Tracker, Financial Services Regulation & Compliance - Insurance


New Regulations regarding insurers' financial statement

On 17 June 2015, the European Union (Insurance Undertakings: Financial Statements) Regulations 2015 were signed into law. They came into force on the same date, revoking the European Communities (Insurance Undertakings: Accounts) Regulations 1996.  The 2015 Regulations apply the provisions of Part 6 of the Companies Act 2014 to insurers (with some exceptions and modifications). Detailed rules and format for insurers' financial statements are set out in the Schedule to the Regulations.

Central Bank - latest edition of Intermediary Times

In its latest issue of its Intermediary Times newsletter, the Central Bank reports on its 2014/2015 themed reviews of the retail intermediary sector (including of insurance intermediaries).  Key findings reported include varied levels of compliance in sales of pensions products (with 53% of files examined displaying an unacceptable level of compliance in areas such as information gathering and record keeping) and that 98% of firms reviewed did not hold the required level of professional indemnity insurance (PII) cover (in most cases due to failure to meet the increased level of PII, post 31 July 2014). 

Central Bank presentation to the Society of Actuaries' Solvency II Forum

The Central Bank has published its presentation to the Society of Actuaries' Solvency II Forum held on 17 June 2015.  The presentation addressed solvency capital requirement (SCR) calculations, the own risk and solvency assessment (ORSA) process and volatility adjustments.  Key points highlighted include consistency of SCR calculations with technical provisions, consistency between risk modules, data considerations and treatment of deferred tax.  Interestingly, the Central Bank noted a lack of Board ownership/discussion regarding ORSA, and provided guidance on the process for applying to the Central Bank for approval to use the volatility adjustment.


EIOPA modifies methodology for calculating risk-free interest rate term structures

On 19 June 2015, the European Insurance and Occupational Pension Authority (EIOPA) announced that it had modified its methodology for calculating the risk-free interest rate terms structures for the purposes of Solvency II.  The modification relates to the daily fixing times of certain rates on which the calculation is based. EIOPA expects the impact of the change to be minimal.  EIOPA's monthly publication of the term structures (ongoing since February 2015) is to be applied by (re)insurers in the calculation of their technical provisions for Solvency II purposes.  EIOPA's June 2015 publication reflects the modified methodology.  

European Commission decisions on Solvency II third country equivalence

On 5 June 2015, the European Commission adopted its first third country equivalence decisions under Solvency II relating to Switzerland, Australia, Bermuda, Brazil, Canada, Mexico and the USA. Full equivalence (for an indefinite period) has been granted to Switzerland for reinsurance, solvency and group supervision under Articles 172, 227 and 260. Provisional equivalence (in respect of solvency calculation) has been granted for the other countries for a period of 10 years from 1 January 2016.  The decisions will need to be reviewed by the European Parliament and the Council of the EU (within three months or, if that period is extended, six months).

EIOPA updates Solvency II DPM and XBRL taxonomy design

EIOPA recently updated its Solvency II reporting format webpage with links to new information and documentation in relation to the data point model (DPM) and XBRL taxonomy design (XBRL). The revised XBRL package (version 1.7) is a revised version of that proposed for use under Solvency II.  EIOPA notes that it is not to be used for reporting but that its purpose is to demonstrate planned changes in modelling and technical implementation of XBRL, compared to earlier versions.

ESAs publish PRIIPS discussion paper on KIDs

On 23 June 2015, the Joint Committee of the European Supervisory Authorities (ESAs) published a second discussion paper on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs). The technical discussion paper seeks feedback on possible methodologies to determine and display risk, performance and costs in the KID. Comments are invited by 17 August 2015. 

Insurance Europe position paper - EU financial services regulation

On 18 June 2015, Insurance Europe published a position paper entitled Stocktaking and Challenges of the EU Financial Services Regulation.  The paper was issued in connection with the European Parliament's Committee on Economic and Monetary Affairs public hearing on that subject, held on 16 June 2015. Amongst other matters, the position paper highlights (a) duplication in consumer protection legislation as a key concern (e.g. the numerous disclosure requirements applicable to the sales of insurance-based investment products) and (b) the risk/impact of development of various, distinct international capital standards on Solvency II. 

