Tracker, Financial Services Regulation & Compliance - Insurance


Central Bank of Ireland (CBI) open for Solvency II Preparatory Phrase reporting

On 14 May 2015, CBI advised that it is open to receive formal submissions of Solvency II preparatory phase reporting. In a recent Solvency II newsletter, the CBI advised firms, based on feedback from test filings, to fully apply the XBRL taxonomy validation rules before attempting to upload returns and to pay close attention to guidance in the User Procedure documents on non-taxonomy related issues. The CBI has now published additional feedback on test filings in its Information Note 7. While preparatory reporting is mandatory for High and Medium High firms, Low or Medium Low impact firms can also choose to submit preparatory phase reports. The deadlines for reporting are 3 June 2015 for individual undertakings and 15 July 2015 for relevant group submissions, however submissions from Low and Medium Low undertakings will be accepted throughout 2015.

Civil Liability (Amendment) Bill to introduce Periodic Payment Orders for catastrophic injuries

On 27 May 2015, the Department of Justice and Equality published the heads and general scheme of the Civil Liability (Amendment) Bill 2015 which will empower the Courts to award index-linked annual compensation payments (Periodic Payment Orders) to claimants in cases involving catastrophic injury.  The new legislation will give the Courts a discretion, in certain circumstances, to award Periodic Payment Orders to claimants who have suffered a severe injury, involving serious impairment, and who need long term care as a result.  Periodic Payment Orders may be awarded to provide for future medical treatment, care and assistance as an alternative to a lump sum payment, which is what claimants must rely on at present.  Periodic Payment Orders may also include damages for future loss of earnings where the parties consent.  Provision is also made for stepped payments (i.e. the amount awarded may increase or decrease on specified future dates consistent with expected changes in the claimant's life and/or needs).

Central Bank of Ireland (CBI) publishes latest editions of Solvency II newsletter

The CBI recently published the latest editions of its Solvency II newsletter. Updates include that the CBI will issue an industry survey in June 2015 to assess preparedness for Solvency II and that detailed template completion instructions and validation rules for national specific templates are expected to be published in mid-June. Notably, the CBI has taken a policy decision that no exemptions from quarterly reporting under current rules will be granted, despite issues raised by stakeholders with respect to duplication of reporting under current rules and under Solvency II in Q1 and Q2 of 2015. In addition, the newsletter contains helpful tables showing submission dates and deadlines for reporting under current rules and Solvency II in 2015 and 2016.

CBI publishes feedback on 2014 FLAOR reports

On 13 May 2015, the CBI published a copy of a 'Dear CEO' letter to (re)insurers outlining general feedback on FLAOR reports submitted in 2014. The feedback notes that: (a) where group FLAOR is used for a local undertaking, it must adequately capture risks arising from the local undertaking; (b) significant risks such as pension risk, reputational risk, group risk and operations risk, among others, were not always considered in the assessment; and (c) the significance of deviations of the risk profile from the assumptions underlying the SCR was not appropriately assessed and should be fully discussed in 2015 FLAOR reports. The feedback letter emphasises areas where undertakings did not fully comply with the CBI's 'Guidelines for Preparing for Solvency II – FLAOR' and states its expectation that (re)insurers consider the feedback and guidelines in preparing 2015 FLAOR reports.

IMF Report – Review of Insurance Supervision in Ireland

On 13 May 2015, the International Monetary Fund (IMF) published a Report on Observance of Standards and Codes for Ireland. The report follows an assessment by the IMF, conducted in December 2014, of Ireland's compliance with the Insurance Core Principles (ICPs) issued by the International Association of Insurance Supervisors (IAIS). Notable recommendations made by the IMF include a review of the supervisory risk appetite underpinning PRISM and a list of ways in which the statutory independence of the Central Bank of Ireland (CBI) could be enhanced. The report notes that the regulatory regime for insurance supervision has a high level of observance of the ICPs. In addition, the IMF found that the CBI has made significant progress in updating the regime, including by the introduction of the Central Bank (Supervision and Enforcement) Act 2013, and that progress will be further enhanced by the introduction of Solvency II.

