Tracker, Financial Services Regulation & Compliance - Insurance

DOMESTIC

Finance (Miscellaneous Provisions) Act 2015

The Finance (Miscellaneous Provision) Act 2015 (No.37 of 2015) was recently enacted. Amongst other matters, the Central Bank states in its Solvency II Matter newsletter (see below) that the Act provides for the continued regulation of undertakings that are wholly/partly excluded from Solvency II under the European Union (Insurance and Reinsurance) Regulations 2015 (and, for those undertakings, continues in force certain Regulations applicable under the Solvency I regime which transposed EU Directives now repealed by Solvency II).

Central Bank publishes Solvency II reporting and data processing material

On 18 December 2015, the Central Bank published various materials relating to National Specific Templates (NSTs) (i.e. reporting formats to be used for reporting to the Central Bank under Solvency II).  These were published for public comment. The materials relate primarily to XBRL Taxonomy and Data Processing Models (in short, the reporting classification language and specifications to be used for such reporting).  The Central Bank's proposed versions extend those previously published by the European Insurance and Occupational Pensions Authority (EIOPA).  Central Bank extensions are generally prefixed with 'ie'. 

Central Bank Solvency II Website Update and Document Review

As indicated during November 2015, the Central Bank has now updated the (re)insurance sections of its website.  This now contains separate sections for (re)insurers subject to Solvency II; and those not within scope. The Central Bank has also begun to publish revised/updated requirements and guidance to ensure relevance/compatibility with Solvency II.  In particular, revised versions of various checklists and guidelines for authorisation applications, and an Acquiring Transaction Notification Form for undertakings subject to Solvency II, are now available.

Central Bank Solvency II newsletter

On 17 December 2015, the Central Bank published the latest edition of its Solvency II Matters newsletter.  Notably, the Central Bank has stated that it will not communicate final decisions in respect of revised Conditions of Authorisation until after 1 January 2016. Other updates provided include the announcement that the Central Bank (a) will host an industry workshop in February 2016 to provide guidance on the Solvency II reporting processes and (b) recommends that all Low / Medium Low impact (re)insurers sign up for external user texting of the ONR system.

Central Bank releases second macro-financial review for 2015

On 8 December 2015, the Central Bank released its second Macro-Financial Review of 2015, based on data available on 30 November 2015.  From the insurance perspective, interesting points include that (a) total premium income in the life sector has increased by 9.3 percent in the first half of 2015 when compared with the same period in 2014, (b) the domestic non-life sector (particularly motor and liability) shows poor performance, (c) a number of high-impact non-life insurers have reported underwriting losses in the first half of the year and (d) Irish reinsurers have maintained their 4.7% global market share.

EU & INTERNATIONAL

Amendment to Commission Delegated Regulation 2015/35 – December developments

On 8 December 2015, the Council of the European Union announced that it had decided to not object to a proposed amendment to Commission Delegated Regulation (CDR) 2015/35 on the calculation of regulatory requirements for several categories of assets held by (re)insurers (e.g. infrastructure, European long-term investment funds and certain equities). This must now be considered by European Parliament. On 15 December 2015, the European Parliament's Committee on Economic and Monetary Affairs (ECON) published a letter stating that the deadline for raising objections to the proposed CDR effecting the amendments (C(2015) 6588) has been extended by three months to 30 March 2015.

Insurance Distribution Directive adopted by Council of the EU

The Council of the EU published a press release announcing its adoption of the Insurance Distribution Directive (IDD) on 14 December 2015. The IDD will now be published in the Official Journal of the EU and will come into force 20 days following publication. Member States will have 2 year to transpose the IDD from the date of its entry into force.

European Commission adopts Solvency II implementing regulations

On 2 December 2015, the European Commission adopted three new sets of implementing regulations laying down Implementing Technical Standards (ITS) (together with annexes).  These relate to (a) templates for the submission of information to supervisors, (b) procedures, formats and templates of the solvency and financial condition report and (c) templates and structure of the disclosure of specific information by supervisors. 

