Tracker, Financial Services Regulation & Compliance - Insurance

In line with increased regulatory activity, our monthly Tracker newsletter has become a much longer publication over recent years. We are conscious that this might result in Tracker becoming unwieldy and deviating from its purpose as a short synopsis of key developments, and as a result we have made some changes. Tracker will now cover only key Irish and European (non-jurisdiction specific) developments.

Domestic

CBI industry letter - annuity sales

On 19 January 2016, the Central Bank of Ireland (CBI) published an industry-wide letter on the findings of its recent themed inspection of pension annuity sales.  The CBI identifies a need for improvements in assessing suitability, and states that the open market option (the consumer's ability to seek comparison quotes from other firms) was not always clearly explained in product literature.  The CBI also identified inconsistencies in the adequacy of detail provided by firms in customer communications geared at facilitating informed decisions. The Certain effective practices are recommended by the CBI in this respect, e.g. use of a vulnerable customer checklist, and 'wake up' communications giving advance notice of post-retirement options and quotation comparisons.  

CBI guidance on Solvency II F&P requirements for (re)insurers

On 27 January 2016, the CBI issued guidance on how (re)insurers are to comply with the requirement to (a) notify the CBI of any person in situ in new pre-approval controlled function PCF48 (Head of Actuarial Function) on 31 December 2015 and (b) confirm to the CBI that the required due diligence has been undertaken in that respect.  The aforementioned notification and confirmation must be provided by 31 May 2016.  This guidance follows and supplements guidance issued by the CBI late last month to assist (re)insurers in complying with their fitness and probity obligations under the European Union (Insurance and Reinsurance) Regulations 2015.

EU

Third set of Solvency II Implementing Regulations published

On 31 December 2015, a third set of European Commission Implementing Regulations (setting out implementing technical standards required under Solvency II) were published in the Official Journal of the EU. The Regulations relate to (a) templates for the submission of information to the supervisors (2015/2450), (b) the templates and structure of the disclosure of specific information by supervisors (2015/2451) and (c) the procedures, formats and templates of the solvency and financial condition report (2015/2452).

EIOPA publishes updated Solvency II technical information

On 8 January 2016, the European Insurance and Occupational Pensions Authority (EIOPA) published its monthly update on technical information on the Solvency II relevant risk-free interest rate (RFR) term structures to be applied by (re)insurers in the calculation of their technical provisions (by reference to the end of December 2015).  A press release published in December noted the publication of updated coding used to produce the RFR term structures.  EIOPA has also published its technical information on symmetric adjustment of the equity capital charge (by reference to the end of December 2015).

Errors in November 2015 consultation paper on KIDs for PRIIPs

On 5 January 2016, the Joint Committee of the European Supervisory Authorities corrected errors in its November 2015 consultation paper on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs). The corrections are to formulae in Annex II of the consultation (relating to market risk measure).

Insurance Europe calls for extension of timing for PRIIPs KIDs

On 12 January 2016, Insurance Europe published a position paper calling for the implementation timeframe for the Regulation on KIDs for PRIIPs to be extended.  Insurance Europe noted that (a) there will only be three/four months between publication of the final KID rules and implementation of the PRIIPs Regulation and (b) the final stage of defining technical specifications, programming, testing and launching by the industry can only begin once there is certainty regarding the KID.  Insurance Europe advocates a one year extension of the PRIIPs Regulation application date.

EIOPA Board Management minutes published

On 10 January 2016, EIOPA's Management Board published the final minutes of its meetings held on 15 September and 19 November 2015.  Points of note include that the Board agreed (a) on the usefulness of a proposed project using data and analytics to enhance information available to supervisors to conduct their supervisory tasks and (b) upon a draft roadmap for the EIOPA 2016 stress test.

EIOPA opinion on group solvency calculation

On 26 January 2016, EIOPA published an opinion on the application of a combination of methods (i.e. those under Articles 320 and 233 of the Solvency II Directive) to the group solvency calculation. Key points highlighted include that, where a combination of methods is proposed, (a) the group supervisor needs to consider the criteria specified in Commission Delegated Regulation (EU/2015/35) and (b) there may be unintended consequences of using a combination of calculation methods in certain circumstances.

EIOPA's strategy on conduct of business supervision

On 11 January 2016, EIOPA published a paper setting out its strategy for developing a comprehensive framework for conduct of business supervision.  Notably, EIOPA highlighted that its approach would involve 'smart regulation' (i.e. risk-based and preventative; focusing on outcomes rather than legalistic box-ticking). The strategy paper sets out the tools needed to implement this framework including (a) consumer trend reports, (b) effective market monitoring, (c) thematic reviews and (d) retail risk indicators.

