Tracker, Financial Services Regulation & Compliance - Insurance

CBI publishes Solvency II Information Notes

The Central Bank of Ireland (CBI) has published a number of Solvency II Information Notes in recent weeks.  The first of these (Note 1) outlined its approach to application processes for approvals regarding internal models and own funds.  The CBI is accepting applications from 1 April 2015 in this regard. In the case of internal models, the CBI has a six month period to assess.  Note 3 (published on 13 March 2015, supplementing Note 1) outlines the approval process for the matching adjustment, volatility adjustment and transitional measures on the risk free interest rate and technical provisions. Finally, Note 2 relates to the preparatory reporting phase for Solvency II.  Amongst other matters, it reminds High and Medium impact insurers of their Solvency II preparatory reporting obligations for 2014 data and invites firms to participate in a reporting test cycle on the online reporting system.

CBI FAQ on reserving requirements (non-life insurers, and reinsurers)

On 25 March 2015, the CBI published a 'Frequently Asked Questions' (FAQ) document regarding its Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers published in May 2014. Many of the FAQs relate to the signing actuary's position and role. Additionally, the FAQ document provides clarifications regarding (a) the format of the Statement of Actuarial Opinion for life reinsurers and (b) circumstances in which deviations may be permitted from standard SAO wording.

CBI publishes latest edition of Solvency II newsletter

The CBI recently published the latest edition of its Solvency II newsletter.  Amongst other matters, the newsletter highlights that (a) the CBI intends to publish a final position paper regarding Solvency II reporting templates in early April and (b) that all Irish-authorised (re)insurers subject to Solvency II must obtain a legal entity identifier code (or LEI, which is a unique code to be used for reporting purposes) and confirm the details to the CBI by 30 June 2015.  Notably, the newsletter also states that the CBI will host a Solvency II industry event on 20 April 2015.

Competition and Consumer Protection Commission - motor survey

On 24 March 2015, the Competition and Consumer Protection Commission published a motor insurance comparison survey.  This compared quotes received (using nine varying driver profiles) from eight providers of such insurance. Significant variations were highlighted in the quotes provided, in particular in relation to comprehensive cover and third party fire and theft. Only two of the insurers provided a quote where a driver had six penalty points. A detailed breakdown of the survey results is available on the Commission's website.

Insurance Ireland Annual Report published

On 12 March 2015, Insurance Ireland published its annual report for 2014. The accompanying press release stated that the organisation made positive progress during 2014 on behalf of members in areas including advocacy, regulation and insurance fraud. The report includes overviews of its work in each of the life, general, international and health insurance sectors.

EU & International


Solvency II – Commission Implementing Regulations on ITS

On 20 and 25 March 2015, six Commission Implementing Regulations (2015/460, 2015/461, 2015/462, 2015/498, 2015/499 and 2015/500) setting out implementing technical standards (ITS) in respect of Solvency II were published in the Official Journal.  Aspects of Solvency II covered by the Regulations are processes for approval by national supervisors regarding (a) internal models, (b) group internal models, (c) specified purpose vehicles, (d) undertaking-specific parameters, (e) ancillary own fund items and (f) matching adjustments.  In each case, the Regulations came into force on the day following their publication in the Official Journal.

Solvency II – EIOPA review of Commission Delegated Regulation

The European Insurance and Occupational Pensions Authority (EIOPA) recently published a call for advice (dated 4 February 2015) received by it from the European Commission.  This requested that EIOPA explore how the Solvency II Commission Delegated Regulation (EU/2015/35) (CDR), which came into effect on 18 January 2015, might be amended with respect to calibrations for risk charges on equity/debt investment in the standard formula. The Commission's request states that existing calibrations do not account for the specific nature of infrastructure investments. Subsequently, on 27 March 2015, EIOPA published a discussion paper on such investments. EIOPA has invited comments by insurers (until 26 April 2015). EIOPA aims to provide advice to the Commission during the summer.

