Tracker, Financial Services Regulation & Compliance - Insurance
Central Bank policy note - submission of information under Solvency II
On 22 December 2016, the Central Bank of Ireland (CBI) published a policy note on submission of information. This sets out requirements and guidance in relation to a number of CBI options and discretions available under the Solvency II regime. Confirmations set out in the note include, amongst other matters, that the CBI has decided not to exempt any undertakings from submitting the annual item-by-item templates and that the template for reporting non-life underwriting risks by line of business should cover all lines of business.
Central Bank of Ireland Speech on 2016 and 2017 challenges
On 13 December 2016, the CBI published a Speech delivered by its Director of Insurance Supervision concerning challenges faced by the insurance industry in 2016 and 2017. Amongst other matters, this highlighted (a) increased geopolitical risk and associated uncertainties and the need for (re)insurers to consider these factors in completing the ORSA and (b) the period of uncertainty ahead due to Brexit; and the CBI's approach to authorisations. Focuses highlighted for 2017 included regulatory reporting (including the first Solvency and Financial Condition Reports), IT and cybersecurity risks, outsourcing and Solvency II revisions to be agreed by EIOPA on the Siena Protocol.
CBI Insurance Quarterly newsletter
On 19 December 2016, the CBI published the latest issue of its Insurance Quarterly newsletter. This includes updates on measures in respect of IT & cybersecurity, ONR (online reporting) testing for Solvency II annual returns and EU/EIOPA developments. Notably, it includes an overview of the CBI's experience regarding data quality in Solvency II reporting and asks firms to consider a number of questions regarding their data governance, including what controls are in place to mitigate risks to reporting quality.
CBI publishes 'Dear CEO' letter on Solvency Capital Requirement
On 20 December 2016, the CBI published a "Dear CEO" letter following its review of solvency capital requirement (SCR) calculations in a number of life insurers. The letter highlights key control issues identified during that review. These include deficiencies in areas including: (a) controls/testing of manual spreadsheets and updating of model parameters; (b) application of Solvency II requirements such as contract boundary conditions, (c) lack of board approved management action plans underpinning future management actions; and (d) failing to treat employee defined benefit schemes as ring-fenced. The letter urges firms to ensure their governance frameworks are sufficient to review, challenge and remediate data reporting inaccuracies.
CBI encourages consumer contact with health insurance providers prior to renewal
On 7 December 2016, the CBI issued a press release reminding consumers to be aware of 'auto-renewal' for health insurance and encouraging them to make contact with providers to ensure their cover is suitable for their individual needs/circumstances. Following a themed inspection carried out on health insurance renewals earlier this year, the CBI required health insurers to (amongst other matters) clearly explain the auto-renewal process and encourage customers to make contact to assess whether more suitable policies are available.
Insurance Ireland and DIMA propose merger
On 7 December, Insurance Ireland announced that it plans to merge with the Dublin International Insurance & Management Association (DIMA) in 2017 in order to present a unified voice for the (re)insurance sectors in Ireland. The merged organisation will represent over 140 (re)insurers and is expected to enhance representation and deliver benefits including synergies and operational efficiencies.
EIOPA review of aspects of Solvency II Delegated Regulation
On 8 December 2016, the European Insurance and Occupational Pensions Authority's (EIOPA) published a discussion paper on its review of aspects of Commission Delegated Regulation (EU) 2015/35 (CDR) focussing on the SCR standard formula. This follows the European Commission's July 2016 request for such advice. Stakeholder feedback is sought on key SCR sub-modules. The aim of the paper includes exploring possible simplifications in the standard formula and proportionate application of requirements. Comments are invited until 3 March 2017.
EIOPA report on 2016 insurance sector stress tests
On 15 December 2016, EIOPA published a report setting out the results of its 2016 insurance sector stress tests. The stress tests were designed to assess the vulnerabilities and resilience of life insurers to severe market developments (in 2016, these were the "low-for-long" yield and so-called "double-hit" scenarios). The stress tests indicated that 25% ("low-for-long") and 40% ("double hit") of insurers would lose more than one third of their excess assets over liabilities, EIOPA has issued recommendations addressed to supervisory authorities to ensure a co-ordinated response to vulnerabilities highlighted.