EIOPA launches new Solvency II webpage

On 4 January 2016, EIOPA issued a press release on its launch of a new section of its website titled 'Solvency II – going live'.  This aims to explain the benefits of the new regime to the public.  In the press release, EIOPA states that the new regime will enable the sector to withstand unforeseen shocks, protect consumers through good governance and risk management and enable supervisors to react in a timely manner (assisted by harmonised reporting and disclosure rules).

EIOPA IDD online survey

EIOPA recently conducted an online survey in relation to the Insurance Distribution Directive (IDD). The IDD (expected to be published in the Official Journal shortly) empowers the European Commission to adopt delegated acts to specify requirements in areas including (a) conflicts of interest and (b) suitability assessments.  EIOPA anticipates that the Commission will request it to provide technical advice in this regard.  In preparation for this, EIOPA is asking market participants and stakeholders to complete the online survey.

Insurance Europe position paper - covered bonds

On 6 January 2016, Insurance Europe published a position paper concerning the European Commission's consultation on development of a pan-European framework for covered bonds.  Insurance Europe agrees that a more integrated market for such bonds could result in advantages.  However, it also highlights a number of challenges to be addressed.  These include that, while existing regulation should not be reduced, uncertainty over the future of the market could discourage insurers from their significant investment role in such markets. 

Insurance Europe responds to IAIS consultation on G-SII identification

On 25 January 2016, Insurance Europe published its response to the International Association of Insurance Supervisors (IAIS) consultation on the methodology for identifying global systemically important insurers (G-SIIs).  This acknowledges that the proposed methodology has been improved.  However, amongst other matters, Insurance Europe comments that the current and proposed methodologies do not adequately distinguish between (a) institution-specific risks and sector/financial system-wide risks and (b) insurers exposed to systemic risk and those creating systemic risk.

Insurance Europe response to FSB consultation on G-SIIs

On 4 January 2016, Insurance Europe published its response to the Financial Stability Board (FSB) consultation on proposed guidance for supervisors concerning effective resolution strategies and plans for G-SIIs.  This welcomes the FSB's flexible approach to resolution strategies/triggers and its preference for portfolio transfers as a resolution mechanism.  However, it called for further clarity in relation to 'critical functions' provided by insurers and (amongst other matters) stressed the importance of recognising the difference between (a) designation of an insurer as a G-SII and (b) identification of that insurer's functions as critical.

EIOPA publishes peer review on governance of colleges

On 8 January 2016, EIOPA published a report on the practices of national supervisors when engaging in supervisory colleges (with a view to evaluating this in the context of its increased importance under Solvency II).  Practices for the reference period September 2012 to September 2013 were examined.  Key findings included that each supervisor should develop an overall policy for its college work. A number of recommendations were also made for supervisors in areas such as governance, information flow and group risk assessment.

Non-traditional non-insurance activities/products – Insurance Europe comments

On 25 January 2016, Insurance Europe published its response to the IAIS' consultation on defining non-traditional, non-insurance activities and products.  Insurance Europe identified a number of issues with the proposals.  Amongst other matters, Insurance Europe disagrees with the IAIS' proposed approach to derivatives (pointing out that the IAIS should recognise that systemic risk concerns associated with derivatives have already been addressed by reforms launched by the G-20 in 2009).

Insurance Europe - internal models deliver significant benefits

On 28 January 2016, the Reinsurance Advisory Board of Insurance Europe released a report titled 'Internal models: a reinsurance perspective'. The report notes that, as differing risk measurement approaches are needed depending on the size/nature/complexity of a (re)insurer's risk, prescriptive approaches/formulae are generally unsuitable for large reinsurers.  As a result, Insurance Europe points out, internal models (which can measure risk factors more appropriately) remain the most accurate measure of risk for reinsurers.

European Insurance CFO Forum letter on IFRS effective dates

On 20 January 2016, the European Insurance CFO Forum published a letter (issued jointly by it and Insurance Europe) to the IFRS Foundation.  This expresses concern regarding misalignment of proposed effective dates for IFRS 9 and IFRS 4 Phase 2.  According to the letter, issues faced by insurers as a result include accounting mismatches and an effective dual application of IFRS 9 (causing significant cost and confusion). The CFO Forum called for deferral of IFRS 9 to be available to all insurers.

Insurance Europe response to re-launch of CCCTB

On 6 January 2016, Insurance Europe published its response to the European Commission's consultation on the Common Consolidated Corporate Tax Base (CCCTB).  Insurance Europe is opposed to an obligatory CCCTB (but believes that companies should be allowed to opt in).  Insurance Europe agrees that the European Commission should implement rules consistent with the base erosion and profit shifting (BEPS) recommendations of the Organisation for Economic Co-operation and Development (OECD), in order to combat international tax avoidance.  However, it stressed that the outcome of the OECD BEPS project should be implemented consistently with non-EU jurisdictions.  Insurance Europe is also in favour of a 'one-stop-shop' approach which would allow companies to file a single tax return for all their EU activity.

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

Date published: 03 February 2016