Ireland: Insurance Quarterly Legal And Regulatory Update - 1 January 2015 To 31 March 2015

Solvency II

(i) ECON Letter to European Commission on Solvency II Regulation and Response

On 9 January 2015, the European Parliament published a letter (dated 19 December 2014) from the Chair of its Committee on Economic and Monetary Affairs ("ECON") to the European Commissioner for Financial Stability, Financial Services and Capital Markets Union, on the proposed Delegated Regulation supplementing the Solvency II Directive (2009/138/EC) (the "Solvency II Delegated Regulation").

The letter states that following an analysis by the European Parliament's Solvency II negotiating team, the European Parliament has drawn up a list of issues relating to the European Commission's proposals. These issues which are set out in the Annex to the letter relate to:

  • Corrections to the text of the proposal;
  • The empowerments given to the Commission under Solvency II;
  • Future work relating to Solvency II to be conducted by the Commission and the European Insurance and Occupational Pensions Authority ("EIOPA").

The European Parliament requested the Commission to take immediate action to ensure that EIOPA has the necessary resources to fulfil the powers and duties stemming from the Solvency II Delegated Regulation. Following this, on 30 January 2015, the European Commission published a letter from the European Commissioner for Financial Stability, Financial Services and Capital Markets Union responding to the ECON letter on the Solvency II Delegated Regulation. In the letter, it states that:

  • The fact the European Parliament and the Council of the EU accepted the Solvency II Delegated Regulation as adopted by the European Commission, without requesting an extension of the scrutiny period, provides legal certainty on the new prudential regime for insurers.
  • The European Commission has started to work on a review of the calibration of capital requirements on infrastructure investments in the broader context of the capital markets union.
  • A report will be adopted on the issue of the resources of EIOPA. This report will be an important tool in relation to helping the budgeting authority determines EIOPA's future resources.
  • The European Commission is still waiting for input from EIOPA to complete its assessment of third country regimes. The equivalence decisions will be put forward as soon as possible, with major jurisdictions being prioritised. On 11 March 2015, EIOPA published final reports (all dated 30 January 2015) on third country equivalence for Bermuda, Switzerland and Japan. Further detail is set out in section (xii) of this Solvency II section.

(ii) Time Period for European Parliament to object to Delegated Regulations on Solvency II, LCR and leverage ratio expires

A press release was published on 12 January 2015 by the European Commission announcing that the Solvency II Delegated Regulation and the Delegated Regulation supplementing the Capital Requirements Regulation (Regulation 575/2013) ("CRR") concerning the liquidity coverage ratio ("LCR") and the leverage ratio will become law.

Under Article 301a of the Solvency II Directive and Article 462 of the CRR, these Delegated Regulations will enter into force if no objection has been expressed by the European Parliament or the Council of the EU within a period of three months of the notification of the Regulations by the Commission to the European Parliament and Council or if, before the expiry of the three months, the European Parliament and the European Commission have informed the Commission that they will not object.

The European Commission announced its decision not to object to the Solvency II Delegated Regulation in November 2014 and similarly decided not to object to the Delegated Regulation on the LCR and the leverage ratio in December 2014.

The Solvency II Delegated Regulation (Regulation 2015/35), which supplements the Solvency II Directive (2009/138/EC) was published in the Official Journal on 17 January 2015 and came into force the day after publication (18 January 2015).Separately, the Delegated Regulation which supplements the CRR concerning the LCR has also come into force on 18 January 2015.

(iii) Solvency II Overview – Frequently Asked Questions ("FAQ")

On 12 January 2015, the European Commission published a fact sheet of FAQ's in order to provide an overview of Solvency II and the Delegated Act. The Regulation supplements the Solvency II Directive setting out the detailed requirements for individual undertakings as well as for groups and will make up the core of the single prudential rulebook for insurance and reinsurance undertakings in the European Union. The FAQ's outline:

  • What Solvency II is and why it is necessary;
  • What the Delegated Act adds to the directive;
  • When the new rules become applicable;
  • Whether there are transitional provisions; and
  • The costs for implementing Solvency II etc.

On 1 April 2015, a number of early approval processes will start, such as the approval process for insurers' internal models to calculate their Solvency Capital Requirement ("SCR") before the full applicable date on 1 January 2016.

For the questions and answers in full, the fact sheet is accessible via the following link:

http://europa.eu/rapid/press-release_MEMO-15-3120_en.htm

(iv) EIOPA 2015 Budget Cuts will impact Solvency II

On 2 February 2015, EIOPA published a press release explaining the implication of the 2015 budget cuts.

In the press release, it states that EIOPA's budget for 2015 will be reduced by 7.6% (around €1.7 m) compared to 2014 and currently equals €19.9m. EIOPA has undertaken a reprioritisation exercise in order to respond to these cuts and ensure delivery of high quality work, including extensive reallocation of human resources and rationalisation of funds as well as postponement and cancellation on on-going projects.

It also states that through 2015, Solvency II implementation remains EIOPA's highest priority and that a number of work streams in the areas of Financial Stability and Consumer Protection have been deprioritized as a result for example, the Solvency II training programme for supervisors will be reduced by 20% and production of the IT supervisory toolkit related to XBRL reporting has been cancelled. Investments into EIOPA's operating software, infrastructure and efficiency of business processes will also be very limited.

(v) First Set of EIOPA Solvency II guidelines issued in official EU languages

EIOPA published a press release on 2 February 2015 announcing that it has issued its first set of guidelines under the Solvency II Directive (2009/138/EC) in the official languages of the EU. The guidelines are addressed to National Competent Authorities ("NCAs") and financial institutions.

The aim of the guidelines is to ensure the common, uniform and consistent application of EU law, as well as to establish consistent, efficient and effective supervisory practices. EIOPA states that the guidelines are "in line" with Solvency II and the European Commission Delegated Regulation on Solvency II (Regulation 2015/35) which the guidelines aim to clarify.

The NCAs are required to confirm whether they comply or intend to comply with the guidelines within two months of the "issuance date" (2 February 2015), therefore the NCAs need to confirm this no later than 2 April 2015.

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