Ireland: Insurance Quarterly Legal And Regulatory Update - 1 April 2015 To 30 June 2015

Solvency II

(i) The Central Bank's Consultation paper on "Domestic Actuarial Regime and Related Governance Requirements under Solvency II" (CP92)

On 15 April 2015 the Central Bank of Ireland ("Central Bank") issued a Consultation Paper on "Domestic Actuarial Regime and Related Governance Requirements under Solvency II" ("CP 92"). CP 92 discussed the requirement to notify the Central Bank of the person responsible for the Actuarial Function, called the Head of Actuarial Function ("HoAF") which will be known as a PCF position. This will be done by the Central Bank's Fitness and Probity regime and will require pre – approval. The new PCF position will be introduced from the 1st January 2016 and the existing PCF positions of Chief Actuary and Signing Actuary will no longer exist.

The HoAF is required to provide an opinion to the Central Bank on an annual basis on the technical provisions of the undertaking which will be referred to as the Actuarial Opinion on Technical Provisions. The HoAF is additionally expected to provide an Actuarial Report on Technical Provisions to the Board on an annual basis. The outline of this report is provided for in the CP92. The HoAF is required to provide an opinion to the Board on the adequacy of the scenarios, including financial projections, considered as part of the Own Risk and Solvency Assessment ("ORSA") process of the undertaking.

CP 92 also discusses the requirement for High impact Companies to establish a Reserving Committee which must meet on a quarterly basis. The Committee will have responsibility for overseeing the governance around the calculation of the Technical Provisions and compliance with reserving policies. All High, Medium High and Medium Low impact entities are also required to engage a Reviewing Actuary to conduct a peer review of the Technical Provisions. The Reviewing Actuary cannot be an employee of the undertaking however for Medium High and Low undertakings, the Reviewing Actuary may be from the same group. Where the Actuarial Function is outsourced, the Reviewing Actuary cannot be from the same firm. A peer review must be conducted at least every 2 years for a High Impact undertaking, every 3 years for a Medium Impact undertaking and every 5 years for a Medium Low undertaking.

The consultation was open from 2 April 2015 to 29 May 2015.

The full consultation paper is available via the following link:

(ii) EIOPA Chairman speech on Solvency II implementation

Gabriel Bernardino, Chairman of the European Insurance and Occupational Pensions Authority ("EIOPA") delivered a speech at the Solvency II Industry Event in Dublin on 20 April 2015. Throughout his speech, he spoke about the fundamental elements of Solvency II and how he sees the role of EIOPA in the move from regulation to supervision. He stated that there were going to be complex adjustments, however these are transparent in that we will see their effect through the disclosure requirements. Mr Bernardino stated that there will be two capital requirements, the Minimum Capital Requirements ("MCR") and Solvency Capital Requirements ("SCR"), assuring a risk based calculation but also a more robust and simpler floor designed for ultimate supervisory action. He stated that this is a very important feature of the new system which perhaps ended up too complex but risk sensitivity was definitely achieved. He expressed that an overall level of prudence exists in the calculation of capital requirements and that the regime provides an explicit recognition of risk diversification.

Throughout his speech, Mr Bernardino also spoke about the Own Risk and Solvency Assessment ("ORSA") and the risk culture in insurance undertakings. He stated that the implementation of the ORSA should be used as an opportunity to further embed the strong risk culture in the day-to-day operations of the undertakings, providing at the same time an appropriate balance with the natural sales driven culture. He spoke of Solvency II as one of the first insurance regulatory regimes in the world to allow for the use of internal models to calculate the undertaking's Capital Requirements, with the internal models being more risk-sensitive, will better capture individual risk profiles and will provide a better alignment between the truly underlying economic risks and the Capital Requirements placed on insurance companies by Solvency II. He highlighted that going forward; it is the responsibilities of the Boards of insurance companies to ensure that internal models continue to adhere to the highest possible technical standards, and that the corresponding capital will continue to fulfil the prudential requirements set out in the Solvency II regime.

Mr Bernardino highlighted four areas for attention:

  • Strengthening corporate governance;
  • Addressing mis-selling;
  • Enhancing conduct of risk supervision; and
  • Ensuring credible and dissuasive enforcement.

Another major step of Solvency II, stated by Mr Bernardino, will be the harmonised reporting requirements and EIOPA's role in this.

