APRIL 2014 – THIS MONTH'S NEWS
- CENTRAL BANK PUBLISHES FAQ FOR THE CORPORATE GOVERNANCE CODE FOR CREDIT INSTITUTIONS AND INSURANCE UNDERTAKINGS 2013
- CENTRAL BANK PUBLISHES ANNUAL REPORT FOR 2013
- CENTRAL BANK DEPUTY GOVERNOR'S ADDRESS TO THE DELOITTE FUTURE OF PRUDENTIAL REGULATION BRIEFING
- CENTRAL BANK'S FLAOR REPORT UPLOAD FACILITY NOW AVAILABLE FOR HIGH & MEDIUM HIGH INSURANCE UNDERTAKINGS
- INSURANCE IRELAND WELCOMES PWC REPORT 'CREATING THE FUTURE FOR INSURANCE IN IRELAND'
- EIOPA LAUNCHES INSURANCE STRESS TEST AND PUBLISHES SOLVENCY II TECHNICAL SPECIFICATIONS
- JOINT FORUM PUBLISHES POINT OF SALE DISCLOSURE IN THE INSURANCE, BANKING AND SECURITIES SECTORS
- INSURANCE EUROPE PUBLISHES STATISTICS ON THE EUROPEAN LIFE INSURANCE MARKET FOR 2012
- EIOPA PUBLISHES CONSULTATION PAPER ON SET 1 OF ITS IMPLEMENTING TECHNICAL STANDARDS FOR SOLVENCY II
- EIOPA DEVELOPS A COMMON APPLICATION PACKAGE FOR INTERNAL MODELS
- OMNIBUS II ADOPTED
- PARLIAMENT ADOPTS REGULATION ON A KEY INFORMATION DOCUMENT FOR PACKAGED RETAIL INVESTMENT PRODUCTS
- MIFID II AMENDMENTS TO IMD1
- EIOPA UPDATES Q&A ON SOLVENCY II GUIDELINES
IN DOMESTIC NEWS...
CENTRAL BANK PUBLISHES FAQ FOR THE CORPORATE GOVERNANCE CODE FOR CREDIT INSTITUTIONS AND INSURANCE UNDERTAKINGS 2013
On 31 March, the Central Bank published a Frequently Asked Questions document (FAQ) for the Corporate Governance Code for Credit Institutions and Insurance Undertakings 2013 (the Code). The FAQ was drafted on the basis of queries received by the Central Bank in relation to the Code and is intended to be used for guidance purposes only. The FAQ will apply from the same date as the new Code i.e. 1 January 2015. The existing FAQ document (issued in 2010) and existing Corporate Governance Code (2010) will continue to apply in the interim period.
The sections of the FAQ broadly reflect each section of the Code. The FAQ includes:
- guidance on the newly established role of the Chief Risk Officer;
- specific guidance on committees of the board, the additional requirements in respect of the Risk Committee, composition of committees and cross-membership between board sub-committees;
- guidance in relation to the composition of the board, including INEDs and group directors, and requirements regarding attendance at board meetings;
- practicalities around holding board meetings by electronic means;
- considerations for directors including limits on directorships, and the exclusion for directorships held in the public interest on a voluntary and pro bono basis;
- considerations in relation to the roles of the Chairman and Chief Executive Officer; and
- guidance on the requirements regarding the compliance statement and its submission to the Central Bank.
A link to the FAQ is here.
CENTRAL BANK PUBLISHES ANNUAL REPORT FOR 2013
On 30 April, the Central Bank published its Annual Report 2013 and its Annual Performance Statement – Financial Regulation 2013-2014. Both documents contain summaries of the Central Bank's activities in the insurance sector over the course of 2013, including data in relation to the number of (re)insurance licence authorisations and revocations by the Central Bank. Certain key action points are highlighted for 2014 (separate to the Programme of Themed Reviews and Inspections 2014, and its Enforcement Priorities in 2014, which were published earlier this year). Key action points the Central Bank will focus on over the coming year include:
- anti-money laundering and counter terrorist financing;
- consumer protection;
- (re)insurance companies (the Central Bank will monitor these companies as regards their implementation of Solvency II guidelines and expects to step-up its interaction with industry in relation to the internal model pre-application process); and
- fitness and probity (clarification and amendment of the fitness and probity regime will be undertaken as necessary in 2014 together with the publication of updates to the FAQs).
A link to the Annual Report is here.
A link to the Annual Performance Statement – Financial Regulation 2013- 2014 is here.
