Regulations
The European Union (Insurance and Reinsurance) Regulations 2015 (S.I. No.485/2015) (the "Regulations") were signed by the Minister for Finance on 4 November 2015, transposing the Solvency II Directive into Irish law. The Regulations establish new capital requirements, valuation techniques and governance and reporting standards. The Regulations also provide the Central Bank of Ireland with increased supervisory responsibilities.
Background
Solvency II creates a fully harmonised regime for the prudential regulation of insurance and reinsurance business in Europe. The primary purpose of the new regime is to introduce a risk based approach to the supervision of insurers and reinsurers with its principal objective being the protection ofpolicyholders.
Structure
The structure of the Solvency II regime is based on the Lamfallussy process and comprises five levels. Those five levels are:
Level 1: The Directive
Level 2: The Delegated Acts (published 17 January 2015) (the "Delegated Regulation")
Level 2.5: Implementing technical standards (ITS) and regulatory technical standards (RTS)
Level 3: Guidelines issued by EIOPA ("Level 3 Guidelines")
Level 4: The Commission reviews compliance by the EEA member states and can take enforcement option.
Transposition
Each EEA member state must transpose the Solvency II Directive into national law. Ireland has now complied with its obligation in this regard. The Delegated Regulation, the ITS and RTS apply directly without the need to be transposed into national law by each member state. Each member state must comply with the Level 3 Guidelines or explain why they do not comply.
Three pillars
The Solvency II regime applies the three pillar approach to the supervision of insurance and reinsurance businesses.
Pillar I deals with the adequacy of assets, technical provisions and the capital of a firm.
Pillar II deals with qualitative requirements and supervisory review. The qualitative requirements cover a firm's risk management, outsourcing arrangements, governance, senior personnel and underwriting. Firms are also required to prepare an Own Risk Solvency Assessment ("ORSA") identifying risks in their business and the capital needed to manage those risks.
Pillar III covers public reporting and disclosure requirements. Firms will have to disclose more detailed information to their supervisors than has been the case under the existing supervisory regime.
Conduct of business
The Solvency II regime is primarily aimed at prudential regulation rather than conduct of business requirements. Conduct of business requirements will continue to be governed by local laws in each EU member state (such as the Consumer Protection Code in Ireland) as well as the Distance Marketing of Consumer Financial Services Directive and the forthcoming Insurance Distribution Directive.
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