Equivalence decisions - Australia, Bermuda, Brazil, Canada, Mexico and the US

On 9 December 2015, the European Commission's Delegated Decision ((EU) 2015/2290) on the provisional equivalence of the solvency regimes of Australia, Bermuda, Brazil, Canada, Mexico and the United States was published in the Official Journal of the EU.  The Council of the EU and European Parliament have decided not to object to the decision (originally adopted by the Commission in June 2015). The solvency regimes in all of those jurisdictions (except for Bermuda's rules on captives) were granted provisional equivalence for a period of ten years, effective from 1 January 2016.  The Decision will enter into force on 29 December 2015.   

EIOPA updates its Solvency II reporting webpage

On 16 December 2015, EIOPA updated its Solvency II reporting format page to include an updated list of known issues of its Data Point Model and XBRL Taxonomy 2.0.1 (together with supporting documentation).

EIOPA Technical Updates

On 7 December 2015, EIOPA released its technical information on the relevant risk free interest rate term structures to be applied by (re)insurers when calculating technical provisions with reference to the end of November 2015.

IAIS updates its Insurance Core Principles

On 2 December 2015, the International Association of Insurance Supervisors (IAIS), published revised Insurance Core Principles (ICPs) adopted at its annual general meeting on 12 November 2015, which were ICP 4 (Licensing), ICP 5 (Suitability of Persons), ICP 7 (Corporate Governance), ICP 8 (Risk Management and Internal Controls), ICP 23 (Group-wide supervision) and certain aspects of ICP 25 (Supervisory Cooperation and Coordination).  This follows a comprehensive self-assessment and peer review of the ICPs by the IAIS.

EIOPA publishes presentations on Solvency II implementation

On 10 December 2015, EIOPA published speaking points and presentations on the implementation of Solvency II (delivered at its recent Frankfurt press event). The goal of the event was to present some elements of Solvency II that may not yet be fully/generally understood. The first of two presentations focuses on the Solvency II balance sheet.  The second deals with understanding public disclosure under Solvency II.

EIOPA Board of Supervisors decision - collection of information for Solvency II

On 14 December 2015, EIOPA published the Decision of its Board of Supervisors regarding the collection of information under Solvency II (EIOPA –BoS-15/198). This decision lays down the procedures concerning the submission of information from national supervisors to EIOPA. The decision describes the types of information to be reported, as well setting out reporting frequency and deadlines.

EIOPA recommends improvements to the sales of mobile phone insurance

On 4 December 2015, EIOPA published a report regarding consumer protection issues arising from the sale of mobile phone insurance. The report is based on a thematic review of data from 50 insurers active in that market during 2013.  The report identifies concerns such as high premiums and long duration contracts.  Recommendations made include that those involved in sales of such products should have appropriate knowledge and training; and that consumers should be informed of (a) bundling (and be given the opportunity to purchase only the primary product), (b) exclusions and (c) duration and cancellation rights, prior to purchase.

EIOPA Consumer Trends Report

On 15 December 2015, EIOPA published its Fourth Consumer Trends Report.  Continuing issues identified include a lack of clear, understandable information being provided to consumers; and claims management issues within the motor insurance sector.  Potential issues arising from issues such as the continuing trend of cross-selling are also highlighted. Emerging trends noted include Big Data, resulting in more customised products and innovative pricing (but also a tendency towards increasing complexity for consumers).

EIOPA publishes biannual report on financial stability risks

On 9 December 2015, EIOPA published its second biannual report on financial stability in the (re)insurance sector. Low yields and a resultant subsequent reinvestment risk remain a key concern, particularly in the life sector. However, EIOPA expects Solvency II implementation to increase resilience and bring better alignment of risk and capital management.

EIOPA IRSG Meeting

The Insurance and Reinsurance Stakeholder Group (IRSG) recently published the summary and conclusions of its ninth meeting (held on 28 October 2015).  Key points discussed included that (a) it is a matter for group supervisors to decide whether to apply sub-group supervision (and that EIOPA has developed guidelines to assist supervisors in deciding if this is necessary) and (b) there will be a public consultation on the implementation of the ultimate forward rate during 2017. 

