Reminder - revised Corporate Governance Code effective as of 1 January 2015
On 1 January 2015, the Central Bank of Ireland's revised Corporate Governance Code for Credit Institutions and Insurance Undertakings 2013 (the 2013 Code) came into effect, replacing the prior 2010 Code. As a reminder of its key impacts and content, a link to our January 2014 client bulletin is included here.
EU & International
Solvency II – Commission Delegated Regulation comes into force
On 17 January 2015, Commission Delegated Regulation 2015/35 (CDR) in respect of Solvency II was published in the Official Journal. Despite a motion tabled by the Greens/European Free Alliance to object to the CDR in December 2014 and a letter from the Chair of the Committee on Economic and Monetary Affairs (ECON) outlining perceived issues to be addressed in the CDR, the detailed CDR came into force on 18 January 2015 (the day following its publication in the Official Journal). The recitals to the CDR highlight the importance of the CDR entering into force as soon as possible in order to enhance legal certainty during the phasing-in period provided for under Solvency II.
EIOPA Solvency II publications
Late last month, EIOPA published a number of documents in relation to Solvency II. These included a consultation on updated draft advice to the European Commission on third country equivalence assessments for Switzerland, Bermuda, and Japan. That consultation closed on 23 January 2014. A decision by the European Commission is expected during 2015 as to whether the regimes concerned are equivalent for the purpose of Solvency II. Additionally, EIOPA published a note to assist navigation through the reporting and disclosure requirements of the second set of Implementing Technical Standards (ITS) and Guidelines published for public consultation on 2 December 2014 (in particular, CP-14/052 on templates for the submission of information to national supervisors). The note identifies changes made to templates and logs published in July 2012 and the rationale for these. Comments on CP-14/052 are invited until 2 March 2015. Finally, EIOPA published a consultation paper (CP-14/058) on draft ITS regarding the equity index for the symmetrical adjustment on the equity capital charge. Comments are also invited until 2 March 2015.
EIOPA update on Solvency II reporting formats
EIOPA recently updated its webpage regarding Solvency II reporting formats to include revised information on the data point model (DPM) and XBRL taxonomy design (reporting classification language). Changes have been made in response to technical feedback received from stakeholders. EIOPA has confirmed that the updates include (a) the introduction of row/column codes in the annotated templates and the taxonomy to identify the position of cells and (b) the de-activation of certain validation formulas that require further work. EIOPA indicates that it may publish (a) further developed reporting formats during February 2015, and (b) the release schedule for the XBRL taxonomy and the filing rules (applicable to both the preparatory and full phases of Solvency II implementation) in the first quarter of 2015.
ECB Regulation - statistical reporting requirements for (re)insurers
On 8 January 2015, the European Central Bank (ECB) Regulation on statistical reporting requirements for insurance corporations (ECB/2014/50) came into force. The Regulation, which seeks to provide the ECB with statistical information on the financial activities of most life and non-life (re)insurers established in the Eurozone, was published in the Official Journal on 20 December 2014.
EIOPA updates regarding use of LEIs
EIOPA recently updated its webpage regarding its guidelines on the use of the 'legal entity identifier' (LEI). LEIs are unique identification codes, the use of which EIOPA recommends in its guidelines (and which it expects will improve collection, storage and dissemination of high quality, reliable and comparable data for (re)insurers, (re)insurance groups and pensions providers). Updates include links to the responses submitted to EIOPA by national supervisors in December 2014, confirming whether the relevant NCAs comply or intend to comply with the guidelines (applicable since 31 December 2014). The Pensions Authority has responded on Ireland's behalf, confirming that it intends to comply and highlighting that the Central Bank of Ireland has published a series of frequently asked questions regarding European Market Infrastructure Regulation requirements on its website which includes information about LEI obligations and where such codes are available.
EIOPA updates risk dashboard
EIOPA recently published its updated quarterly risk dashboard, based on data provided by certain large insurance groups for Q3 of 2014. The dashboard indicates that the risk environment remains challenging. Points of interest identified include (a) that market risks remain unchanged since Q2 of 2014, (b) the overall outlook for macroeconomic risks seems to be worsening and (c) liquidity and funding risks are unchanged but lapse rates are increasing in some markets. The dashboard also notes that Solvency I figures are robust and that the insurance sector is generally well capitalised for Solvency II purposes. However, it acknowledged the outcome of the EIOPA December 2014 stress test which determined that 14% of (re)insurers would have a solvency capital requirement ratio below 100% if calculated on a Solvency II basis.