CENTRAL BANK DEPUTY GOVERNOR'S ADDRESS TO THE DELOITTE FUTURE OF PRUDENTIAL REGULATION BRIEFING
On 15 April, the Deputy Governor of the Central Bank, Cyril Roux, in addressing the Deloitte Future of Prudential Regulation Briefing remarked that "in prudential and regulatory terms, 2014 will be a remarkable year". Overall, Mr Roux stated that the regulatory agenda of the Central Bank is driven by Europe and that this is reflected across all regulated financial sectors. While his address focused substantially on reforms in the banking sector, the Deputy Governor made some interesting comments regarding the insurance industry. He noted that the insurance sector is focused on entering the Solvency II regime at the end of next year and that the Central Bank is preparing for its implementation. He advised that the insurance industry will be stress tested and also that the IMF are due to undertake a review of the Central Bank's insurance supervisory practices, and that, if necessary, the Central Bank will remedy any deficiencies identified to ensure that its practices meet international standards. A link to the address is here.
CENTRAL BANK'S FLAOR REPORT UPLOAD FACILITY NOW AVAILABLE FOR HIGH & MEDIUM HIGH INSURANCE UNDERTAKINGS
On 1 April, the Central Bank reported that its Online Reporting System now includes an upload facility for High and Medium- High impact (re)insurance undertakings and groups to submit their Solvency II- Forward Looking Assessment of Own Risks (FLAOR) reports.
INSURANCE IRELAND WELCOMES PWC REPORT 'CREATING THE FUTURE FOR INSURANCE IN IRELAND'
On 9 April, Insurance Ireland welcomed the report by PwC (commissioned by Insurance Ireland) to assess the insurance industry in Ireland and generate policy proposals aimed at improving the prospects of the industry. The report notes that approximately 27,000 people are employed in the insurance sector, and that an additional 3,000 high value jobs could potentially be created in the insurance sector over the next 5 years. The report states that one in every four persons employed in the financial services sector is employed, directly or indirectly, in the insurance industry and the sector contributes over 4% of total net tax receipts.
The report notes Ireland's competitive advantages over other jurisdictions including the quality of its people and stable tax regime, and recommends that a high level group of senior insurance and government representatives be formed to develop the Irish insurance industry's reputation internationally. The report highlights the opportunity for the insurance sector to invest €1bn in Irish infrastructure projects over the next five years. The report also recommends the development of a new Charter for Irish Consumers, focusing on reform of the pensions and private health insurance regimes.
A link to Insurance Ireland's press release is here.
IN EUROPEAN AND INTERNATIONAL NEWS...
EIOPA LAUNCHES INSURANCE STRESS TEST AND PUBLISHES SOLVENCY II TECHNICAL SPECIFICATIONS
On 30 April, EIOPA launched an EUwide stress test of the insurance sector. The test aims to examine the overall resilience of the insurance sector and to identify its major vulnerabilities. This will allow EIOPA and national competent authorities (NCAs) to define areas for further investigation and to focus supervisory responses. The test comprises two modules. The first, core module includes two adverse market scenarios which cover financial asset stresses, shocks to real estate assets prices and interest rate stresses. The second module aims to address the impact of a low yield environment. EIOPA expects the stress test to cover at least 50% of the market share in the life and non-life sectors in each country. In anticipation of the 1 January 2016 application date for Solvency II EIOPA published, at the same time, the Solvency II Technical Specifications for the preparatory phase that will assist firms in valuing assets and liabilities and calculating solvency/ minimum capital requirements and own funds. The results of the stress test will be published in November 2014.
A link to the press release is here.
JOINT FORUM PUBLISHES POINT OF SALE DISCLOSURE IN THE INSURANCE, BANKING AND SECURITIES SECTORS
On 30 April, the Joint Forum (comprising the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, and the International Association of Insurance Supervisors) (the Joint Forum) published its final report on point of sale (POS) disclosure in the insurance, banking and securities sectors. In August 2013's edition of the Arthur Cox Insurance Bulletin we noted that the Joint Forum had published a consultation paper in relation to POS disclosures. The final report takes into account the submissions received in that consultation.
The report sets out eight recommendations, which are intended for use by policymakers and supervisors. The recommendations include that a POS disclosure document be provided to consumers free of charge, before the time of purchase of the products identified in the report, and that this document should include information to facilitate comparison of competing products. A link to the report is here.
INSURANCE EUROPE PUBLISHES STATISTICS ON THE EUROPEAN LIFE INSURANCE MARKET FOR 2012
On 1 April, Insurance Europe published interesting statistics on the European life insurance market for 2012. The document includes statistics in relation to premiums, contracts, benefits paid and life insurers' investments. Overall life insurance premiums rose by 0.6% (at constant exchange rates) on 2011's figure to €636bn in 2012 (although there was a decrease in Ireland). While there was a 2% increase in the life benefits paid, there was a decrease in the number of life contracts issued in Europe in 2012. There was also an increase in life insurers' investment portfolios to €6.6trn. A link to the press release and statistics is here.
