Ireland: Insurance Regulatory Update - January 2015

Last Updated: 10 February 2015
Article by Elizabeth Bothwell and Jennifer McCarthy

JANUARY 2015 – THIS MONTH'S NEWS

  • INSURANCE BILL INCLUDED IN LEGISLATIVE AGENDA
  • CENTRAL BANK PUBLISHES SERVICE REPORT ON REGULATORY TRANSACTIONS
  • INSURANCE IRELAND PUBLISHES FACT FILE 2013
  • INSURANCE IRELAND WELCOMES TÁNAISTE'S ANNOUNCEMENT ON PENSIONS
  • BANKING INQUIRY PROHIBITED FROM DISCLOSING CONFIDENTIAL CENTRAL BANK DOCUMENTS
  • SOLVENCY II DELEGATED REGULATION COMES INTO FORCE
  • INSURANCE EUROPE ISSUES PRESS RELEASE IN RESPECT OF DELEGATED REGULATION
  • INSURANCE EUROPE RESPONDS TO EIOPA's CONSULTATIONS ON EQUIVALENCE
  • INSURANCE EUROPE COMMENTS ON THE PROPOSED DATA PROTECTION REGULATION
  • INSURANCE EUROPE PUBLISHES INSURANCE FIGURES FOR 2013
  • PRUDENTIAL REGULATION AUTHORITY ISSUES CONSULTATION PAPER ON SOLVENCY II
  • FINANCIAL CONDUCT AUTHORITY PUBLISHES GUIDANCE IN RESPECT OF THE RETROSPECTIVE APPLICATION OF RULES

IN DOMESTIC NEWS...

INSURANCE BILL INCLUDED IN LEGISLATIVE AGENDA

On 14 January, the Government published its legislative agenda for the spring/summer session 2015. The agenda includes an Insurance Bill, which will provide an alternative statutory regime for insurance undertakings that are outside the scope of the Solvency II Directive. Publication of the Bill is expected in 2015.

CENTRAL BANK PUBLISHES SERVICE REPORT ON REGULATORY TRANSACTIONS

On 30 January, the Central Bank published its Regulatory Transactions Service Standards Performance Report for the period from July 2014 to December 2014 (the Report), (in August 2014's edition of the Insurance Regulatory Update, we reported the results for the first six months of 2014). The purpose of the Report is to demonstrate the turn-around time of the Central Bank in (i) processing Individual Questionnaires (IQs) in respect of persons proposed for Pre-Approval Controlled Functions (PCFs) and (ii) authorisation of regulated financial service providers.

The Report notes that the Central Bank exceeded its performance targets in six of the seven targets set. It indicates that the Central Bank processed over 92.51% of 'standard' IQ applications (i.e. non QIFs and/or individuals not previously approved) within 15 business days. However, the Central Bank failed to reach its target of processing over 75% of authorisation applications within 3 months of completion, the figure reached was 60%.

The Report contains an appendix listing common reasons for the returning of IQ applications as incomplete. Reasons given for returning applications include providing incomplete documentation relating to compliance with the Minimum Competency Code, and failing to provide a complete list of directorships/senior positions for the applicant in sections 6 and 9 of the IQ.

A link to the Report is here.

INSURANCE IRELAND PUBLISHES FACT FILE 2013

On 1 January, Insurance Ireland published its annual Fact File for 2013. The Fact File provides key facts and figures on the insurance industry in Ireland using statistics for 2013 and the period from 2009 to 2012 for comparison. The Fact File sets out interesting statistics on the life and pensions market, the non-life insurance market and the international life assurance market from 2009 to 2013. The Fact File indicates that gross insurance premium income for domestic life and non-life insurance combined was €11,313 million in 2013, an increase of 6.9% on income in 2012. Premium income as a percentage of GDP was 7%, up from 6.5%. Premiums per capita increased by 4.5% from €2,352 in 2012 to €2,459 in 2013. The capital values of assets in many insurance areas increased in 2013, for example assets comprising domestic life policyholders' funds and non-life technical reserves increased by 4.6% to €8.9bn at the end of the year.

A link to Fact File is here.

INSURANCE IRELAND WELCOMES TÁNAISTE'S ANNOUNCEMENT ON PENSIONS

On 9 January, Insurance Ireland welcomed the Tánaiste's announcement that Government has permitted an expert group to begin work on a new retirement plan. The plan intends to address the fact that too few people are contributing to a pension. The proposal is to introduce a universal retirement savings scheme for private-sector workers. The expert group's focus will be on automatic enrolment in pension schemes for employees not employed by the State who do not have existing private pension schemes.

In the October 2014 edition of the Insurance Regulatory Update we reported on Insurance Ireland's report on the issue - "A Universal Pension for Ireland". The report highlighted the role the insurance industry can play in establishing and maintaining the proposed pension model.

