Tracker, Financial Services Regulation & Compliance - Insurance


Central Bank policy note - submission of information under Solvency II

On 29 October 2015, the Central Bank of Ireland (Central Bank) published a policy note on submission of information.  This sets out requirements and guidance in relation to certain Central Bank discretions/options available under the Solvency II regime.  An exemption from submission of certain quarterly reporting templates for (re)insurers with low and medium-low PRISM rating has been introduced for 2016.  The exemption applies unless the Central Bank contacts the firm to confirm otherwise (the Central Bank intends to do so by 13 November 2015).  Other confirmations set out in the paper include that the Central Bank will not be requiring (for supervisory reports to be submitted to it) that currency and exchange rates other than those used to prepare financial statements must be utilised.

Central Bank issues Policy Notice and Feedback Statement on Solvency II Fitness and Probity 

On the 7 October 2015, the Central Bank published a policy notice outlining changes that will be made to the Fitness and Probity regime for all (re)insurers subject to Solvency II requirements. (Re)insurers must designate an individual to be responsible for key functions under Solvency II and (where required) submit Individual Questionnaires for approval in advance of 1 January 2016.  Prior to 1 January 2016, a new pre-approval controlled function (PCF) (Head of Actuarial Function) will be prescribed and the current roles of Chief Actuary and Signing Actuary will be removed from the list of PCFs. The Central Bank has also published a feedback statement on its recent consultation (CP92) on these issues.

Central Bank publishes Intermediary Times and PII guidelines

On 1 October 2015, the Central Bank published guidance on professional indemnity insurance (PII) requirements for intermediaries, including insurance intermediaries. The guidance addresses issues such as the need to ensure that PII policies do not limit the amount payable in relation to Ombudsman awards.  The PII guidance is highlighted in the latest issue of the Central Bank's Intermediary Times newsletter, which also emphasises (a) that firms should inform the Central Bank of change of company status under the Companies Act 2014 and (b) the potential impact of Solvency II on insurers' relationships with intermediaries (e.g. regarding product development/distribution).

Central Bank publishes additional National Specific Templates

On 29 October 2015, the Central Bank published the remaining two of its Solvency II national specific templates (NSTs) (NST.01 and NST.02).  These NSTs must be used for periodic reporting under Solvency II, and are available on the Central Bank's website.

Solvency II newsletter

On 29 October 2015, the Central Bank published the latest edition of its Solvency II Matters newsletter.  In particular, this highlighted the areas the Central Bank is prioritising before Solvency II implementation.  These include  approval of internal model applications (formal approval can only be given once Solvency II has been transposed; notably, the Central Bank expects this in early November), issuing revised conditions of authorisation to (re)insurers, processing applications for new PCF roles and reviewing the guidance and requirements on its website.

Central Bank releases 2014 insurance statistics

The Central Bank recently released its insurance statistics for 2014. The publication summarises information gathered from returns made to the Central Bank by insurers regarding business written during the year. The statistics include details of new business effected, including premiums written by insurers with head offices in Ireland (€5,391,880,000 in respect of Irish, and €24,989,944,000 in respect of foreign, risks).

Central Bank hosts Solvency II breakfast briefing

On 28 October 2015, the Central Bank hosted a breakfast briefing to discuss certain implications of Solvency II.  Amongst other matters, the Central Bank explained (a) that the recent restructuring of the insurance directorate was driven by factors including Solvency II preparation and volumes of cross border business and (b) proposed changes to its PRISM (Probability Risk and Impact SysteM) framework (e.g. revised risk categories).


Infrastructure risk in the spotlight - amendment proposed to CDR 

On 30 September 2015, the European Commission adopted a proposed amendment to the Solvency II Commission Delegated Regulation ((EU) 2015/35) (CDR). This must now be considered by the Council of the EU and the European Parliament.  The proposed amendment would introduce tailored and favourable treatment for certain infrastructure investments (mainly infrastructure special purpose vehicles (SPVs)). Insurance Europe has commented that, while it welcomes the action taken, capital charges for such investments would remain disproportionate and diversification benefits achieved by such investments are not reflected.  On 16 October 2015, the European Commission requested further advice from the European Insurance and Occupational Pensions Authority (EIOPA).  EIOPA will now consider possible inclusion of non-SPV infrastructure corporates in the infrastructure risk class which will benefit from the amendment to the CDR (and provide appropriate calibrations to be applied to them).  EIOPA has been asked to deliver its advice prior to the end of January 2016.