EIOPA publishes Solvency II risk-free interest rate term structures

On 28 February 2015, EIOPA published technical information and documentation in relation to the risk free interest rate (RFIR) (which may be used as part of the process of discounting technical provisions under Solvency II).  From January 2016, EIOPA will publish monthly RFIR information (taking into account factors such as market interest rates).  Technical information and documentation in relation to the RFIR is being made available at this stage to facilitate firms' Solvency II preparations. 

EIOPA publishes final reports on Solvency II equivalence assessments

On 11 March 2015, EIOPA published final reports (dated 30 January 2015) on third country equivalence assessments for Bermuda, Switzerland and Japan under Solvency II. The reports have been (a) adopted by the Board of Supervisors of EIOPA and (b) submitted to the European Commission. EIOPA expects that the reports will enable the Commission to take decisions (during 2015) as to whether the regimes concerned are equivalent for the purpose of Solvency II.

EIOPA update on symmetric adjustment of Solvency II equity capital charge

On 6 March 2015, EIOPA published technical information on the symmetric adjustment of the equity capital charge for Solvency II.  The aim of this is to assist insurers in calculating their solvency positions as at the end of February 2015. This information will be updated on a monthly basis, based on the behaviour of an equity index built by EIOPA exclusively for that purpose.

EIOPA launches web-section dedicated to investments in infrastructure projects

EIOPA recently issued a press release noting that it has dedicated a section of its website to investments in infrastructure projects by insurers.  EIOPA will consider the question of how to define acceptable infrastructure investments (including by reference to the presence of foreseeable longer-term cash-flows and the capacity for such investments' risks to be determined and handled by insurers) and assess the potential criteria that might be applied to evaluate them for that purpose.  EIOPA intends to provide its recommendations to the European Commission during the summer.

Insurance Europe - concern about Solvency II Implementing Technical Standards (ITS) and guidelines

On 5 March 2015, Insurance Europe issued a press release indicating concern in relation to the second set of Solvency II ITS and guidelines published for consultation by EIOPA in December 2014. Key points highlighted include the very short timeframe available to implement the extensive reporting requirements (due to late finalisation of the reporting package); and the consequent desirability of allowing for certain simplifications and gaps in reporting during the first year of implementation.  Additionally, while Insurance Europe recognises the need for guidelines, it believes that there is scope for, amongst other matters, eliminating certain of the guidelines.

EIOPA updates risk dashboard

On 20 March 2015, EIOPA published its updated quarterly risk dashboard, based on data provided by certain large insurance groups for Q4 of 2014.  This indicates that the risk environment facing the insurance sector remains challenging.  Specific points highlighted include that (a) while the macro-economic outlook has slightly improved, there is uncertainty around deflationary trends and Eurozone stability, (b) profitability challenges remain (particularly for life assurers) and (c) in 2014, insured losses were at their lowest levels since 2009.   The dashboard also notes that, while Solvency I figures are still robust, the recent EIOPA stress test found that 14% of participants would have a solvency capital requirement ratio below 100% on a Solvency II basis. 

EIOPA reports on follow-up to peer reviews on pre-application of internal models

On 20 March 2015, EIOPA published a report (dated 17 December 2014) describing the progress made during 2014 by national supervisors and EIOPA in relation to pre-application of internal models. According to the report, the vast majority of recommendations made by national supervisors as part of EIOPA's peer review process have been actioned. Those remaining are planned to be implemented by 2015. The report concludes that national supervisors' approaches concerning the pre-application process are converging following the peer reviews:- (thereby mitigating risks of supervisory arbitrage).

EIOPA publishes responses to consultation on draft Solvency II Implementing Technical Standards and guidelines

On 19 March 2015, EIOPA updated the consultation section of its webpage to include responses received to its December 2014 consultation on a second set of draft ITS and guidelines for Solvency II. The consultation period ended on 2 March 2015.