Central Bank of Ireland (CBI) publishes recent (re)insurance sector speeches

On 13 May 2015, the CBI published the text of a speech by Cyril Roux, Deputy Governor of the CBI, given at the PWC Annual CEO Insurance Dinner. In his speech, directed at the reinsurance and cross-border life sectors, Mr. Roux acknowledged the overall satisfaction of the CBI with engagement by (re)insurers. He highlighted that focus on current market risks and changes and compliance with anti-money laundering legislation are important areas for (re)insurers' attention. On 14 May 2015, the CBI published the text of a speech given by the Director of Insurance Supervision, Sylvia Cronin, at the recent European Insurance Forum. In addressing 'the Changing Landscape of Global Regulation', Ms. Cronin spoke about new regulatory initiatives, including Solvency II, the development of Global Capital Standards and conduct regulation.  Notably, Ms. Cronin emphasised that the CBI has identified that firms have a lot of work yet to undertake in relation to the 'Own Risk and Solvency Assessment' (ORSA) which she identified as a critical component to the success of Solvency II.


CJEU ruling on policyholder information rules beyond the scope of the Third Life Directive

In a recent case, the Court of Justice of the European Union (CJEU) was asked to consider whether the Third Life Assurance Directive (3LD) should be interpreted so as to prohibit an insurance company from being required, by an individual Member State, to provide certain information to policyholders in addition to the information required to be provided by the 3LD.   The CJEU ruled that Article 31(3) of the 3LD clearly permits Member States to impose additional information requirements on insurers but only where it is necessary for the policyholder to understand the essential characteristics of the product or policy and the information required to be given is sufficiently clear and accurate in order to achieve that objective and to guarantee a sufficient level of legal certainty.  The CJEU also ruled that insurers must be able to identify and foresee what additional information they must provide.

Meeting of European Commission expert group focused on insurance issues

On 7 May 2015, the European Commission published draft minutes of the March 2015 meeting of its Expert Group on Banking, Payments and Insurance. Topics discussed at the meeting included: (a) whether a proposal should be put forward on insurance recovery and resolution at EU level; (b) a proposed EU/US covered agreement on reinsurance; and (c) revisions to the EU/Swiss non-life insurance agreement.  Solvency II dominated the agenda.  Member States provided an update on transposition: seventeen indicated that transposition will be completed either before the 31 March deadline or at some point during Q2 2015; five noted that transposition would take place during the second half of 2015; the remaining six Member States were unable to say when transposition would be completed.  The minutes also note that a number of third country jurisdictions have been assessed for equivalence and that there has been a positive outcome for several of them (including Bermuda, Canada and USA) on provisional equivalence for solvency under Article 227.  Only Switzerland has so far qualified for full equivalence for reinsurance, solvency and group supervision under Articles 172, 227 and 260 - however, assessments are ongoing.

Prudential Regulation Authority (PRA) publishes practice paper relating to Solvency II internal model change policy

On 7 May 2015, the PRA in the UK updated its webpage on internal models under Solvency II. The PRA notes that internal model firms are required to have a model change policy. In order to assist such firms (and as the PRA has noticed varying levels of quality in policies), the PRA has published a good practice guidance paper. Headings dealt with in the paper include the scope of model change policy, classification of major changes, and governance. In the paper, the PRA encourages firms to review the effectiveness of their policy in order to ensure that the firm's risk profile is accurately reflected and that the model policy meets Solvency II standards.

European Insurance and Occupational Pensions Authority (EIOPA) publishes updates on Solvency II preparations

On 6 May 2015, EIOPA published a number of updates on its dedicated Solvency II webpage.  A related press release explains that the webpage has been updated to help (re)insurers quickly find all relevant information on Solvency II.  To that end, the webpage now provides links to the regulatory framework at all levels including the first six implementing technical standards (ITS) which were recently adopted by the European Commission (EC). The updated webpage also contains a "Milestones 2015 - 2016" section.  Key upcoming milestones include: (a) Q3 2015 - EIOPA to publish feedback on comments from the public consultation on the second set of ITS and Guidelines; (b) 30 June 2015 - submission of the final set of ITS to the EC for endorsement; and (c) Q3 2015 - release of XBRL taxonomy based on the full final reporting package submitted to the EC.