EIOPA corrects errors in second set of Solvency II ITS and guidelines

On the 23 October 2015, EIOPA published documentation correcting errors identified in its reports on implementing technical standards (ITS) on regular supervisory reporting and public disclosure and Guidelines on reporting for financial stability purposes and supervision of branches of third-country insurers. EIOPA's amendments to the ITS's have been submitted to the European Commission for incorporation.

EIOPA reviews methodology on ultimate forward rates

On 9 October 2015, the EIOPA published a press release announcing that the ultimate forward rates (UFRs) (used to calculate the risk-free interest rate term structures under Solvency II) will remain unchanged until at least the end of 2016. EIOPA is reviewing the methodology for deriving the UFRs and will launch a public consultation next year, with a view to reaching a decision on the outcome by September 2016.

Insurance Europe launches online data tool

On 1 October 2015, Insurance Europe published an insight briefing on its new online date tool, 'InsuranceData'. The tool is designed to facilitate access to current insurance data. The data relates to areas such as European insurance premiums, benefits and claims, investments made by European insurers and industry and country data.  Data will be provided by Insurance Europe members and will be updated regularly.

EU and US insurance bodies restate their case for full inclusion of insurance in TTIP

On 15 October 2015, Insurance Europe, the American Insurance Association and the American Council of Life Insurers (collectively, representing the insurance sectors in the US and the EU) jointly reiterated their support for the inclusion of insurance in the Transatlantic Trade and Investment Partnership (TTIP).  The press release issued by those bodies calls for the 11th round of TTIP negotiations on 19 October 2015 to address this, with a view to opening markets for US/EU insurers and ensuring a healthy global insurance industry.      

IAIS publishes higher loss absorbency requirements for G-SIIs

On 5 October 2015, the International Association of Insurance Supervisors (IAIS) released a paper describing the initial version of its higher loss absorbency (HLA) requirement for global systematically important insurers (G-SIIs). The IAIS intends that the HLA will be privately reported to group-wide supervisors by G-SIIs, commencing in 2016.  Following implementation of the HLA (expected in 2019), G-SIIs will be expected to hold regulatory capital at least equal to the sum of the basic capital requirement (or BCR, developed in 2014) and the HLA.

EIOPA technical updates

EIOPA has recently released its monthly technical information on the symmetric adjustment of the equity capital charge for Solvency II and relevant risk free interest rate term structures to be applied by (re)insurers in calculating their technical provisions.  On 22 October 2015, EIOPA published updated information on its website in relation to the standard data point model and XBRL taxonomy design to be used in respect of Solvency II.

Insurance Europe restates concerns about the financial transaction tax

On 20 October 2015, Insurance Europe published a position paper re-emphasising its concerns about the financial transaction tax proposed for 11 EU Member States.  Those concerns include that the tax would ultimately lead to increased consumer costs.  The paper suggests limiting the proposals' effect on the insurance industry, e.g. by means of exemptions for intra-group transactions and derivatives used for risk mitigation.

Insurance Europe launches awareness campaign on global warming

On 6 October 2015, Insurance Europe launched its "target two degrees" campaign, aimed at encouraging initiatives to limit global warming.  Insurance Europe recognises this as important to the insurance sector due to challenges involved in providing cover, given the increased frequency/severity of natural disasters. A petition will be presented to the UN chief negotiators ahead of the UN climate conference in Paris at the end of 2015.

UK PRA report and speech on the effect of climate change on insurers

The Prudential Regulation Authority in the UK (the PRA) recently issued a report on the effects on climate change on the UK insurance sector (coinciding with a speech given by Mark Carney, Governor of the Bank of England on the same issue). The report and speech identify three primary risks in this regard which present a potentially substantial challenge to insurers' business models.  These are physical risks (e.g. flood and storm), transition risks (i.e. due to a switch to a lower carbon economy) and liability risks.   