ESAs – consultation on draft Implementing Technical Standards (ITS) (credit quality steps under Solvency II)

On 6 March 2015, the Joint Committee of the European Supervisory Authorities published a consultation on new draft ITS concerning credit assessment of external credit assessment institutions on an objective scale of credit quality steps under Solvency II. Such assessments are to be utilised in the calculation of the solvency capital requirement.  It is intended that the methodology should mirror the approach proposed by the EBA for banking as closely as possible.  Responses are invited by 10 April 2015.

Insurance Europe publishes report on indirect taxation on insurance contracts

On 19 March 2015, Insurance Europe published an updated booklet on indirect taxation on insurance contracts in Europe.  The report provides a guide to indirect taxation on insurance contracts in Insurance Europe member's countries.  For each country which imposes such taxation, a table is provided showing the types of risks covered (and exempt from) taxation together with a summary of the country's general insurer taxation rules.

EIOPA - updated Solvency II data point model and XBRL taxonomy

On 6 March 2015, EIOPA published its updated data point model and XBRL preparatory taxonomy (v1.5.2.c) which includes corrective changes to the data point model. A planning timeline for development of the taxonomy was also published. This includes publication of further working drafts and possible revisions.

EIOPA consultation – Implementing Technical Standards on information exchange between supervisors

On 27 March 2015, EIOPA published a consultation paper on draft ITS regarding procedures/templates for (a) reporting to the group supervisor and (b) exchange of information between supervisory authorities, under Solvency II. EIOPA has asked (re)insurance stakeholders for comments by 22 May 2015. The ITS will be sent to the European Commission by 30 June 2015 for final approval.

Solvency II co-ordination arrangements signed for colleges of supervisors

On 27 March 2015, EIOPA issued a press release announcing that co-ordination arrangements had been signed in relation to colleges of supervisors of insurance groups with internal models. In the press release, EIOPA notes that colleges are instrumental to the shift from regulation to supervision and that the co-ordination arrangements are an important step in introduction of Solvency II.

EIOPA advice - Solvency II recovery plans and finance schemes

On 27 March 2015, EIOPA published finalised advice to the European Commission regarding proposed content of delegated acts in relation to Solvency II recovery plans (in cases of non-compliance with the solvency capital requirement) and finance schemes (in cases of non-compliance with the minimum capital requirement). The advice also identifies supervisory measures which can be taken in cases of deteriorating financial condition. These include measures aimed at reducing an undertaking's risk profile or limiting a reduction of financial resources, imposing additional reporting requirements, reorganisation measures and cancellation of authorisation.

Insurance Europe raises concerns regarding IFRS implementation

On 10 March 2015, Insurance Europe published a joint letter from it and the European Insurance CFO Forum to the European Financial Reporting Advisory Group (EFRAG).  The letter highlights concerns over the differing likely implementation timelines for (a) the International Financial Reporting Standards (IFRS) 9 for financial instruments and (b) IFRS 4 Phase II for insurance contracts.  The letter states that IFRS 4 Phase II will not be ready by the implementation date for IFRS 9 in January 2018. The letter comments that, where insurers are required to use IFRS 9 before IFRS 4 Phase II is implemented, this will cause confusion and greater costs for insurers. The letter recommends that a solution is found to align the relevant implementation dates.

Insurance Europe responds to EIOPA on PRIIPs product intervention powers

On 2 March 2015, Insurance Europe published its response to EIOPA's consultation on product intervention powers under the packaged retail and insurance-based investment products (PRIIPs). Key points highlighted include that, in Insurance Europe's view, EIOPA’s final advice to the European Commission should clarify that the intervention powers conferred on EIOPA and the national supervisors must only be invoked in exceptional circumstances.

Responses to IAIS consultation on Insurance Capital Standard

On 9 March 2015, the International Association of Insurance Supervisors (IAIS) published a compilation of non-confidential responses to its recent consultation on a risk-based global Insurance Capital Standard (ICS). Respondents include EIOPA, Insurance Europe, and the UK PRA. 

