Tracker, Financial Services Regulation & Compliance - Insurance

Central Bank of Ireland (CBI) publishes its economic letter on mortgage insurance

On 10 February 2015, CBI published an Economic Letter on mortgage insurance (MI) in an Irish context.  The Letter includes: (a) an overview of the features of MI; (b) related regulatory considerations; and (c) commentary on MI's use in other countries.  It also sets out issues for consideration regarding the use of MI in the Irish market.  Notably, the Letter acknowledges that MI can support a well-functioning mortgage market.  However, amongst other matters, it points out that rather than reducing risk of systemic crisis, MI only moves this risk from lenders to insurers and, further, inherent conflicts of interest in the payment structure of MI products make it important to ensure clear and transparent pricing and the ability for the mortgagor to choose the provider. 

Intermediary Times – PII Reminder

In the latest edition of its Intermediary Times newsletter, published in February 2015, the Central Bank reminds investment intermediaries that are also registered insurance intermediaries that they must hold professional indemnity insurance (PII) in respect of their investment business, as well as cover for their insurance mediation business.

EU & International 

Solvency II – Commission Delegated Regulation comes into force

The European Parliament recently published a letter received from the Commissioner for Financial Stability, Financial Services and Capital Markets, in relation to the Solvency II Commission Delegated Regulation (CDR) which came into effect on 18 January 2015.  The letter agrees with prior calls (including from the Chair of the Committee on Economic and Monetary Affairs (ECON)) for a review of the calibration of capital requirements on infrastructure investment and advises that work has been initiated with a view to achieving a more risk-sensitive treatment of infrastructure investments.  The letter also confirms that a report will be adopted regarding future resourcing for EIOPA (concern having been previously expressed by the ECON Chair in that regard).  Replies to specific issues raised by ECON concerning the CDR are set out in an Annex to the letter.  

EIOPA – first set of Solvency II guidelines

On 2 February 2015, the European Insurance and Occupational Pensions Authority (EIOPA) issued its first set of Guidelines under the Solvency II Directive in all official languages of the EU.  National Competent Authorities (NCAs) must confirm whether they comply or intend to comply with the Guidelines by 2 April 2015.  On 3 February 2015, EIOPA also issued its final reports on two public consultations under Solvency II, relating to Guidelines on the System of Governance (Governance Guidelines); and Guidelines on Own Risk and Solvency Assessment (ORSA Guidelines).  Interestingly, the report indicates that several stakeholders submitted that there are many instances where the Governance Guidelines go beyond the provisions of the Solvency II Directive.  EIOPA confirms that it does not agree with this view. 

New EIOPA workstream - infrastructure investments by insurers

On 4 February 2015, the European Insurance Occupation Pensions Authority (EIOPA) announced that it is commencing a new workstream on infrastructure investments by insurers.  In particular, EIOPA intends to: (a) develop a definition of infrastructure investments; (b) evaluate potential criteria for a new class of long-term high quality infrastructure assets; and (c) examine the risk profile and prudential treatment of infrastructure investments within the Solvency II regime.

EIOPA - conflicts of interest in insurance-based investment product sales

On 4 February 2015, EIOPA published its final report and its technical advice to the European Commission, regarding conflicts of interest in sales of insurance-based investment products.  The report summarises the feedback received on EIOPA's 2014 consultation and its key conclusions based on these.  Key recommendations reflected in the report and technical advice include requiring clear disclosure of inducements, ensuring that such inducements do not affect the insurance intermediaries and insurer's duty to act in the best interests of consumers and for insurers/intermediaries to put in place an effective written conflicts of interest policy.  

Insurance Europe comments on base erosion and profit shifting proposals

On 9 February 2015, Insurance Europe published its comments on the discussion draft on action point 4 of the Base Erosion and Profit Shifting (BEPS) Action Plan published by the Organisation for Economic Cooperation and Development (OECD) in December 2014. The draft aimed to address weakness in the international tax environment.  Key points highlighted by Insurance Europe include that existing regulatory requirements already act as an effective limitation for the insurance sector in that regard and its preference is for a blanket exclusion for insurance company interest from the scope of BEPS Action 4. 

