified & procedure for consultation (Art.58 s.8 & s.9); and (d) colleges - functioning (Art.248 s.6).
EIOPA paper on possible approach to low interest rate environment in the Solvency II context
On 23 March 2016, EIOPA published a paper on a potential macroprudential approach to the low interest rate environment in the Solvency II context. EIOPA explains how a prolonged low interest rate environment can raise challenges for insurance undertaking which, in turn, can threaten the stability of the financial system. In its paper, EIOPA proposes a macroprudential framework to deal with this low interest rate environment. According to EIOPA this is composed of: (i) a final objective (i.e. achieving a stable financial system); (ii) two intermediate objectives (i.e. mitigating the likelihood and impact of a systemic crisis); and (iii) three operative objectives to be targeted by authorities (i.e. Increasing the resilience of the insurance sector, limiting risky behaviour as insurers collectively "search for yield" and avoiding procyclicality). EIOPA goes on to define a set of Solvency II compatible instruments to address these operative objectives but says that it is still open to debate whether these instruments fully address the challenges posed by a low interest rate environment. As possible actions going forward EIOPA suggests intensified monitoring of ongoing risks by itself and National Supervisory Authorities (in the short term) and further enhancement and harmonisation of the recovery and resolution framework to minimise the probability of default (in the medium term).
EIOPA Guidelines on the supervision of branches of third-country insurance undertakings
On 30 March 2016, EIOPA published Guidelines on the supervision of EU/EEA branches of third-country life and non-life insurance undertakings. The guidelines aim to ensure, at a minimum, the same level of protection for policyholders of a branch of a third-country insurance undertaking as they enjoy when they are dealing with an insurance undertaking authorised in the EU.
For further information please contact a member of the Financial Regulation team.
Date published: 05 April 2016