Insurance Europe comments - Cross Selling Guidelines and Regulation on EFSI

On 23 March 2015, Insurance Europe published a response to the consultation on draft Guidelines for regulating cross-selling practices in the financial sector (issued by the Joint Committee of the European Supervisory Authorities). Insurance Europe highlighted concerns, including that the guidelines address points which are not specific to cross-selling. On 17 March 2015, Insurance Europe published a position paper on the European Commission's proposal for a Regulation on the European Fund for Strategic Investment (EFSI).  Amongst other matters, this proposes methods to address political bias in selection of projects for funding.

UK Solvency II Regulations published

On 9 March 2015, the Solvency II Regulations 2015 were published in the UK.  Together with the Financial Services and Markets Act 2000, the Regulations establish the regulatory system implementing the Solvency II Directive in the UK.  A final impact assessment in relation to the transposition of Solvency II in the UK (dated 11 December 2014) has also been published together with a detailed transposition table. 

PRA - Final Solvency II rules & various Solvency II updates published

On 20 March 2015, the Prudential Regulation Authority (PRA) published its final rules and supervisory statements setting out how Solvency II will be implemented (Policy Statement PS2/15) in the UK; including feedback on significant implementation issues raised during consultation. The PRA also published a number of other updates on Solvency II this month. On 20 March 2015 it published (a) a consultation (CP11/15) on a draft supervisory statement in relation to supervisory approval for the volatility adjustment (responses are invited by 20 April 2015) and (b) a new webpage providing information on applying for Solvency II waivers and approvals.  On 13 March 2015, the PRA issued a letter to directors of insurers with updates on Solvency II preparation and implementation. On March 18 2015, a document on internal model validation approaches (highlighting the role of the Board and the differences between model justification and validation) was published. Additionally, the PRA updated its webpage setting out its expectations on use of versions of the Solvency II preparatory taxonomy for regulatory reporting. On 9 March 2015, the PRA published an industry letter clarifying its expectations in relation to the matching adjustment and internal models. According to the letter, methodologies adopted by some firms are unlikely to meet the tests/standards for model approval. On 28 March 2015, following conclusion of the pre-application process for the matching adjustment, the PRA issued a letter containing feedback to be taken into account in making (from 1 April 2015) a formal application.

Illustrative Solvency II auditor's report published in the UK

On 12 March 2015, the Institute of Chartered Accountants in England and Wales published an illustrative auditor's report for the purpose of Solvency II balance sheets.  In addition, the Institute has published a list of observations regarding the granularity of an insurer's 'basis of preparation' document (which it so accompany the auditor's report).  The Institute confirmed that it had worked with the PRA to produce the relevant information. 

UK Competition and Markets Authority - Private Motor Insurance

Order On 18 March 2015, the UK Competition and Markets Authority published the final UK Private Motor Insurance Market Investigation Order 2015. This follows the Authority's publication of (a) a final report of September 2014 on the UK private motor insurance market and (b) a draft Order in January 2015 for consultation. The changes made are minor and include that the requirement to provide specified information to customers regarding no claims bonus protection (where offered) will now come into force on 1 August 2016 (instead of 1 September 2015). The majority of the Order's provisions came into force on 19 March 2015.

EIOPA speech - future of European market conduct regulation

On 17 March 2015, the European Insurance and Occupational Pensions Authority (EIOPA) published a speech regarding consumer protection in financial services. The speech identifies three key areas on which EIOPA will focus in this regard, i.e. (a) 'smart regulation' (moving beyond 'tick-box' to a more proactive risk-based approach), (b) product oversight and governance (focusing on improved outcomes for consumers through tailored, undertaking-specific arrangements) and (c) ensuring that consumers are adequately protected from new risks resulting from rapid technological advancement. 