EIOPA issues statement on impact of budget cuts

On 2 February 2015, EIOPA issued a press release explaining the implications of recent budget cuts on its 2015 work programme.  EIOPA has undertaken a reprioritisation exercise in response to the cuts, including by the postponement/cancellation of projects.  Solvency II will remain the highest priority for EIOPA. However, amongst other matters, the Solvency II supervisor training programme will be curtailed and production of the IT supervisory toolkit for XBRL reporting has been cancelled.  

EIOPA publishes symmetric adjustment of Solvency II equity capital charge

On 4 February 2015, EIOPA published technical information on the symmetric adjustment of the equity capital charge for Solvency II to assist insurers in calculating their solvency positions as at 31 December 2014 and 31 January 2015.  As of March 2015, this information will be updated on a monthly basis. (Re)insurers using the standard formula are required to hold a certain amount of regulatory capital to compensate for losses in the value of equities in adverse scenarios. The calculation of the symmetric adjustment of the capital charge is based on the behaviour of an equity index built by EIOPA exclusively for that purpose.

EIOPA opinion on sales of insurance and pension products via the internet

On 3 February 2015, EIOPA published an opinion (dated 28 January 2015 and addressed to national supervisors) on sales via the internet of insurance and pension products.  The opinion provides examples of certain consumer protection issues EIOPA has identified regarding online distribution.  These include that, in an online context, most customers do not conduct sufficient searches for information and are less likely to read disclosure documents when purchasing, and distributors do not always provide adequate advice.  EIOPA's recommendations include that national supervisors become more proactive in how they collect information on online distribution activities used by distributors. National Competent Authorities have been asked to provide feedback (including details of actions taken in light of EIOPA's recommendations) within six months.

UK Insurance Bill receives Royal Assent

On 12 February 2015, the UK Insurance Bill was enacted and is now known as the Insurance Act 2015. The Act includes most of the UK Law Commission's recommendations (including to provide that an insurance claim cannot be denied where the insured can show that breach of a term, on foot of which the denial of claim is founded, was not relevant to the loss that occurred).  The Act also amends the UK Third Parties (Rights against Insurers) Act 2010 (which has not yet been brought into force).

Insurance Europe welcomes capital markets union consultation

On 18 February 2015, Insurance Europe issued a press release welcoming the European Commission's publication of a Green Paper on the capital markets union.  Insurance aspects of the paper include the prudential treatment of long-term investments. The paper notes that the recently finalised European Long-Term Investment Funds (ELTIFs) regulatory framework will allow long term investment in companies and infrastructure projects. Insurance Europe commented that, as Europe’s largest institutional long-term investors, insurers are hopeful that work can be done to reduce barriers to making long-term investments (which are vital to growth and stability in Europe).

Insurance Europe publishes response to IAIS consultation on risk-based global ICS

On 17 February 2015, Insurance Europe published its response to the International Association of Insurance Supervisors (IAIS) recent consultation on a risk-based global Insurance Capital Standard (ICS).  Notably, Insurance Europe comments that the envisaged IAIS timeline for the ICS is very ambitious and that it will be more realistic for the IAIS to give itself more time to design and test measures that are fit for purpose and aim for achievable incremental progress.

EIOPA publishes letter to European Commission on Recovery and Resolution

On 12 February 2015, EIOPA published a letter (dated 6 February) to the European Commission concerning ongoing discussions as to possible future work of the Commission in the area of recovery and resolution of insurance undertakings.  Notably, the letter supports an EU legislative initiative to achieve a minimum level of harmonisation with respect to this issue, including the development of a harmonisation framework for Insurance Guarantee Schemes (IGS) in the EU. The letter outlines EIOPA's views on various policy issues, including: (a) fragmentation of existing recovery/resolution systems and emerging conflicting national solutions; (b) current risk outlook (risk of "double hit" stress scenario); (c) scope of the problem; and (d) role of IGS.     

Insurance Europe comments on proposal to simplify transfer of vehicles in EEA

On 23 February 2015, Insurance Europe issued a press release voicing concerns about a European Parliament proposal to eliminate certain administrative barriers to re-registration of motor vehicles in the EEA.  Insurance Europe believes that, as currently drafted, the proposal could lead to increased levels of uninsured driving which would be detrimental to European road safety.  In particular, Insurance Europe believes that the existing registration systems designed to prevent uninsured driving should not be reduced (e.g. it believes that failure to have insurance cover should be one of the grounds for refusal of an application for re-registration).