Insurance Europe response to EIOPA consultation on infrastructure corporates

On 14 December 2015, Insurance Europe published a response to EIOPA's Call for Evidence on the treatment of infrastructure corporates under Solvency II.  This welcomes a more risk-based treatment of such investments; but suggests that the scope of the new asset class is too narrow to achieve the European Commission's objectives for growth in the EU (and that a 'substance over form' approach should be used in assessing eligible infrastructure transactions).

International Underwriting Association international sanctions clause

The International Underwriting Association (IUA) recently published an international sanctions clause (09-065) for (re)insurance contracts, together with related commentary.  Essentially, the clause states that the (re)insurer will not provide cover where this would expose it to penalty/restriction arising out of any trade and economic sanctions laws.  The IUA highlights that the model clause and commentary are not definitive or mandatory and that the clause does not obviate the need to exercise due diligence in complying with applicable sanctions.

IAIS December 2015 Newsletter

Key points of note in the IAIS December 2015 newsletter include that Australia, Kuwait, Mozambique, Qatar and Sierra Leone were admitted as members at the Annual General Meeting of the IAIS. The newsletter also includes a summary of presentations and discussions which took place at the 2015 Annual Conference on the supervisor's role within policyholder protection, financial stability and market development.

Insurance Europe Solvency II survey

On 15 December 2015, Insurance Europe issued a press release highlighting key results of a survey of insurers conducted during November 2015 on Solvency II.  68% of respondents indicated that supervisors have imposed additional last minute 'gold plating' (a 25% increase since June 2015).  47% of respondents confirmed that supervisors are interpreting Solvency II in a conservative manner (39% in June).  Improvements due to Solvency II were also surveyed (of the respondents, 79% noted improvement in governance, 74% reported improvement in risk monitoring and identification processes and 63% thought that data quality had increased).

EIOPA extends application deadline for employee representatives in stakeholder group

On 8 December 2015, EIOPA extended its deadline for applications by employee representatives in EIOPA's IRSG; to midday on 6 January 2016. 

Insurance Europe Updates

On 14 December 2015, Insurance Europe released a statement welcoming the progress made at the 2015 Paris Climate Conference (and stating its hope that momentum gained could be maintained by governments).  Insurance Europe has also welcomed political agreement on the General Data Protection Regulation, noting that it will continue to monitor developments to ensure that the finalised Regulation allows insurers to innovate for consumer benefit, whilst adequately protecting data. 

UK Tribunal holding  - fitness and probity

The Upper Tribunal (Tax and Chancery Chamber) in England recently upheld a Financial Conduct Authority (FCA) finding that a former director of an insurance brokerage was not fit and proper.  The FCA had originally issued a full prohibition order against the former director (preventing him from holding any function in relation to any regulated activity), as well as a fine of £20,000 for failures in due skill/care/diligence and client money handling.  At Tribunal stage, the FCA requested and obtained a partial prohibition (i.e. for significant influence functions in relation to any regulated activity).  The financial penalty was also halved due to mitigating personal circumstances.

Changes to UK compensation rules

The FCA recently published a consultation paper on the Financial Services Compensation Scheme and changes to its Compensation Sourcebook (CP15/40).  Notably for insurers, the proposed changes include an increase from 90% to 100% of the non-investment insurance mediation compensation limit for certain claims (relating to pure protection contracts, professional indemnity insurance and general insurance claims arising from death or in capacity due to injury/sickness). Comments are invited until 29 February 2016.

FOS consults on changes to PPI complaints time limits

On 9 December 2015, the Financial Ombudsman Service (FOS) in the UK published a consultation on time limits for Payment Protection Insurance (PPI) complaints.   In order to align time limits applicable to complaints against firms covered by FOS voluntary jurisdiction with the time limits recently proposed by the FCA for firms subject to FOS compulsory jurisdiction, the FOS proposes that a two year limit (other than in limited circumstances) will apply.   Responses are invited by 26 February 2016. 

FCA publishes follow up report on the mobile phone insurance market

On 10 December 2015, the FCA published follow-up findings on its thematic review of the mobile phone insurance market. These identified improvements made by firms, including reducing turnaround times for processing of successful claims and improving practices around recording/analysis of complaints.  However, the FCA found that continuing shortcomings include unnecessary two stage claims processes, lengthy claims processing/settlement periods and claim refusals based on breach of conditions unrelated to the claim.

