On 30 June, the Central Bank published Issue 19 of its Solvency II newsletter, Solvency II Matters. The newsletter notes that all the Quantitative Reporting Templates (QRTs) submitted by the required High and Medium High impact firms successfully passed the Central Bank's initial taxonomy checks. The newsletter also reminds High and Medium High impact firms that they must provide quarterly data in respect of the third quarter of 2015 in November. In relation to the unsupported version of the Online Reporting (ONR) test environment for Low and Medium Low impact firms, the newsletter notes that the number of reporting errors has been increased to 100 which should assist firms in their preparations for Solvency II.

The Central Bank indicated that it is planning to review how certain undertakings' specific conditions of authorisation will be transitioned to the new Solvency II regime. The Central Bank will contact individual undertakings and provide an update in later editions of Solvency II Matters. The Central Bank is also reviewing its website materials in light of the requirements of the Solvency II regime.

The newsletter also provides an update on the activities of EIOPA, noting that when Set 2 of the Implementing Technical Standards were to be submitted to the European Commission at the end of June, and Set 2 of the Solvency II Guidelines are published in July, this will herald the finalisation of the regulatory framework for Solvency II.

Finally, the Central Bank stated that it will issue an industry survey in early September to assess the preparedness of the Irish insurance firms for Solvency II implementation.

A link to the newsletter is here.


On 11 June, the Central Bank released the Application for Revocation of Authorisation/Registration of Investment, Insurance/Re-Insurance and Mortgage Intermediaries (the Application). The Instructions for Completion (the Instructions) emphasise the importance of completing the Application. Intermediaries are warned that they risk exposure to continued regulatory levies or other levies if they submit incomplete applications, as this will cause a delay in the processing of the revocation.

The Instructions warn of further consequences if a firm fails to complete the voluntary revocation process after it has been commenced. If this occurs, the Central Bank may initiate involuntary revocation procedures against the firm and will take an unfavourable view of both the firm and those involved in its management in respect of such failure. In this scenario the Central Bank indicates that it will take such regulatory action as it considers necessary.

The Application contains template letters which are to be sent to the firm's consumers and product producers in order to inform them of the decision to apply for revocation.

A link to the Application is here.


The European Union (Insurance Undertakings: Financial Statements) Regulations 2015 (the Regulations) came into operation on 17 June. The Regulations give effect to Directive 91/674/EEC (the Insurance Accounts Directive) and revoke the European Communities (Insurance Undertakings: Accounts) Regulations 1996 (S.I. No. 23 of 1996).

A link to the Arthur Cox briefing in respect of the Regulations is here.


On 16 June, the Central Bank published its first Macro-Financial Review of 2015 (the Review). The Review summarises the current state of the macro-financial environment in Ireland by evaluating updates since the previous review (published in December 2014). As part of the Review, the Central Bank notes that despite the existence of a better operating environment as a result of the economic recovery, the insurance industry still faces significant challenges in both the life and non-life sectors.

The Review indicates that increased competition from other financial service providers is causing profitability issues for the non-life sector. While premium income from Irish-risk business rose by 5.3% compared to 2013 as both rates and volume increased, a number of high impact firms reported an underwriting loss in 2014. The Review also notes a slight depression in the solvency position of the non-life sector in 2014, however all firms have preserved their solvency ratio at a level above the minimum requirement of 150%.

According to the Review, the solvency position of most domestic firms in the life sector improved over the course of 2014. However, generating new business that is profitable over the long run has proved challenging and 2014 saw a 5.6% decrease in the retail protection segment and a 38% reduction in the investment segment of the life market. The Review also notes that the variable annuity (VA) sector continues to face difficult operating conditions as a result of the low interest rate environment.

The Review notes that the reinsurance sector has been profitable in recent years, generating €15.4 billion in gross written premium in 2014 (18% higher than in 2013). However, the outlook for the reinsurance sector has been rated negative by all of the major rating agencies as a result of challenges such as the oversupply of capacity and increased retention rates by primary insurers. There has been significant consolidation in this sector which is impacting some firms with substantial operations in Ireland.