A link to the press release is here.

BANKING INQUIRY PROHIBITED FROM DISCLOSING CONFIDENTIAL CENTRAL BANK DOCUMENTS

The Central Bank (Amendment) Bill 2014 (the Bill) proposes imposing sanctions on any TD or Senator who makes a public disclosure of confidential Central Bank documents. The Central Bank Act 1942 and subsequent EU directives prohibit the Central Bank from disclosing confidential documents. These strict secrecy laws would prohibit the disclosure of key documents to the Oireachtas committee conducting the banking inquiry. The Bill would create a 'gateway' whereby the committee can access these confidential documents to help inform their deliberation. However, the committee members will be debarred from quoting from these documents, identifying individual documents or identifying any individual or corporate body. Under Parliamentary Privilege members of the Oireachtas are normally immune from any civil or criminal liability for statements made in the course of their legislative duties. The Bill curtails this rule by allowing sanctions to be applied to members of the Oireachtas who disclose information from confidential Central Bank documents.

IN EUROPEAN AND INTERNATIONAL NEWS...

SOLVENCY II DELEGATED REGULATION COMES INTO FORCE

On 17 January, the European Commission published its Delegated Regulation supplementing the Solvency II Directive in the Official Journal of the European Union. The Delegated Regulation came into force on 18 January 2015. The regulations make up the second level of legislation implementing the Directive and are known as 'Level 2' measures. The Delegated Regulation is now directly applicable to all Member States, ensuring all provisions are implemented harmoniously throughout Europe.

We reported on the text of the Delegated Regulation in the October edition of the Insurance Regulatory Update. By way of reminder, the Delegated Regulation sets out implementing rules (based on 76 specific delegations of power to the Commission set out in the Directive) and provides detailed requirements for insurance undertakings and groups. It contains 381 Articles and adds detail to the principles set out in the Directive. In terms of format, the Delegated Regulation is divided into 3 titles. Title I contains rules on: Pillar 1 (valuation and risk-based capital requirements); Pillar 2 (enhanced governance); and Pillar 3 (increased transparency). Title I is further sub-divided into 15 chapters that cover implementing rules on every aspect of the Directive including valuation of assets and liabilities, own funds, solvency capital requirement, governance, reporting and disclosure etc. Title II sets out all implementing rules for insurance groups, and Title III covers rules on third country equivalence and some final provisions.

The Commission also published a 'Frequently Asked Questions' document, which helpfully explains the purpose of the Delegated Regulation and provides guidance on issues concerning the Delegated Regulation and the Solvency II Directive.

A link to the Delegated Regulation is here.

A link to the FAQ is here.

INSURANCE EUROPE ISSUES PRESS RELEASE IN RESPECT OF DELEGATED REGULATION

On 19 January, Insurance Europe issued a press release following the publication of the Delegated Regulation in respect of Solvency II in the Official Journal. The press release indicated that the publication was an important step forward in the implementation of Solvency II but highlighted that due to its size, it was necessary to ensure that review processes are built into the Delegated Regulation. In particular, Insurance Europe noted that it welcomed the letter sent by Parliament, which highlighted areas of Solvency II that need further review.

A link to the press release is here.

INSURANCE EUROPE RESPONDS TO EIOPA'S CONSULTATIONS ON EQUIVALENCE

On 23 January, Insurance Europe published a Position Paper on EIOPA's consultations on Solvency II equivalence of regimes in Switzerland, Bermuda and Japan that were published in December 2014. Insurance Europe welcomes EIOPA's work in the assessment process as to the equivalence of these countries noting that they are important partners to European insurers in terms of market capacity and diversification. Insurance Europe, however, is concerned about the timing of the equivalence decisions as they are a precondition to the submission of internal models, which is due to start on 1 April 2015. Insurance Europe notes that it is important that multinational groups with EU headoffices are certain that they will be able to "compete on a level playing field in foreign markets". In addition, it is crucial that European cedants know whether their reinsurance contracts with third country counterparts will be treated in the same way as contracts concluded with (re)insurers that are subject to the Solvency II regime. Insurance Europe believes that the European Commission and other European institutions should approve delegated acts concerning equivalence as a matter of priority.

A link to the Position Paper is here.

INSURANCE EUROPE COMMENTS ON THE PROPOSED DATA PROTECTION REGULATION

On 22 January, Insurance Europe published its comments on the proposed Data Protection Regulation (the Regulation). The Regulation will supplement the existing data protection framework. Insurance Europe made a number of recommendations. It recommends allowing insurance undertakings to profile both current and potential policyholders so that insurers can properly evaluate the risks and create individualised cover for policyholders. It also recommends that the Regulation allow insurers to process and share information used to reduce insurance fraud. It raised concerns about the proposed new right to "data portability". This would give policyholders the right to demand a copy of any data about them held by an insurer. Insurance Ireland recommends that insurers be permitted to withhold confidential and commercially sensitive data. In particular it states that they should be able to withhold their underwriting criteria, their risk pricing tools and structures.