PRA policy priorities for insurance prudential regulation and supervision  

On 2 December 2015, the Prudential Regulation Authority in the UK (the PRA) published a speech given by its General Insurance Director on PRA priorities for insurance regulation/supervision.  These include competition (in particular, in light of soft market conditions) and innovation. Notably, the speech outlined the PRA's approach to new issues arising as a result of periodic payment orders granted by the Courts to injured persons.  On 4 December 2015, a 'Dear CEO' letter was issued by the PRA focusing on persistent soft market conditions, noting that this may encourage insurers to take steps such as increasing reserve releases. The letter describes PRA expectations (in light of the market conditions) in relation to underwriting, reserving, reinsurance and assessment of capital requirements. 

FCA consults on transparency in general insurance

On 3 December 2015, the FCA launched a consultation on increasing transparency and engagement at renewal for general insurance (CP15/41).  Proposals include that renewal notices should disclose the premium relating to the previous year and that additional disclosures should occur when customers have renewed four times or more.  Proposed guidance on improving processes around renewals, and the records that firms should maintain to demonstrate compliance, is also included. Comments are invited until 4 March 2015.  The FCA expects to finalise the rules and guidance by mid-2016.

PRA publishes list of internal model approvals

On 5 December 2015, the PRA published a list of 19 insurers whose full/partial internal models are now approved for Solvency II purposes.  In line with prior communications, the PRA has not disclosed where applications to use an internal model have been either rejected or withdrawn.  

PRA letter to non-Solvency II firms on implementation of SIMR

On 9 December 2015, the PRA published a letter sent to non-Solvency II insurance firms on implementation of the senior insurance managers regime (SIMR).  Points highlighted include that (a) completed forms for individuals proposed to be grandfathered will need to be submitted by 8 February 2016 and (b) individuals currently acting in controlled functions (CFs) will need to show how they map into the equivalent new senior insurance management functions; or FCA CF.   Individuals' current CF status will expire on 7 March 2016.

PRA modifies Solvency II group supervision rules 

On 16 December 2015, the PRA published a modification to its Solvency II group supervision rules 20.1 and 20.2 which apply to authorised (re)insurers whose parent is an insurance (or mixed financial) holding company with its head office in Bermuda.  Unless/until the equivalence of Bermuda's prudential regime under Solvency II is declared and takes effect, the PRA will apply the 'other methods' of appropriate group supervision set out in the modified rules.  If/when full equivalence is granted, those other methods will cease to apply.

PRA and FCA regulatory updates

The PRA and FCA published various updates for (re)insurers throughout December.  These included documents proposing and/or making various changes to the FCA's Handbook (e.g. relating to individual accountability rules for non-Solvency II firms) as well as updated non-December year-end Solvency II reporting schedules (available on its Solvency II webpage). 

Updated professional standards for Life Assurance Actuaries in the UK

On 9 December 2015, the Institute and Faculty of Actuaries in the UK published an updated actuarial professional standard (APS L1: Duties and Responsibilities of Life Assurance Actuaries).  This sets out requirements for actuaries carrying out the statutory roles such as Chief Actuary for long term business in a Solvency II firm, Actuarial Function Holder, With-Profits Actuary and Reviewing Actuary.

FCA Policy Statement

On 16 December 2015, the FCA released a policy statement on final rules on changes to the Approved Persons Regime for insurers not subject to Solvency II. This sets out the changes to the FCA's Handbook and forms; as well as feedback on responses received during consultation. The FCA will categorise insurers and apply proportionate rules (and has adopted the PRA's definitions of 'small' and 'large' insurers in this respect).

Lloyd's publish bulletin regarding Pillar 3 of Solvency II

On 18 December 2015, Lloyd's published a market bulletin regarding the reporting requirements for Solvency II Pillar 3.  This aims to (a) remind managing agents that they must in a position to collect specific data from cover holders and third party administrators and (b) inform managing agents of a test run (in Q2 2016) of the reporting process to assist Lloyd's in discharging reporting obligations under Pillar 3 of Solvency II.

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

Date published: 04 Janaury 2016