Focus on private motor insurance market in the UK
On 7 January 2015, the UK's Competition and Markets Authority published a draft of the UK Private Motor Insurance Market Investigation Order 2015 for consultation. This follows the recent publication of the Authority's final report on the UK private motor insurance (PMI) market, which identified adverse effects on competition. It is proposed that the Order will apply to PMI providers (including brokers) and to price comparison websites. Key provisions include that providers/websites must provide (a) specified information to customers regarding no claims bonus protection (where offered) and (b) annual compliance statements to the Authority. Comments are invited until 6 February 2015. It is intended that most of the Order's provisions will come into force on 1 March 2015.
UK FOS - latest edition of Ombudsman News
On 27 January 2015, the UK Financial Ombudsman Service (FOS) published the latest issue of its Ombudsman News. Notably from an insurance perspective, the FOS received approximately 4,000 new payment protection insurance (PPI) complaints per week during the last three months of 2014 (a significant decrease from the peak of such complaints when the FOS was receiving 12,000 such complaints a week). The FOS estimates that, by March 2016, it will have approximately 180,000 PPI cases outstanding.
PRA letter regarding insurance business transfers
On 22 January 2015, the Prudential Regulation Authority in the UK (PRA) published a letter sent by its Directors of General Insurance and Life Insurance to insurers. The letter explains how the PRA intends to approach proposed transfers of insurance business under Part VII of the Financial Services and Markets Act 2000 during 2015. The stated reasoning for the letter is the high volume of firms seeking to complete such transfers prior to Solvency II implementation. The PRA confirms that it will continue to progress transfers where (a) the appropriate fee has been paid or special project fee has been agreed (failing which the PRA will consider on a case by case basis) and (b) the firm has indicated an intention to complete during 2015 and is on target to do so. Other key points highlighted include that timetables for provision of materials to the PRA should not be unrealistic. In particular, it emphasised that final drafts of all relevant documentation (including the independent expert’s report) should be submitted to the PRA at least six weeks before the directions hearing date (or as otherwise agreed) and failure to meet this timescale may lead to the PRA requesting a deferral of the hearing.
PRA consults on transitional measures and treatment of participations under Solvency II
On 23 January 2015, the Prudential Regulatory Authority (PRA) in the UK published a consultation (CP3/15) on proposed rules regarding (a) transitional measures for risk-free interest rates and technical provisions and (b) treatment of participations, under Solvency II. The transitional measures, which are to apply for 16 years, are anticipated under Solvency II and their purpose is to streamline the move to a new regulatory regime. The consultation paper also contains draft supervisory statements on the PRA’s expectations regarding (a) the calculation and application process for these transitional measures and (b) the internal model treatment of participations in other (re)insurers. Responses are invited by 20 February 2015.
Lloyd's guidance - distribution costs, broker remuneration, additional charges
On 22 January 2015, the Society of Lloyd's in the UK published a market bulletin containing its consolidated guidance on distribution costs, broker remuneration and additional charges. Amongst other matters, the guidance states that all managing agents must ensure that its arrangements with brokers do not breach the Bribery Act 2010 in the UK. In particular, the guidance emphasises that payment of additional fees/charges/commissions must not encourage actions that are not (a) in the customer's best interests or (b) in line with obligations to treat customers fairly. Lloyd's also confirms its intention to carry out sample audits of Q1 2015 returns made to it in light of the guidance; and to engage with the Financial Conduct Authority in the UK in monitoring this issue.
Lloyd's guidance - systems and controls for international sanctions compliance
On 12 January 2015, the Society of Lloyd's in the UK published a market bulletin containing guidance for managing agents and brokers regarding international sanctions compliance. The guidance focuses on three areas, i.e. (a) compliance (addressing areas including risk assessment and governance), (b) delegated authorities (including due diligence and sanctions procedures regarding coverholders) and (c) claims (including 'red flag' and other procedures/systems).
Firms with 'non 31 December' year-end - updated PRA Solvency II reporting schedule
On 16 January 2015, the PRA published corrected Solvency II regulatory reporting schedules for firms having a financial year end other than 31 December. The update was made in order to rectify schedules originally published with inaccuracies on 19 December 2014. The list now published provides hyperlinks to documents setting out the reporting schedule for such firms during the three year transitional period of Solvency II. The PRA emphasises, however, that the onus is on each firm to liaise with their usual contact at the regulator to confirm when interim reports are required to be submitted to the PRA.