Tracker, Financial Services Regulation & Compliance - Insurance
Central Bank updates guidance on establishing an EEA branch of an insurance undertaking
The Central Bank recently updated its guidance on the establishment of an EEA branch of an insurance undertaking (Guidance). The Guidance takes the form of a checklist detailing the information the Central Bank expects to be provided with for an EEA branch notification. Notably, the Guidance requires full details to be provided in relation to: (a) any proposed outsourcing by the branch; and (b) how branch operations are covered in the undertaking's risk management system and reflected in its Own Risk and Solvency Assessment.
Amendments made to Irish Solvency II Regulations
The Minister for Finance published the European Union (Insurance and Reinsurance) (Amendment) Regulations 2017 (SI No. 384 of 2017) (2017 Regulations) which amend the European Union (Insurance and Reinsurance) Regulations 2015 (Solvency II Regulations). According to the explanatory note, the purpose of the 2017 Regulations is to align the Solvency II Regulations more closely with the Solvency II Directive. The 2017 Regulations include amendments:
- exempting certain third country reinsurers from the scope of the Solvency II Regulations;
- granting the Central Bank the power to impose conditions of authorisation on branches of third-country insurers;
- to Regulation 261 of the Solvency II Regulations which deals with the fitness and probity of persons who run insurance holding companies or mixed financial holding companies; and
- requiring regulatory approval in relation to transfers of reinsurance contracts.
The 2017 Regulations also disapply certain sections of the Insurance Act 1989 (dealing with the separation of assets and liabilities attributable to life assurance business and the application of the assets of life assurance undertakings) insofar as Solvency II undertakings are concerned.
European Commission sets out standardised presentation format for Insurance Product Information Documents required by the Insurance Distribution Directive (EU) 2016/97
The European Commission (the Commission) adopted a Regulation (2017/1469) laying down a standardised form of insurance product information document (IPID) for non-life insurance products which must be provided to customers prior to the conclusion of a contract under the Insurance Distribution Directive (IDD). The purpose IPIDs is to provide customers with a summary of the main features of insurance products. In a related press release, the Commission noted that it intends to adopt further implementing rules in the coming weeks covering conduct of business rules as well as product oversight and governance.
Insurance Europe responds to consultation on draft delegated acts under the Insurance Distribution Directive
Insurance Europe (IE) published its response to a public consultation on the Commission's draft delegated acts (DAs) on product oversight and governance (POG) and insurance-based investment products under IDD. IE broadly welcomes what it regards as improvements to the draft DAs. In particular, IE welcomes the Commission's decision not to include any explicit requirement to identify a 'negative' target market and the fact that the draft DAs acknowledge that POG rules are intended to apply only to newly developed products and significant adaptations of existing products. However, IE is of the view that further clarifications or changes should be considered. For example, IE proposes the inclusion of an explicit provision permitting sales outside target markets and greater recognition of the principle of proportionality in the final DAs.
Insurance Europe calls for further PRIIPs clarifications
On 8 August 2017, IE published a paper highlighting a number of areas in the Commission's Delegated Regulation on the presentation and content of the Key Information Document (KID) for packaged retail and insurance-based investment products (PRIIPs) (2017/653) which it says require further clarification. Those areas include: (a) specific information requirements in respect of multi-option products; and (b) the treatment of annuities. IE also raises a number of technical points concerning the methodologies and formulae set out in the annexes to the Delegated Regulation.
Insurance Europe responds to Commission's inception impact assessment on the REFIT review of the Motor Insurance Directive
IE and the Council of Bureaux published a joint response to the Commission's inception impact assessment on the REFIT review of the Motor Insurance Directive (MID). The response notes that the framework provided in MID for ensuring compulsory motor third party liability (MTPL) insurance and the protection of road users works well and that this will continue to be the case with on-going technological developments such as connected and autonomous vehicles. However, IE is of the view that proposed standardised claims history and bonus/malus systems would be disruptive and of limited value. Whilst acknowledging that there have been issues in some Member States in relation to guarantees of financial compensation in the event of the insolvency of a MPTL insurer, IE is opposed to the creation of a pan-European guarantee scheme. As regards scope, IE is not in favour of extending compulsory MTPL cover under MID beyond accidents caused by motor vehicles in a traffic context to, for example, agricultural, construction or industrial activities.
European Insurance and Occupational Pensions Authority updates Risk Dashboard
On 31 July 2017, the European Insurance and Occupational Pensions Authority (EIOPA) updated its risk dashboard based on data provided by insurers and insurance groups for Q1 2017. The update indicates that risks for the insurance sector remained relatively stable during Q1 with Solvency II ratios remaining strong for groups and only a slight deterioration for solo non-life insurers. However, continuing concerns include: (a) the low-yield environment; and (b) that market fundamentals may not reflect underlying credit risk.
European Insurance and Occupational Pensions Authority publishes monthly updates on the equity capital charge and the relevant risk free interest rate term
EIOPA published monthly technical information on (a) the symmetric adjustment of the equity capital charge (ECC) and (b) the relevant risk free interest rate (RFR) term structures for Solvency II purposes; in each case, with reference to the end of July 2017.
Solvency II Implementing Regulation – calculation of technical provisions & basic own funds
The Commission adopted its latest Implementing Regulation (EU/2017/812) laying down technical information (relating to the RFR, fundamental spreads for valuing the matching adjustment and volatility adjustments) for the calculation of technical provisions and basic own funds for reporting with reference dates from 30 June 2017 to 29 September 2017. The Solvency II Directive requires such technical information to be laid down for every reference date; in each case, the information is based on market data related to the end of the last month preceding the first reporting reference date to which the relevant Implementing Regulation applies.
European Systemic Risk Board publishes macroprudential reports
The European Systemic Risk Board (ESRB) published two reports on macroprudential aspects of insurance. The first such report relates to regulatory risk-free yield curve properties; the second report covers recovery and resolution (RR) in the insurance sector. The report on regulatory yield curves proposes changes to the derivation of the risk-free yield curves that are used to determine the value of insurance liabilities under Solvency II. The ESRB believes that the proposed changes would increase the resilience of the sector. The RR report advocates a harmonised RR framework for insurers across the EU.
For further information please contact a member of the Financial Regulation team.
Date published: 07 Sept 2017