A link to the Review is here.



The EC adopted its first package of third country equivalence decisions (the Decisions) on 5 June. The countries referenced in the Decisions are Switzerland, Australia, Bermuda, Brazil, Canada, Mexico and the USA (Equivalent Countries). Switzerland is the only Equivalent Country granted full equivalence for an indefinite period in the three specific areas under Solvency II: (1) solvency calculation; (2) group supervision; and (3) reinsurance. The remaining Equivalent Countries were granted provisional equivalence for 10 years but only in one of the three areas, solvency calculation.

Where a third country is granted full equivalence, EU insurers with subsidiaries in that country can calculate the subsidiaries' capital and own funds using the solvency rules of that equivalent country. Provisional equivalence means that when EU insurers operate in those countries they can use local rules relating to capital and capital requirements rather than Solvency II rules, provided they use the "deduction and aggregation" approach for calculating their solvency requirements.

The European Parliament and Council now have three months to examine the Decisions, with the option to extend this for an additional three months. If approved, the Decisions will be published in the Official Journal and enter into force.

Links to the Decisions are here and here.


On 5 June, the Fourth Money Laundering Directive (MLD4) was published in the Official Journal following the publication of the first draft in February 2013. In February 2013, the European Commission identified the goals of MLD4 to be, inter alia: (1) to provide for a more targeted risk-based approach to supervision; (2) to clarify the rules on customer due diligence; and (3) to provide a clear mechanism for identification of beneficial owners.

The final text of MLD4 reflects the aims set out in February 2013 and includes a number of key provisions. These include requirements for entities to hold accurate information in respect of beneficial owners and explain the application of the simplified due diligence procedure. In addition, the scope of the types of individuals who can be regarded as politically exposed persons has been expanded; the definition of criminal activity has changed to include both direct and indirect taxes; clarification has been provided in respect of the exemption for those who provide financial activity on an occasional basis; an EU Financial Intelligence Unit must be established in each Member State; and additional provisions in MLD 4 set out more detail regarding supervision and enforcement/sanctions.

It is anticipated that MLD4 will be implemented in Ireland in June 2017.

A link to MLD4 is here.


On 26 June, EIOPA published its Annual Report 2014 (the Report). The Report summarises EIOPA's progress in the realisation of its strategic goals. EIOPA has identified these goals as: strengthening consumer protection, delivering quality and timely regulation, ensuring convergence, consistency and quality of supervision, supporting financial stability and developing as a modern and competent authority.

The Report indicates that EIOPA's primary achievements in 2014 in the insurance sector include its work on the Regulation of Packaged Retail and Insurance–Based Investment Products (PRIIPs), its work towards the implementation of Solvency II, the Stress Test of the European Insurance Sector, reporting on the equivalence of the insurance frameworks of Bermuda, Japan and Switzerland, publishing consultation and discussion papers on consumer protection issues and establishing a Supervisory Oversight Team which assessed 10 National Competent Authorities (NCAs) in 2014.

While detailing these achievements, the Report also identified the main challenge facing EIOPA as the imbalance between the tasks and resources which are allocated to it. In describing the management of these resources, the Report states that the efficiency of EIOPA's handling of operational and administrative functions has consistently improved.

A link to the Report is here.


On 8 June, Insurance Europe published its Annual Report for 2014-2015 (the Report). The Report summarises developments in a large number of areas affecting the insurance industry in the previous 12 months. These include prudential regulation, investment issues, new global capital standards, the role of insurers in retirement savings, taxation and changes in financial reporting. The Report makes a number of high level suggestions to EU and international decision makers. The Report highlights the risk of information overload for consumers as a result of overlapping disclosure requirements in EU legislation, for example between PRIIPs, the Solvency II Directive, and the Insurance Mediation Directive (IMD2). The Report notes the insurance industry's concern that Solvency II will make it unnecessarily more expensive for insurers to invest, as a result of the changes to the way risks are measured. Insurance Europe expresses apprehension about proposed changes to the funding arrangements of the European Supervisory Authorities (ESAs) which would involve a move away from EU and national contributions, towards funding from the insurance industry. The Report also comments that the proposed EU data protection regulation threatens to disrupt insurers' ability to use data to underwrite business and prevent fraud.