The speech in full is accessible via the following link:

(iii) Solvency II Newsletter

On 17 April 2015, the Central Bank published its April edition of its Solvency II newsletter. In the opening message of the newsletter, the Director of Insurance of the Central Bank, Sylvia Cronin, stated that as the Solvency II implementation date is approaching, the areas of data and reporting continue to be a cause of concern for the Central Bank. She also stated that alongside the introduction of Solvency II, the Central Bank will also be introducing additional Insurance and Statistical National Specific Templates.

The newsletter referred to a demonstration of the Online Reporting System ("ONR") that was held on 13 April 2015 by the Central Bank's Information Technology Division. The system will be used for the submission of Solvency II Preparatory Reporting data. The slide packs and related user manuals for the ONR system are also now available to view or download from the Central Bank's website.

The newsletter also discusses the Forward Looking Assessment of Own Risks ("FLAOR") Reporting Tool for Low and Medium Low Undertakings which has recently been updated. The Central Bank has requested that the relevant firms use the updated version of the reporting tool when making their 2015 FLAOR submission via the ONR which is available via the Central Bank's website.

The Central Bank has provided links to the previously published the Solvency II relevant risk free interest rate term structures for 31 March 2015 published by EIOPA on 10 April 2015. These can also all be accessed via the Central Bank website.

The newsletter in full is accessible via the following link:

(iv) Updated Solvency II Data Point Model and XBRL taxonomy

On 21 April 2015, EIOPA released updated information on its Solvency II data point model ("DPM") and Extensible Business Reporting Language ("XBRL") taxonomy package (version 1.6). This is a first draft version of the full scope Solvency II package which is not meant to be used for reporting. Its purpose is to demonstrate planned changes in modeling as well as technical implementation in XBRL comparing to EIOPA Solvency II Preparatory DPM and XBRL taxonomy releases (versions 1.5.2.b and 1.5.2.c). The information published also identifies areas that are potentially subject to change. EIOPA has also updated the Solvency II reporting format webpage with revised information on the DPM and XBRL taxonomy design that have been developed in accordance with its guidelines on the submission of information to national competent authorities ("NCAs"). The updated webpage contains links to a zip package containing the updated XBRL taxonomy package, a zip package containing a DPN dictionary and annotated templates.

The release notes for Public Working draft can be accessed via the following link:

(v) Solvency II – New Jurisdictions to Receive Equivalence Status

On 5 June 2015, the European Commission published a press release stating that it has adopted its first third country equivalence decisions under Solvency II, the EU's new prudential regulatory regime which sets out rules to develop a single market for the insurance sector.

After receiving equivalence, EU insurers can use local rules to report on their operations in third countries, while third country insurers are able to operate in the EU without complying with all EU rules. These equivalence decisions take the form of delegated acts. They provide more legal certainty for EU insurers operating in a third country as well as for third country insurance companies operating in the EU.

Jonathan Hill, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union stated that "the decisions taken today will lead to more choice and competition for European consumers and also enable European insurers to compete more effectively in overseas markets. So this should be good for European businesses and the European economy.''

Switzerland is granted full equivalence, for an indefinite period in all three areas of Solvency II: solvency calculation, group supervision and reinsurance. This decision, which is based on a report by the EIOPA, finds the Swiss insurance regulatory regime to be fully equivalent to Solvency II.

The EU's expert group on banking, payments and insurance, a consultative body consisting of specialists appointed by EU Member States to advise the European Commission on the preparation of its delegated acts for Solvency II also recently announced that the EU Commission has assessed the following countries to be "provisionally equivalent" under Article 227 of Solvency II, for the purpose of the group solvency calculation:

  • Australia;
  • Bermuda;
  • Brazil;
  • Canada;
  • Mexico; and
  • the United States.

Provisional equivalence in respect of Article 227 of Solvency II means that the regulatory regime in respect of the group solvency calculation in these jurisdictions is deemed to be equivalent to that of the EU jurisdictions for 10 years. The EU Commission has stated that it is expected to adopt delegated acts in respect of the provisional equivalence status of the above jurisdictions in the second quarter of 2015.

These decisions will need to be passed to the European Parliament and the Council for approval, for which the time limit is three months, with possible extension by a further three months. Publication in the EU Official Journal and entry into force will only take place after successful completion of European Parliament and Council scrutiny.

This development is likely to be welcomed by EU insurers with operations in the above countries given that it will enable them to use local solvency rules instead of Solvency II to calculate the regulatory capital requirements in those jurisdictions. The United States is expected to begin negotiations with the EU about equivalence in respect of reinsurance (Article 172 of Solvency II) and group supervision (Article 260 of Solvency II) in the second half of 2015.

On 30 June 2015, EIOPA subsequently published an overview of the equivalence decisions adopted by the European Commission which can be accessed via the following link:

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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