UK insurance fraud taskforce issues interim report

On 18 March 2015, an interim report was published by the UK insurance fraud taskforce. Interested parties are invited to provide their views by 13 May 2015. The taskforce has decided to focus on four key areas - (a) the issues which encourage fraudulent claims, (b) motivations behind policyholder behavior, (c) adequacy of deterrents and (d) the role that fraud data can play. It is intended that a final report will be produced later in 2015.  In the meantime, based on a recommendation by the taskforce, the Association of British Insurers and the British Insurance Brokers Association have agreed to update their industry guidance on the prevention of application fraud. 

Mesothelioma compensation payments increased in the UK 

Recently, the Diffuse Mesothelioma Payment Scheme (Amendment) Regulations 2015 and the Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2015 were published in the UK. The regulations (in force from 31 March and 1 April 2015, respectively) increase the compensation payable where persons have been diagnosed with diffuse mesothelioma.

Insurance Europe - encouraging access to insurance cover

On 9 March 2015, Insurance Europe issued a press release and accompanying publication ‘The Benefits of Insurance’, in which Insurance Europe make a number of recommendations for European policymakers.  These include a 'stop and think' approach to assess tangible customer benefit prior to proposing/issuing/reviewing legislation (which will result in increased costs for the insurer and, therefore, the policyholder).   Insurance Europe's view is that this is important in order to keep costs as low as possible and maximize access to insurance.

PRA speech - challenges for the insurance industry

On 3 March 2015, the PRA published a speech regarding the challenges for the insurance industry in the future.  Key items highlighted in the speech include (a) the need for two-way dialogue between regulators and firms, (b) changes in climate and society (such as changing consumer expectations) and (c) the desirability of insurer innovation.  

FCA policy development – insurance updates

On 9 March 2015, the FCA published a policy development update (PDU 20). Notably, for the insurance sector, it is proposed to publish policy statements on (a) Solvency II changes (scheduled for March 2015), (b) client money rules for insurance intermediaries (Q2 2015), and (c) competition remedies for guaranteed asset protection insurance sold as an add-on (Q2 2015).

FCA policy statement on transposition of Solvency II

On 27 March 2015, the FCA published a policy statement (PS15/8) with respect to changes to FCA rules in order to reflect Solvency II requirements.  An instrument amending the FCA's Handbook is appended to the policy statement.  Amendments are made to the Conduct of Business sourcebook, the Insurance: Conduct of Business sourcebook, and the Fit and Proper Test for Approved Persons. (Re)insurers are expected to comply with the rules from 1 January 2016.

UK Mutual Deferred Shares Act 2015 enacted

On 26 March 2015, the Mutual Deferred Shares Act 2015 was enacted in the UK.  The Act (which will enter into force on a date to be specified by HM Treasury) empowers HM Treasury to make regulations enabling friendly societies and mutual insurers to raise capital by issuing deferred shares.

FCA publishes final retirement market income report

On 26 March 2015, the FCA published a final report on its retirement income (including annuities) market study.  The report confirms that competition in the market concerned is not working well for consumers. A number of remedies are proposed, including (a) a requirement to provide annuity quotation comparisons and (d) the creation of a pensions dashboard to allow consumers to view all their lifetime pension savings (including their state pension) in a single source.  The report sets out the processes and anticipated timescales for design and implementation of these remedies.

PRA and FCA – changes to 'fit and proper' rules

On 23 March 2015, the PRA published a policy statement containing certain 'fit and proper' rules for senior insurance (and banking) managers. From the insurance perspective, the statement implements the PRA's new Senior Insurance Managers Regime (SIMR) for (re)insurers captured by Solvency II. SIMR will come into force on 7 March 2016 (though aspects required under Solvency II will apply from 1 January 2016). It is expected that further SIMR rules will be published later in 2015. For this purpose (and to revise the wider approved persons regime) the FCA and PRA subsequently published a joint consultation on other proposed changes; including to the FCA Handbook and PRA Rulebook. Separate consultations have been launched for insurance sector firms not falling within Solvency II. Responses to the consultations mentioned are invited by 15 May 2015.

For further information please contact a member of the Financial Regulation team.

Date published: 2 April 2015