It also recommends that the proposed "right to be forgotten" not apply where there is a contractual relationship between an organisation and an individual. Nor should it apply to data that the insurer is obliged to keep under other regulations or to data kept for the purposes of preventing and detecting fraud.

On 27 January, Insurance Europe issued a press release highlighting its concerns about the proposed right to be forgotten. It stated that unless the above amendments are made to the proposed right there will be an increase in the cost of providing insurance. As it stands the proposed right could increase the rate of fraud, create difficulties for companies in complying with their contractual obligations to policyholders who enforce the right and it might force insurers to breach other EU legislation that require that they retain certain data. The resulting increase in cost would inevitably be passed on to policyholders.

A link to Insurance Europe's briefing is here and its press release here.

INSURANCE EUROPE PUBLISHES INSURANCE FIGURES FOR 2013

Insurance Europe has published its European Insurance Figures for 2013. The report provides data on the performance of the insurance industry in Europe in 2013. Total European gross written insurance premiums amounted to €1,117 billion in 2013, which is an increase of 2.1% following an increase of 0.8% in 2012. European life premiums, which accounted for 60% of all premiums written in Europe, grew by 3.1% in 2013 to €667 billion. The four largest markets continued to be in the UK, France, Germany and Italy. European non-life premiums amounted to €450 billion in 2013, representing an annual increase of 0.7%. Total benefits and claims paid by European insurers remained stable in 2013 compared to 2012, and amounted to €952 billion. In 2013, an average of €1,883 per capita was spent on insurance in Insurance Europe's full member countries. The total investments portfolio held by Europe's insurance companies grew by 3.1% in 2013, to €8,527 billion. This can largely be explained by a 2.1% increase in premiums and the positive performance of financial markets. As in 2012, 2013 saw a slight reduction in the number of insurance companies operating in Europe to 5,357 firms.

In 2012, bancassurance continued to be the main life insurance distribution channel, largely due to its substantial market share in certain large life insurance markets (e.g. bancassurance accounted for more than 60% in France). The report notes that Ireland and Croatia are the only two countries where direct sales are the primary life insurance distribution channel. In the non-life market, agents continue to be the main distribution channel in Europe, followed by brokers, direct writing and bancassurance.

A link to the report is here.

PRUDENTIAL REGULATION AUTHORITY ISSUES CONSULTATION PAPER ON SOLVENCY II

On 23 January, the Prudential Regulation Authority (PRA) published a consultation paper in respect of transitional measures and the treatment of participations (CP3/15). The consultation paper seeks views in respect of proposed changes to the PRA Rulebook and two supervisory statements in order to implement Solvency II (as amended). This is the fourth consultation on rules to transpose Solvency II.

The consultation paper notes that the Directive allows firms to apply to the PRA for approval to (1) transition from the current discount rate requirements to the corresponding requirements under Solvency II, and (2) utilise transitional measures in respect of technical provisions. The proposed amendments in respect of these measures, including the calculation method, is set out in Annex A to the consultation paper. The consultation paper also includes two draft supervisory statements. The first is in respect of the PRA's expectations regarding these transitional measures. The purpose of the second supervisory statement is to provide clarity in respect of internal model treatment of participations with respect to the calculation of the solvency capital requirements.

The closing date for responses is 20 February 2015.

A link to the Consultation Paper is here.

FINANCIAL CONDUCT AUTHORITY PUBLISHES GUIDANCE IN RESPECT OF THE RETROSPECTIVE APPLICATION OF RULES

On 22 January, the Financial Conduct Authority (FCA) published guidance in respect of the retrospective application of rules. In 2014, the FCA asked firms for feedback and examples of situations in which firms believed that the regulator had acted retrospectively. The feedback highlighted certain ongoing issues. In particular, firms noted that they assumed that inaction by the FCA in respect of the manner in which firms applied certain rules implied that firms were interpreting rules accurately. One firm also noted that the ability of one regulatory body to interpret rules set out by another regulatory body posed a key concern in respect of retrospection. The guidance notes that a large proportion of the feedback did not in fact relate to retrospective application of rules but helped to highlight the manner in which the FCA regulates firms.

The FCA stated that whilst it needs the freedom to interpret rules in a more stringent fashion, if necessary, and to act in accordance with its current standards when it finds "examples of poor behaviour", its aim is to become more forward looking in order to limit instances of reactive regulation. The guidance sets out three areas which the FCA seeks to focus on: (1) improved communication with firms; (2) the potential use of waivers for rules that are out-dated; and (3) early intervention in respect of rules that are misinterpreted by firms.

A link to the guidance 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.

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