UK insurers may need more time to comply fully with Solvency II requirements

It has been reported that Andrew Bailey, Chief Executive of the PRA, made a number of comments at a recent Reuters summit on financial regulation to the effect that some UK insurers will only meet Solvency II requirements on its entry into force on 1 January 2016 with transitional relief factored in.  It is reported that Mr Bailey said that some UK insurers will need more time to fully comply with the Solvency II Directive and may make greater use of transitional measures than previously anticipated.  Mr Bailey also said that the PRA will likely make a statement on the use of transitional periods prior to 1 January 2016.  It is also reported that Mr Bailey commented on the difficulty that investors will be faced with in comparing UK and Eurozone insurers under Solvency II as a result of a differential in the availability of long term data underlying the risk-free interest rate.

Lloyd's market bulletin regarding Solvency II data collection requirements

On 12 May 2015, the Society of Lloyd's in the UK published a market bulletin consolidating previous advice on data collection requirements under Solvency II. In the December 2014 bulletin, managing agents were informed of the minimum management information to be obtained from policyholders for 'high product risk' products. The consolidated bulletin sets out each of the data collection requirements, including additional information that must be collected from coverholders and third party administrators, and also data that is required for all direct business for 2016 and onwards. The bulletin provides information on what the requirements mean for both managing agents and Lloyd's brokers and the appendices to the bulletin set out the type of information that must be obtained.

Prudential Regulatory Authority (PRA) issues May 2015 directors' update regarding Solvency II

On 22 May 2015, the PRA issued a letter sent to directors of insurers, providing an update on matters relating to the implementation of Solvency II. The updates include information relating to (a) internal models (including the requirement for firms to have a model change policy), (b) required regulatory reporting and (c) the PRA's upcoming Solvency II activity timetable up to the end of Q2 of 2015.

European Insurance and Occupational Pensions Authority (EIOPA) Q&A on Solvency II Guidelines

EIOPA recently published further Q&A on the Solvency II Guidelines on undertaking-specific parameters and the Guidelines on risk-free interest rates (in three separate documents for answers to (i) general questions and questions on (ii) extrapolation and (iii) matching adjustment).

European Insurance and Occupational Pensions Authority (EIOPA) report on Solvency II staffing and resource requirements

On 7 May 2015, EIOPA published a report detailing its staffing and resource needs in order to accomplish tasks assigned to it under Solvency II. The report concludes that EIOPA has shortfalls in its budget of more than €2 million, and resourcing, of 10 staff members, for 2015. An overview of the powers and duties assigned to EIOPA under Solvency II is attached as an annex to the report.

Financial Conduct Authority (FCA) statement on UK Supreme Court case - PPI

On 27 May 2015, the FCA in the UK made a statement on its current work to assess the impact of the November 2014 UK Supreme Court decision (case citation number [2014] UKSC 61), where the Court held that a 2012 UK Court of Appeal decision ([2012] Lloyd's Rep IR 521) was incorrect and that the taking of an undisclosed commission did create an unfair relationship between a lender and the borrower under the UK Consumer Credit Act 1974. The FCA is considering whether additional rules and/or guidance are required to deal with the impact of this decision on complaints about payment protection insurance (PPI). The FCA will engage with relevant stakeholders with a view to announcing its views on the impact of the Court's decision (as well as giving its views on evidence it has gathered in respect of current trends in PPI complaints) during Summer 2015.

Financial Conduct Authority (FCA) thematic review report on handling of insurance claims for SMEs

On 22 May 2015, the FCA published its thematic review report on the handling of insurance claims for small and medium-sized enterprises (SMEs). Its purpose was to understand whether claims from SMEs (who are often similar to retail consumers in terms of knowledge and experience) were being handled efficiently. The scope of the review (which was limited to first party non-motor claims) included 5 insurers, 10 insurance intermediaries and 19 loss assessing firms. Senior management and claims handlers were interviewed and files were reviewed at each firm. The FCA also engaged an independent research agency to conduct qualitative research with 100 SMEs that had made a claim. The key findings of the review included: (i) that SMEs had a poor perception of the claims experience, with some feeling they were not treated fairly; (ii) there was poor communication between the various parties handling the claim and with SMEs, regarding the progress of claims; and (iii) there were a number of occasions where there was inadequate cover in place to meet the loss. The FCA will engage with firms and senior figures in the insurance sector to discuss the review's findings with a view to improving the process for SME customers.