UK ruling on whether PPI mis-selling liabilities transferred Part VII scheme

On 5 June 2015, the UK High Court ruled that liabilities imposed by the UK Financial Ombudsman Service on an insurer (to compensate policyholders who were mis-sold payment protection insurance (PPI) did not transfer with the policies under a Part VII transfer (known in Ireland as a portfolio transfer).  The case turned on the Court's construction of the scheme documents (in particular the definition of the term "Transferred Liabilities").  The Court took account of the circumstances of the transfer and a number of commercial and other factors in reaching its conclusion.  Notably, the Court's view was that it would be contrary to business sense to hold that the parties to such a transfer implicitly intended to accept an open-ended liability for PPI mis-selling. 

Lloyd's & IUA - joint guidance on the UK Insurance Act 2015

On 11 June 2015, the Lloyd's Market Association and the International Underwriting Association jointly published a practical guide to assist their members in understanding the nature, practical implications and challenges of the core changes which will be affected by the Insurance Act 2015 in the UK.  In particular, the guide focuses on the duty of fair presentation (the 2015 Act equivalent of the policyholder's duty of disclosure to the insurer and utmost good faith).   

IAIS – proposed revisions to Insurance Core Principles

On 17 June 2015, the International Association of Insurance Supervisors (IAIS) launched consultations on revisions to several IAIS Insurance Core Principles (ICPs).  These include 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 ICP 25 (Supervisory Co-operation and Co-ordination).  The IAIS has also published a consultation on revisions to its ICP Glossary Definitions regarding governance and group supervision.  Comments are invited by 17 August 2015.  The IAIS plans to adopt revised ICPs in November, having taken stakeholder feedback into account.

IAIS focuses on conduct of business in inclusive insurance

On 19 June 2015, the IAIS published a draft issues paper for consultation.  The paper relates to conduct of business in 'inclusive insurance' (i.e. insurance products aimed at excluded or underserved markets/customers, including but not limited to products aimed at low income earners). The paper describes (a) some key features of such markets and (b) identifies certain conduct of business issues that arise in such markets and affect fair treatment of customers. The paper seeks to promote understanding of these issues in industry and amongst supervisors.  Feedback is invited by 6 August 2015. 

UK FOS publishes latest edition of Ombudsman News

On 23 June 2015, the UK Financial Ombudsman Service (FOS) published the latest edition of its newsletter, Ombudsman News.  From an insurance perspective, certain case studies included highlight issues which can arise in the areas of complaints regarding provision/presentation of information to consumers by insurance intermediaries on websites, and dealings with consumers by telephone. 

Insurance Europe publishes speech given at International Insurance Conference

On 2 June 2015, Insurance Europe published a speech given by its president at the 7th International Insurance Conference held in Luxembourg in May.  The speech is critical of several aspects of international initiatives including (a) Solvency II (as regards implementation timelines, the shift in approach from a principle-based to rules-based approach and the treatment of long-term guaranteed products); (b) the development of international capital standards by the IAIS; (c) the PRIIPs Regulation and the proposal for a revised Insurance Mediation Directive (in both cases, as regards information requirements); and (d) regarding shift in focus from co-ordinating efforts of supervisors to development of international capital standards).

EIOPA publishes latest Financial Stability Report

On 1 June 2015, EIOPA published its Financial Stability Report (dated 29 May) for the first half of 2015.  In its related press release, EIOPA notes that the key risks identified in its prior report (December 2015) remain broadly unchanged; namely a weak macro-economic climate, protracted low interest rates and a low yield environment, and increased credit risk.  The Report notes that quantitative easing in the Eurozone may help to create favourable conditions for insurers and pension funds in the long term, but has put additional pressure on some firms in the short term. The report also includes a number of 'thematic articles' relating to insurance sector profitability and the macroeconomic environment.  

EIOPA publishes speech given by its Chairman at European Insurance Conference

EIOPA has published a speech given by its Chairman at the European Insurance Conference held in London on 2 June 2015.  The speech highlights some key actions and challenges of Solvency II implementation, in particular: (a) implementing ORSA; (b) ensuring that internal models adhere to the highest possible standards; (c) being prepared for Solvency II reporting requirements; (d) use of Solvency II adjustments and transitional periods; and (e) regulatory treatment of infrastructure investments.  Notably, the speech notes concerns voiced by the insurance industry in relation to the volume of regulation under Solvency II and states that EIOPA intends to limit further regulatory texts to those that are essential.