EIOPA updates its 2015/16 action plan for colleges of supervisors

On 8 October 2015, EIOPA published an updated 2015/2016 action plan for colleges of supervisors. Unsurprisingly, the focus of the action plan is the implementation of Solvency II.  Updates include acceleration of discussions on the extension of Solvency II group supervision to the sub-group level and a focus on discussion between colleges as to how EIOPA can ensure effective and secure information sharing between colleges.

ABI issues statement of good practice in relation to cluster policy withdrawals

On 14 October 2015, the Association of British Insurers (ABI) published a statement of good practice for insurance providers regarding cluster policies (i.e. investments split between life policies). The statement outlines (a) the way in which policyholders should be advised regarding withdrawal of sums from a cluster policy, and (b) certain intervention measures which should be taken in the context of surrenders, so as to avoid unintended tax consequences for the policyholder. The ABI also emphasises that staff (particularly those likely to receive withdrawal requests by telephone) should be suitably trained for this purpose.

IAIS paper on conduct of business in inclusive insurance

On 13 October 2015, the IAIS published a revised draft paper on conduct of business in inclusive insurance (i.e. insurance products aimed at excluded or underserved markets/customers).  The paper aims to provide an overview of (and promote regulators' understanding of) issues that affect fair treatment of customers in such markets. The paper outlines the features of the market, the life cycle of its products and makes recommendation on issues identified.

International Forum publishes Principles of Funding for Insurance Guarantee Schemes

On 1 October 2015, the International Forum of Insurance Guarantee Schemes published a paper entitled Principles of Funding for an Insurance Guarantee Scheme (IGS) (dated August 2015). The paper focuses on different methods of funding an IGS and factors to be taken into account in this regard (including basis for calculation of payments to the IGS, segregation and management of funds within the IGS and tax implications).  

IAIS publishes report on observance of the Insurance Core Principles

On 23 October 2015, the IAIS published the findings of its self-assessment and peer review of the Insurance Core Principles (ICP) 9 (Supervisory Review and Reporting), 10 (Preventative and Corrective Measures) and 11 (Enforcement).  This report assessed the observance of the ICPs by national supervisors.  Key challenges identified in the context of observing the ICPs include a lack of supervisor powers/flexibility to meet the object of the ICP; and the non-binding nature of the expectations (resulting in less effective enforcement).

FCA to consult on complaints deadline for PPI

On 2 October 2015, the Financial Conduct Authority in the UK (FCA) announced that it intends to consult on the introduction of a two year deadline for the making of payment protection insurance (PPI) complaints by consumers. Amongst other matters, the consultation paper will detail the FCA's reasons for proposing the change. The FCA also intends to run a communications campaign to prompt consumers to complain in advance of the deadline (if ultimately imposed).

FOS Ombudsman News – latest edition published

On 20 October 2015, the UK Financial Ombudsman Service (FOS) published the latest edition of it Ombudsman News.  Notably for the insurance industry, this contains case studies illustrating the FOS' approach to the most common complaints relating to life insurance and critical illness cover. It also highlights that payment protection insurance accounted for 58% of all complaints received by it in late 2015.

FCA to review client money rules for intermediaries

On 2 October 2015, the FCA published an update confirming its intention to publish a policy statement on review of client money rules for insurance intermediaries. The publication date has yet to be confirmed.

IAIS and IFSB publish final draft paper on microtakāful

On 22 October 2015, the IAIS and the Islamic Financial Services Board (IFSB) published a joint final draft paper on Issues in Regulation and Supervision of Microtakāful (Islamic microinsurance).  The paper aims to provide guidance on establishing an enabling environment for development of the sector.  Amongst other matters, it considers microtakāful models, the overarching regulatory framework and challenges faced by providers of such cover and their regulators.  

Lloyd's publish information on valuation of liabilities rules for year-end solvency

Lloyd's recently published a market bulletin, rules and additional information for managing agents and actuaries relating to calculation of technical provisions and valuation of underwriting liabilities for solvency purposes for year end 31 December 2015. The bulletin notes that the basis for valuation is largely unchanged when compared to the rules issued in September 2014.

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

Date published: 09 November 2015