Financial Conduct Authority (FCA) thematic review on provision of premium finance to retail GI customers

On 11 May 2015, the FCA published a thematic review report on the provision of premium finance to retail general insurance customers. The review focused on the online sale of home and car insurance, following the process up to where purchasers are required to input payment details. The review covered 13 insurers and 30 insurance intermediaries. One of its stated aims was to understand whether firms are ensuring that customers information needs are met when purchasing insurance using premium finance. Key findings included, that in a number of cases, customers are not provided with clear and relevant information on payment options and associated costs and are not receiving sufficient information regarding any instalment options being offered. The FCA notes that the review highlights a need for many firms to ensure that the information they provide to customers is compliant with the FCA's various rules and guidance and also (where relevant) with UK consumer legislation. The FCA has stated that it will engage with the insurance industry and will take any necessary actions to address risks to customers.

Prudential Regulatory Authority (PRA) publishes policy development update

On 1 May 2015, the PRA published its latest policy development update (PDU) dated April 2015.  The PDU sets out an indicative timetable for upcoming PRA publications.  Policy statements (expected to be published later in 2015) in connection with the following matters may, in particular, be of interest to (re)insurers: (a) the PRA's approach to non-executive directors in Solvency II firms; (b) changes to the approved persons regime for insurers; (c) guaranteed asset protection insurance; (d) client money rules for intermediaries; and (e) general insurance add-ons.  The PDU also refers to an upcoming public consultation (expected in September 2015) on UK pensions and retirement rules. 

Insurance Europe responds to European securitisation consultation

On 13 May 2015, Insurance Europe published a position paper in response to the European Commission's public consultation on an EU framework for simple, transparent and standardised securitisation.  In the paper, Insurance Europe welcomes and supports enhanced standardisation, transparency and quality of securitisations (which it believes will help generate interest in securitisation and promote access to this asset class for insurers).  Insurance Europe understands the need for cross-sectoral harmonisation of securitisation rules in Europe and believes that, while development and compliance with new rules may take some time, an immediate review of the current prudential treatment of securitisations is needed.  In the short-term, the paper calls for a number of improvements in the Solvency II approach to securitisations.  While Insurance Europe largely supports the Solvency II approach, it believes that some eligibility criteria and calibration levels should be reviewed.

Insurance Europe publishes Annual Report 2014 - 2015

On 7 May 2015, Insurance Europe published its Annual Report for 2014 - 2015.  The report notes gross written premium growth of 4.2% across Insurance Europe's 34 member countries for 2014.  A number of 'dossiers' are included in the front-end of the report.  These deal with key regulatory and other policy issues relevant to the European insurance industry and set out Insurance Europe's position in these areas.  Topics include: (a) the Solvency II framework and prudential regulation; (b) treatment of long-term investments under Solvency II; (c) the role of IAIS/global capital standards; (d) pensions, taxation and financial reporting; (e) policyholder information and distribution; (f) data protection; and (g) equal treatment/discrimination and risk-rating factors.  On the same date that the report was released, Insurance Europe announced the appointment of Sergio Balbinot as its president for a further three years.

British Insurance Brokers' Association (BIBA) voluntary code of conduct 

On 13 May 2015, BIBA announced that it has launched its voluntary code of conduct for members and reported that it has begun discussions with the Insurance Brokers' Standards Council (through the establishment of a joint working party) with a view to ultimately achieving a single voluntary code of conduct and guidance for insurance brokers. In the press release, BIBA's Chief Executive noted that discussions are expected to be concluded well in advance of BIBA's 2016 conference. The code itself is comprised of four principles and has been welcomed by the Financial Conduct Authority.

Guidance published for Lloyd's market on amendments to Terrorism Act 2000

On 6 May 2015, the Society of Lloyd's published guidance for the Lloyd's market on the impact of amendments to the Terrorism Act 2000 on kidnap and ransom (re)insurance business. The amendments clarify that (re)insurers are prohibited from reimbursing ransom payments made to terrorists. The guidance highlights that (re)insurers must carry out relevant due diligence and screening of kidnap and ransom parties as part of their compliance processes.

Gibraltar joins IAIS International Information Exchange Agreement

On 26 May 2015, the IAIS published a press release announcing the acceptance of the Gibraltar Financial Services Commission as a signatory to its Multilateral Memorandum of Understanding (MMoU) on supervisory cooperation and information exchange. The MMoU, which has 52 signatories, aims to promote financial stability and sound supervision on cross border insurance operations.

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

Date published: 03 June 2015