FCA focuses on options for measuring value of GI products

On 24 June 2015, the UK Financial Conduct Authority (FCA) published a discussion paper on options for the publication of product value data in the general insurance market.  Market studies previously conducted by the FCA have found that competition in that market is not effective and that consumers are paying too much for some products that offer poor value.  This discussion paper proposes measures to improve transparency and value.  Feedback (including any alternative options for achieving this aim) on the discussion paper is invited by 24 September 2015.

FCA introduces new GAP insurance rules

On 10 June 2015, the FCA published a policy statement on guaranteed asset protection (GAP) insurance. This sets out the FCA's final proposed rules aimed at improving competition in the GAP insurance market.  Amongst other matters, the rules will require distributors of GAP insurance in connection with the sale of motor vehicles to provide customers with information to encourage them to shop around for GAP products, and a deferral period of 4 days to prevent GAP insurance being sold to a customer on the same day that it is introduced to them. 

IAIS updates on G-SIIs and IAIG work

On 25 June 2015, the IAIS launched a public consultation on the Higher Loss Absorbency (HLA) capacity for Global Systemically Important Insurers (G-SIIs). The HLA will be a globally comparable group capital requirement applying to all GSIIs. The consultation paper sets out various options to support and inform the development of the HLA.  Comments are invited by 21 August 2015.  On the same date, IAIS also published updated information on the development of its risk-based, global insurance capital standard which is to apply to internationally active insurance groups (IAIGs). The updated information is contained in an FAQ and a general information document on the IAIS website.

FCA issues significant fine for PPI complaints handling

On 4 June 2015, the FCA issued a fine of over Stg £117 million for a failure to treat customers fairly when handling PPI. The FCA found that complaint handlers had not been notified of known failings identified in a PPI provider's PPI sales processes. The FCA confirmed that PPI complaints handling is a high priority issue for the FCA and that customers need to be confident that complaints will be handled fairly, if trust is to be restored in the market. 

EIOPA – speech on insurance distribution

On 12 June 2015, EIOPA published a speech given earlier in the month by its Chairman, at the Annual General Meeting of the European Federation of Insurance Intermediaries. Amongst other matters, the speech mentioned that it is hoped to reach a compromise text for the draft Insurance Distribution Directive (IDD) by the end of June and highlighted elements of the IDD which EIOPA considers particularly important (such as addressing conflicts of interest and provision for continuous professional development for distributors). The speech also outlined important focuses for EIOPA in dealing with conduct risk, in particular strong corporate governance, regulation of product oversight, governance and sales incentives, enhanced conduct of risk supervision, and credible and dissuasive enforcement.

Insurance Europe concerns on Shareholder's Rights Directive

On 2 June 2015, Insurance Europe published a position paper outlining its concerns regarding the European Parliament's Legal Affairs Committee report (dated 12 May 2015) on the revision of the Shareholder’s Rights Directive.  Key issues raised included the proposed 'unexpected' extension of the scope of the Directive to include large companies and large groups, rather than only listed companies. Additionally, with respect to the shareholder engagement policy to be disclosed by institution investors and asset managers under the proposed Directive, Insurance Europe's view is that the definition of engagement policy is not sufficiently clear, requirements on public disclosure on voting behaviour is not feasible, and deleted 'comply or explain' provisions (to apply where a policy is not published or certain information is not disclosed) should be reinserted.

Insurance Europe - concerns with proposed data protection developments

On 15 June 2015, Insurance Europe issued a press release noting that insurance sector concerns remain regarding the proposed EU general data protection Regulation. On the same date, the Council of the EU agreed a general approach on the Regulation. Insurance Europe acknowledged that the new rules were created with major search engines, online marketers and social media platforms in mind.  However, it emphasised that, as insurers and consumers may be adversely affected, it was vital that insurers’ concerns are considered during trialogue discussions (due to commence shortly). Key points raised by Insurance Europe include that data controllers (such as insurers) should be provided with a legal basis to process data for the purposes of fraud detection/prevention and that insurers should not be forced to disclose confidential information to competitors.

Belgium and Slovakia join IAIS International Information Exchange Agreement

During June 2015, the IAIS published press releases announcing the acceptance of the Belgian Financial Services and Markets Authority and the National Bank of Slovakia as signatories to its Multilateral Memorandum of Understanding (MMoU) on supervisory cooperation and information exchange. The MMoU, which now has 54 signatories, aims to promote financial stability and sound supervision on cross border insurance operations.