Commission speech on insurance distribution

The European Commission recently published a speech (given by its Commissioner for Financial Stability, Financial Services and Capital Markets Union) regarding insurance distribution. The Commissioner confirmed his confidence that IMD 2 can be finalised in the first half of 2015.  However, he voiced certain concerns regarding the reality/strength of a single European insurance market.  In particular while the recently adopted PRIIPS Regulation introduced a common standard of disclosure for relevant investment products, the same level of coherent disclosure would not apply to other types of insurance products. Further, at a practical level, most consumers can only purchase insurance products in the EU Member State where they live even though products offered in another Member State may be cheaper and more suitable.

Insurance Europe response to discussion paper on KIDs for PRIIPs

On 17 February 2015, Insurance Europe published its final response to the ESA's (European Supervisory Authorities) November 2014 discussion paper on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs). The aim of the KID is to help retail investors better understand and compare PRIIPs, by being provided with accurate, fair and clear pre-contractual information in a standard form. Amongst other matters, Insurance Europe believes that it is important to apply a clear and comparable cost indicator and clearly distinguish between costs and premiums, and to avoid confusing duplication of pre-contractual information, e.g. under Solvency II, IMD2 and the PRIIPs Regulation.

UK Insurance fraud taskforce - terms of reference

On 17 February 2015, the UK government published a webpage for the recently established insurance fraud taskforce.  The website includes details of the taskforce's terms of reference and the minutes of its meetings held to date.  Key issues discussed at those meetings include future topics of focus (including categorising fraud, identifying gaps in current industry practice, use of data and the power of courts and deterrents) and the regulation of claims management companies and the progress being made by the insurance industry in respect of anti-fraud initiatives (e.g. data sharing). The taskforce intends to produce an interim report by March 2015 and a final report by the end of 2015.

IAIS questionnaire on market conduct

On 5 February 2015, the International Association of Insurance Supervisors (IAIS) announced a self-assessment and peer review on market conduct. The questionnaire addresses Insurance Core Principles (ICPs) 18 and 19 which relate to intermediaries and conduct of business, respectively. The questions relating to ICP 19 are divided into two parts to cover (a) insurers and (b) intermediaries. Responses are invited from participating firms by 2 March 2015.

IAIS policy on meeting attendance and consultation

On 13 February 2015, the IAIS published finalised policies relating to attendance at IAIS Committee and sub-committee meetings and consultation of stakeholders.   The consultation policy contains an annex with further detail on the processes for developing and adopting supervisory material (e.g. measures for global systemically important insurers) and supporting material (e.g. issues papers and application papers). 

FCA to assess UK PPI complaints process

The Financial Conduct Authority (FCA) in the UK recently announced that it plans to collect evidence regarding the functioning of the payment protection insurance (PPI) complaints process.  The FCA confirmed that, following assessment of the information collected, it may take steps including introduction of time limits on complaints and other changes. The FCA expects work to begin on the process shortly, and aims to share its findings during the summer.

Various Solvency II publications by the PRA

On 12 February 2015, the Prudential Regulation Authority (PRA) in the UK issued a letter sent to the directors of insurers, providing an update on matters relating to Solvency II. The updates relate to Solvency II-related approvals, including for the matching adjustment and internal models, to  the entry into force of the CDR and to the PRA's upcoming Solvency II activity timetable.  On 10 February 2015, the PRA published an update regarding its approach to the balance sheet, technical provisions and own funds review under Solvency II.  This clarifies aspects of the PRA's reporting approach on these points proposed in October 2014; including further detail in relation to the format of reports required. On 19 February 2015, the PRA launched a consultation (CP5/15) on its expectations of firms under EIOPA's first set of Solvency II Guidelines.  Comments are invited by 19 March 2015.  On 20 February 2015, the PRA released an updated supervisory statement (SS2/14) on the recognition of deferred tax under Solvency II.  On 20 February 2015, the PRA also published a letter to (re)insurers, regarding the treatment of equity release mortgage assets (ERMs) in calculating the matching adjustment under Solvency II.

EIOPA report on functioning of colleges and accomplishments of action plan 2014

On 20 February 2015, EIOPA published its year-end report on the functioning of colleges of supervisors and accomplishments of its 2014 action plan.  Areas for improvement identified in the report include more structure for information exchange and risk analysis between colleges (obstacles in this regard include market sensitivity) and further attention on the discussion on preparatory guidelines for Solvency II.

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

Date published: 4 March 2015