The Report also summarises the performance of the insurance industry in 2014. The past year has seen a growth in Europe's economy and this is reflected in the insurance sector where total premiums grew on average by 4.2% and are valued at an estimated €1.176bn. This growth is primarily led by the life insurance market, where premiums grew by 6.4% in 2014.

A link to the Annual Report is here.


On 2 June, the Financial Conduct Authority (FCA) published the results of its thematic review entitled 'Delegated Authority: Outsourcing in the General Insurance Market' (the Review). In producing the Review, the FCA examined the outsourced underwriting and claims handling arrangements of 12 insurers, and the associated activities of 19 intermediaries and third party administrators.

The Review noted that the definition of outsourcing includes, inter alia, the external delegation of underwriting authority and other significant functions such as claims handling. Firms sometimes describe other activities as 'delegated' which may not, in fact, involve delegation or outsourcing. The FCA's key concern is that there is a lack of clarity within firms as to their responsibilities when a task is outsourced which increases the risk that customers will not be treated fairly.

The FCA highlighted that many of the insurers and intermediaries included in the Review did not take appropriate steps to meet their regulatory obligations or assess the impact that outsourcing arrangements might have upon customers. In particular, the FCA identified a number of shortfalls by some firms including the areas of (1) assessing conduct risks; (2) carrying out due diligence to select third parties; and (3) controlling outsourced claims functions. In some instances, both insurers and intermediaries did not clearly allocate responsibility to either the insurer or intermediary; have an appropriate level of oversight and monitoring; or adequately handle complaints.

The FCA has indicated that firms should consider the findings of the Review to assess what changes might be necessary within their organisation. The next steps for the FCA include providing feedback to the firms included in the Review and engaging with other EEA regulators in respect of the findings of the Review.

A link to the Review is here.


On 1 June, EIOPA published its Financial Stability Report (May 2015) (the Report), which covers the first quarter of the year. The Report provides an update on major risks to the financial stability of the insurance, reinsurance and occupational pension fund sectors. To a large extent the risks identified in the Report are consistent with those mentioned in EIOPA's previous Financial Stability Report, published in December 2014. These risks are: a weak macroeconomic climate, protracted low interest rates and increased credit risks.

The Report points to two major consequences of the euro area's quantitative easing (QE) policy which have caused issues for the insurance sector. First, the lowering of risk free rates has put the business models of some insurers and pension funds under increased strain. Moreover, the QE programme has the potential to reduce the market volume for some asset classes which heightens the volatility of their daily returns.

In response to the Report, the Chairman of EIOPA, Gabriel Bernardino commented that supervisors must monitor and challenge the industry, particularly in relation to the sustainability of their business models.

He also called for the industry to take action in respect of the weaknesses of 'in-force' business and suggested examining and possibly restructuring the mix of offered insurance products. He concluded by noting that 'the transitional measures included in Solvency II should be used to ensure a smooth transition to the new regime, avoiding disruptions in the market, while ensuring that firms will take the necessary steps to restructure their businesses.'

A link to the Report is here.


On 8 June, EIOPA published its risk dashboard for the first quarter of 2015. The risk dashboard gives an overview of the overall situation in Europe, rather than by country. EIOPA notes that the risk environment remains difficult and that the profitability of insurance companies will continue to be challenged by the persistent low interest rate environment. EIOPA notes that market risks remain high and while there has been slight improvement in macro risks, it is still to be considered fragile. Liquidity and funding risks are still present and should be monitored, but are not currently a major issue.

A link to the risk dashboard 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.