EIOPA updates risk dashboard

On 8 June 2015, EIOPA published its updated quarterly risk dashboard, based on data provided by certain large insurance groups for Q1 of 2015. This data shows that the risk environment facing the insurance sector remains challenging. Specific points highlighted include that (a) market, liquidity and funding risks have not changed since the last review, (b) profitability continues to be challenged by low interest rates and (c) the risk sensitiveness introduced in Solvency II capital requirements will increase awareness of exposure to products with long-term guarantees (EIOPA notes that in light of this, firms will likely adapt their business models and/or asset and liability management strategies).

Insurance Europe comment on Permanent Establishment status under BEPS action plan

On 12 June 2015, Insurance Europe published its comments on the permanent establishment (PE) status aspects of the draft Base Erosion and Profit Shifting Action Plan (published by the Organisation for Economic Cooperation and Development (OECD) in May 2015). The draft Action Plan aims to address weakness in the international tax environment including by preventing the artificial avoidance of PE status.  Insurance Europe welcomes the recognition by the OECD that an insurance-specific option in amending the definition of PE is not required. Insurance Europe believes that further refinement of the proposed PE definition is required so that insurers are not subject to a disproportionate compliance burden due to creation of PEs for tax (but not regulatory) purposes.

FCA to review delegated authorities in the GI market

On 2 June 2015, the FCA published the results of its thematic review of delegated authority arrangements in the UK general insurance (GI) market. The FCA's aim was to understand how firms approached this issue and assess whether appropriate systems and controls were in place to ensure that there was no detriment to customers. Key findings included that many of the firms had not appropriately considered their regulatory outsourcing obligations, and that there was not enough emphasis on how customers' interests might be impacted. The FCA outlined its expectations in this regard.  These include that insurers have effective, risk-based controls and monitoring in place to cater for conduct risk and customer detriment. The FCA also expects firms to consider the impact of Solvency II on their outsourcing arrangements, and to remedy any shortcomings in arrangements as soon as possible.

PRA Solvency II Updates

Throughout June, the Prudential Regulatory Authority in the UK (the PRA) has published a number of documents and updates on Solvency II matters.  These include:

  • a mix of supervisory statements & consultations in relation to supervisory approval for the volatility adjustment (i.e. the content and approval process), regulatory reporting and internal model outputs, the ORSA, and the ultimate time horizon for non-life firms and internal model reporting codes and components and life product codes. Responses are invited by 10 July 2015.
  • feedback and updates in relation to the matching adjustment (in particular, further clarification on management of collateral arrangements, collateral received against stock-lending activity and treatment of reinsurance in the MA calculation; as well as other issues on asset eligibility and MA calculation),  the ORSA based on a high level PRA review of ORSA reports received (identifying, for example, stress testing and the forward-looking nature of the ORSA assessment as areas of significant weakness, feedback for firms on review of their Solvency II balance sheets, and a new webpage on legal entity identifiers for which all firms must apply by 30 June 2016 and updated webpage on the use of the Solvency II taxonomy for preparatory phase submissions.
  • speeches and articles in relation to continuity and change under Solvency II (including the PRA's expectations of executive and non-executive directors' knowledge of the internal model the growing policy initiative to consider increased investment by insurers in infrastructure) and the regulation of insurers under Solvency II (including issues which are not explicitly covered by Solvency II such as resolution of insurers that fail or that require further monitoring and consideration such as review of internal models).

IAIS and IFSB publish consultation on microtakaful

On 19 June 2015, the IAIS and the Islamic Financial Services Board published a joint consultation draft paper on Issues in Regulation and Supervision of Microtakaful (Islamic Microinsurance). The paper is intended to provide an overview, and enhance understanding, of regulatory issues in respect of microtakaful.  Feedback is invited by 6 August 2015.

EIOPA 2014 Annual Report released

On 26 June 2015, EIOPA published its Annual Report regarding its activities during 2014.  In the report, EIOPA gives its views on disparity between its workload and its resourcing and the challenges it faces as a result.  In its work supporting insurance regulation, EIOPA highlighted the importance of (and its focus on) delivery of Solvency II standards and guidelines.

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

Date published: 03 July 2015