EIOPA opinion on disclosure of information regarding transitional measures
On 21 December 2016, EIOPA published an opinion on disclosure of information related to the use of transitional measures in the calculation of technical provisions (TP) for Solvency II purposes. The transitional measures in question are (a) the transitional adjustment to the relevant risk-free interest rate term structure, and (b) the transitional deduction to TP. EIOPA confirms that, in its view, the Solvency II Directive implies that the calculation of TP at year end should not take into account these adjustments for that year; instead adjustments should be applied at the first day of the following financial year. However, EIOPA notes that there may be circumstances where (re)insurers take a different approach. EIOPA also states that the Solvency and Financial Condition Report (group/solo) should contain the information necessary to reflect the estimated impact of the adjustments (to be) performed on the first day of the next financial year in the technical provisions (and other Solvency II calculations). EIOPA notes the information is considered relevant only where the adjustment to TP would lead to a material impact in solvency.
Insurance Block Exemption Regulation will expire on 31 March 2017
On 13 December 2016, the European Commission confirmed that the Insurance Block Exemption Regulation (IBER) will not be renewed when it expires on 31 March 2017. The IBER exempts certain forms of co-operation between insurers from EU competition rules which might otherwise prohibit such co-operation. The relevant exemptions relate to co-(re)insurance pools and the exchange and/or aggregation of data in statistics and studies. The Commission is of the view that these exemptions are no longer needed or warranted in practice. The expiry of the IBER does not necessarily mean that these forms of co-operation will become unlawful on 1 April 2017. Rather, (re)insurers who continue to engage in such co-operation will need to reassess their compliance with EU competition rules.
EIOPA discussion paper on recovery/resolution frameworks
On 5 December 2016, EIOPA published a discussion paper (dated 2 December) on the potential harmonisation of recovery and resolution frameworks for insurers. According to EIOPA, the existing national frameworks have the potential to cause barriers to such resolution, (in particular, for cross-border groups). EIOPA considers the key building blocks of a harmonised approach to be (a) preparation and planning, (b) early intervention and recovery, (c) resolution, and (d) cooperation and coordination. Comments are invited until 29 February 2017.
EIOPA report on measures for long-term guarantees and equity risk
On 16 December 2016, EIOPA published its first annual report on the impact of the long-term guarantee (LGT) measures, and measures on equity risk, under Solvency II. These measures are intended to limit procyclicality and assist firms to transition to the new Solvency II regime. A series of reports on these measures will be published annually by EIOPA until 2021. The report notes that 901 (re)insurers (representing a 69% share of the European market) are using at least one of the measures. Of these the volatility adjustment being the most commonly used.
EIOPA report addresses key financial stability risks
On 8 December 2016, EIOPA published a Financial Stability Report on the (re)insurance and occupational pensions sectors in the EEA. This highlights the ongoing fragility of the European macroeconomic environment and the challenges of continued low interest rates and geopolitical risks which face the sectors. Amongst other matters, the report highlights (a) that technological innovations and the transition to a low carbon economy may demand adaptation of business models (b) potential risks arising from reinvestment of maturing assets and (c) that reinsurance demand remains subdued.
EIOPA guidelines for supervisor/auditor dialogue
On 12 December 2016, EIOPA published its final report on guidelines for effective dialogue between insurance supervisors and statutory auditors. This follows a consultation carried out earlier in 2016. The guidelines seek to ensure a consistent, appropriate and proportionate approach facilitating relevant and efficient dialogue. While the majority of stakeholders were in support of the guidelines, the final report highlighted that two issues were raised by stakeholders, namely the scope of the guidelines and whether or not they would be consistent with corresponding European Banking Authority guidelines. The guidelines are applicable from 31 May 2017.
Joint European Supervisory Authorities publish response on PRIIPS RTS amendments
On 23 December 2016, the Joint Committee of European Supervisory Authorities or 'ESAs' (i.e ESMA, EBA and EIOPA) published their response (dated 22 December 2016) to the European Commission's request for a formal opinion on proposed changes to the draft regulatory technical standards (RTS) on PRIIPs. The letter notes that a proposed opinion was presented to the three ESA boards but it had not received the support of a qualified majority of the EIOPA board due to differing views concerning the treatment of multi-option products, the criteria to determine whether a comprehension alert should be included in a KID, and credit risk mitigation factors for insurers (the opinion was adopted by the EBA and ESMA boards) and so it was not possible to provide an agreed opinion. However, the letter notes that there was general consensus amongst the ESAs that amendments proposed to performance scenarios could be misleading and outlines the ESAs' main concerns in this regard.