EIOPA PUBLISHES CONSULTATION PAPER ON SET 1 OF ITS IMPLEMENTING TECHNICAL STANDARDS FOR SOLVENCY II
On 1 April, EIOPA launched its consultation on Set 1 of its Implementing Technical Standards (ITS) for Solvency II. EIOPA is now entering the final regulatory phase of Solvency II, during which EIOPA will present its draft ITS and Guidelines to the public. The regime will become applicable on 1 January 2016. The first Set of ITS relates to the approval processes for Matching Adjustment, Ancillary Own Funds, Undertaking- Specific Parameters, Internal Models and Special Purpose Vehicles and the joint decision process on Group Internal Models. It is intended that the ITS will assist (re)insurers and supervisors in their preparation for the approval process which is due to begin on 1 April 2015. The paper states that the consistency of the ITS should ensure that the administrative burden on (re)insurers and supervisors is limited insofar as possible. Market participants and (re)insurance stakeholders are invited to submit feedback on the draft ITS by 30 June 2014, using the template provided on EIOPA's website.
A link to the EIOPA press release is here.
EIOPA DEVELOPS A COMMON APPLICATION PACKAGE FOR INTERNAL MODELS
On 31 March, EIOPA published its Opinion on the Use of a Common Application Package for Internal Models. EIOPA stated that it recognised the concerns from EU insurance groups regarding the diversity of information to be provided by undertakings to NCAs when applying for approval to use an internal model under Solvency II. In order to promote consistent practices among supervisors, EIOPA has developed the Common Application Package to be used by undertakings to organise the documentation to be submitted in their application. EIOPA advises NCAs to recommend insurers use the package when applying for the use of internal models.
The package contains a template and accompanying explanatory document. NCAs are required to consult with insurance groups and provide feedback on the package to EIOPA. Once EIOPA receives feedback, the Common Application Package will be made publicly available.
A link to the press release is here.
A link to EIOPA's opinion is here.
OMNIBUS II ADOPTED
On 14 April, the European Council approved the proposed Omnibus II Directive. Agreement had previously been reached with the European Parliament in November 2013, which agreement was then approved by the Permanent Representatives Committee, on behalf of the Council, on 27 November. Omnibus II will enter into force on the 20th day following its publication in the Official Journal of the European Union. Member States will be required to transpose the Directive by 1 January 2016.
A link to the EU Council press release is here.
PARLIAMENT ADOPTS REGULATION ON A KEY INFORMATION DOCUMENT FOR PACKAGED RETAIL INVESTMENT PRODUCTS
On 15 April, the European Parliament resolved to adopt the proposal for a Regulation on a Key Information Document on packaged retail investment products (PRIPS). The Regulation aims to establish uniform rules applying across all participants in the PRIPS market, and to increase transparency for retail investors (i.e. non-professional investors) who buy such products. The Regulation will ensure that a standard Key Information Document is provided to retail investors prior to them purchasing a PRIP.
PRIPs can be broadly categorised into insurance-based investment products, retail structured securities, structured term deposits and investment funds (investment funds will not be subject to the Regulation until 2019 as regards UCITs and non-UCITs funds). The Key Information Document will be a three page document providing investors with answers to questions regarding the features, risks, and costs of the products. The Regulation is now expected to be formally approved by the European Council in the coming weeks and published in the Official Journal in June 2014. It is expected to apply in each member state from mid-2016.
MIFID II AMENDMENTS TO IMD1
On 15 April, the European Parliament adopted the new Markets in Financial Instruments Directive and Regulation (MiFID II). MiFID II is expected to be adopted by the European Council shortly, following which it is expected to be published in the Official Journal in June. MiFID II will take effect approximately 30 months later subject to certain exceptions.
MiFID II amends the Insurance Mediation Directive (IMD1) in relation to the sale of insurance products that have an investment element. The rationale for this amendment is to ensure that the same standard of protection applies to customers whether they are sold investment products to which MiFID II applies or insurance investment products to which IMD1 applies. However, it is unclear whether these changes to IMD1 will be necessary as the proposed IMD2 Directive addresses these issues and is likely to be in agreed format before the end of 2014. It is anticipated that it will take effect at the same time as MIFID II.
The proposed changes MIFID II makes to IMD1 include a new definition of "insurance-based investment product" (note that the definition is similar to the definition of "insurance-based investment product" in the PRIPS Regulation, referred to above). MiFID II also proposes a new section in IMD1 which provides additional customer protection in relation to the sale of insurance-based investment products. This new section includes requirements regarding the identification and prevention of conflicts of interest and provisions relating to the disclosure of fees provided to insurance intermediaries or insurance undertakings. MiFID II also acknowledges that insurers and employees of insurers are within scope of IMD1 to the extent that they sell insurance-based investment products.
EIOPA UPDATES Q&A ON SOLVENCY II GUIDELINES
During April, EIOPA updated its Questions and Answers template on the Guidelines for preparation for Solvency II. A number of answers have been provided to questions raised in relation to the Submission of Information to National Competent Authorities, again including answers which address confusion around the information to be provided in certain cells of the template documents.
A link to the Questions and Answers is here.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.