Insurance Europe briefing on consumer pre-contract information
On 5 December 2016, Insurance Europe (IE) published an Insight Briefing on the need to provide consumers with the appropriate amount of information to make informed decisions when purchasing insurance products. IE emphasises its support for effective EU consumer protection rules but notes that new EU rules such as the PRIIPS Regulation and the Insurance Distribution Directive (IDD) are likely to lead to information overload for consumers and a duplication of disclosures when the rules are combined. IE recommends that future proposals pass through a number of checks to ensure consumer benefit, including an assessment of a proposal's impact on consumers when combined with other existing or proposed rules.
Concern regarding proposed EU services passport
On 8 December 2016, a number of European insurance and intermediary representative bodies (including IE and the European Federation of Insurance Intermediaries) published a joint letter to the European Commission expressing concerns about the proposed EU services passport for key sectors of the economy. The passport initiative is expected to include measures targeting barriers to cross-border provision of services. The representative bodies do not share the view that insurance is a barrier and are critical of proposals to introduce standardised proof of insurance and policyholder claims experience documents for cross-border business purposes. In particular, the letter points to practical difficulties in implementing such measures (and their potentially limited benefit).
EIOPA publishes consumer trends report
EIOPA published its fifth annual Consumer Trends Report on 16 December 2016. This report focuses on insurance product-related trends. Key trends examined include (a) new life products with reduced guarantees / increased complexity, (b) travel and motor insurance complaint volumes and (c) big data, consumer analytics and the emergence of Fintech / Insurtech.
EIOPA report on use of limitations from regular supervisory reporting
On 23 December 2016, EIOPA published its report for 2016 on the use of limitations regarding submission by (re)insurers of regular supervisory reporting. The report sets out the numbers of (re)insurers and groups (across the EU and by Member State) benefitting from limitations to regular supervisory reporting (quantitative reporting templates) based on reporting received for Q1 2016. According to the report, 924 solo (re)insurers (16 in Ireland) and 30 groups benefitted from limitations to quarterly reporting in 2016. Information on exemptions from annual reporting for 2016 will be included in the report for 2017.
EIOPA updates technical methodology documentation for risk-free interest rate term structures
On 23 December 2016, EIOPA published an update to the technical documentation of the methodology to derive the risk-free interest rate term structures. The update concerns changes to the relevant financial instruments used to derive the risk-free interest rates as a result of recent market developments.
IE reiterates support for EU/US bilateral agreement
IE has publicly reiterated its support for a bilateral agreement on (re)insurance between the EU and US following the most recent round of negotiations between the EU and the US. In a press release issued on 12 December 2016, IE noted that the agreement should lead to uniform treatment for all European (re)insurers placing business in the US and that a positive conclusion would reaffirm the longstanding relationship between the EU and the US in the area of (re)insurance for the benefit of consumers and their wider economies.
IE press release on insurers' interest in infrastructure investment
On 19 December 2016, IE published a press release in respect of its survey on investment by insurers in infrastructure. Amongst other matters, IE notes that EU insurers are becoming increasingly interested in infrastructure investment due to the low interest rate environment and need for portfolio diversification. However, IE highlights that more needs to be done by policymakers to increase future investment, including increasing supply of suitable projects.
IE publishes 'European Insurance in Figures'
On 20 December 2016, IE published 'European Insurance in Figures'. This includes a range of statistics for the European insurance market based on 2015 data. It also provides statistics on the investment portfolios of insurers and market structure (including details on the number of insurance companies in Europe (3,600, presenting a decrease of 3.7% on the prior year's data).
IE and other industry organisations concerned about access to in-vehicle data
Motor insurers may be interested to know that IE joined with a coalition of other industry organisations to voice concerns about access to in-vehicle data. In a joint press release issued on 13 December 2016, the coalition raised specific concerns in relation to a recent proposal which they believe would give vehicle manufacturers control over access to such data. The coalition's view is that this would undermine the rights of vehicle owners and pose a threat to competition, innovation and consumer choice. IE has previously called for vehicle owners to be given more control over their in-vehicle data and has stated that those who share such data with their insurers may in future be able to enjoy a number of benefits from faster claims processing to more sophisticated usage-based insurance products.
For further information please contact a member of the Financial Regulation team.
Date published: 06 Jan 2017