Ireland: Insurance Regulatory Update, September 2015

Last Updated: 13 October 2015
Article by Elizabeth Bothwell and Jennifer McCarthy

IN DOMESTIC NEWS...

CENTRAL BANK PUBLISHES LATEST SOLVENCY II NEWSLETTER

In the September edition of "Solvency II Matters," the Central Bank reports that the Insurance Supervision Directorate is being reorganised in preparation for the new Solvency II supervisory landscape. A single supervisory division with responsibility for all firms will be established. It will also have responsibility for on-site inspections of firms going forward. A separate Advisory, Analytics and Actuarial Division will be established with oversight for the actuarial services, prudential analytics and supervisory strategy and projects teams.

In the context of implementation of Solvency II, all re(insurers) will be issued a draft set of conditions of authorisation with a 21 day review period to submit comments. Each re(insurer) will also be given a new certificate of authorisation. From 1 January 2016, a new PCF 'Head of Actuarial Function' will replace existing PCF positions of Chief Actuary and Signing Actuary. The Central Bank notes that EIOPA Guidance indicates that the focus of external audits should be on the balance sheet, own funds and capital requirements. The Central Bank recognises that an appropriate lead-in time will be needed to discuss external audit requirements for regulatory returns for the period ending 31 December 2016.

In an update on reporting, the Central Bank notes nine of the eleven Prudential National Specific Templates (NSTs) are now available to view or download on the Central Bank's website. The Statistical NSTs also are available. The Central Bank lists the three elements required from insurers to fulfil future reporting requirements including the introduction of Solvency II quantitative reporting templates, the Statistical NSTs (required to translate supervisory data into macro-economical statistical updates) and the Prudential NSTs (which only applies to high impact and variable annuity firms).

Examples of good practice in the context of internal modelling are included in the newsletter and firms are referred to the EIOPA Guidelines on the use of internal models for further guidance.

A link to the newsletter is here.

INSURANCE IRELAND RAISES SERIOUS CONCERNS REGARDING HIGH COURT DECISION ON SETANTA

On 4 September, the Irish High Court ordered that the Motor Insurance Bureau of Ireland (MIBI) is liable to pay the outstanding claims of some 1700 claimants of the insolvent motor insurer, Setanta Insurance Company.

However, Insurance Ireland has serious concerns regarding the impact of the decision and fear that it will have severe financial and other implications for the viability of the Irish motor insurance market. Insurance Ireland states that the MIBI's role is to compensate victims of uninsured drivers rather than intervening where insurers have gone insolvent. As the MIBI is maintained by levies imposed on motor insurers operating in the Irish market, it is concerned that there will be upward pressure on premiums to fund it and creates a risk that some insurers will exit the Irish market for fear that they will be "in effect, underwriting the least prudent motor insurer in the Irish market".

Welcoming the decision, the Director General of the Law Society of Ireland said the ruling "provides a route to justice for people who have suffered injury and loss" and said he was pleased injured claimants who were in limbo for 17 months now have certainty their claims will be paid.

A link to the Insurance Ireland press release is here.

INSURANCE IRELAND PROPOSES RANGE OF MEASURES TO ADDRESS INCREASES IN THE COST OF CLAIMS

On 15 September, Insurance Ireland held a briefing to discuss the issues contributing to the increase in premia, especially for motor insurance.

Insurance Ireland also proposed a range of measures to address increases in the cost of claims. Costs are on the rise because of (i) the increasing costs of court awards, (ii) the legal costs associated with the Personal Injuries Assessment Board and (iii) insurance fraud (€200m per annum). The future impact of the Setanta judgment was also mentioned.

Insurance Ireland proposed a high level set of measures which it believes could control the cost of premiums. These suggestions are: providing additional support to An Garda Siochana and the Road Safety Authority to ensure that they can adequately monitor the increased level of motor activity; reducing awards to victims to a level "which society can afford"; reducing legal costs; addressing the common issues which can result in the rejection of an Injuries Board award by requiring certain documentation to be provided at the outset of the Injuries Board process; deterring fraudulent claims by a method other than suspended sentence. It also suggests clearly defining the responsibilities of the MIBI and the Insurance Compensation Fund by amending the legislation to ensure that the latter is responsible for the insolvency of insurers.

A link to the briefing is here.

IN EUROPEAN AND INTERNATIONAL NEWS...

UPDATE ON SWISS AND BERMUDIAN SOLVENCY II EQUIVALENCE

On 24 September, following a period of scrutiny by the European Parliament and Council, the Commission Delegated Decision ((EU)/2015/1062) was published confirming equivalence of the solvency and prudential regime for (re)insurers in Switzerland from 1 January 2016. On 4 September, EIOPA published its Progress Report (the "Report") on the equivalence assessment of the Bermudian supervisory system in relation to articles 172, 227 and 260 of the Solvency II Directive. The assessment of equivalence refers to Bermuda based commercial insurers only (not SPVs or captives). Note that the Bermudian prudential regime is currently being revised, with amendments due to commence on 1 January 2016.

In the Report, EIOPA advises the EU Commission that Bermuda meets the criteria set out in EIOPA's methodology for equivalence assessments under articles 172, 227 and 260 with certain exceptions in areas or for classes of insurers for which Bermuda is not yet fully equivalent. Some examples of the caveats set out by EIOPA include:

(a) under Article 172, the Bermudian Monetary Authority ("BMA") needs to strengthen its requirements in the areas of outsourcing and public disclosure in order to be equivalent under Solvency II; (b) in respect of Article 227, the BMA's supervision of certain life insurers is only partly equivalent – insurers are not currently required to provide GAAP financial statements; and (c) in relation to Article 260, the BMA is largely equivalent in respect of requirements regarding changes in business, management and qualifying holdings. The upcoming legislative changes are likely to address any gaps in the requirements in respect of disposals of qualifying holdings.

A link to the Report is here.

EIOPA PUBLISHES SECOND SET OF SOLVENCY II GUIDELINES

On 14 September, EIOPA published Set 2 of its Solvency II Guidelines (the Guidelines). The Guidelines aim to ensure consistent application of both Solvency II and the Commission Delegated Regulation (EU) 2015/35. National Competent Authorities (NCAs) are required to confirm whether they comply or intend to comply with the Guidelines within two months. There are 9 Guidelines in total, which shall apply from 1 January 2016:

  • Reporting for financial stability – provides guidance on the approach to collection of data from insurance/ reinsurance groups by NCAs for financial stability purposes and guidance on content and frequency of supervisory reporting;
  • Extension of the recovery period in exceptional adverse situations – aimed at ensuring that a consistent approach is developed by NCAs in order to determine when an extension to the recovery period should be granted and the duration of any such extension, withdrawal or revocation of an extension etc.;
  • Exchange of information within colleges – addressed to the NCAs within the colleges of EEA Groups to promote the exchange of information between groups of supervisors to enhance consistent supervision of financial institutions;
  • Implementation of the long-term guarantee measures – promotes uniformity in relation to the NCAs' implementation of the volatility adjustment, the matching adjustment, the transitional measure on the risk-free interest rates and the transitional measure on technical provisions;
  • Methods for determining the market shares for reporting – assists in the definition and calculation of the market share for relevant insurers/reinsurers;
  • Reporting and public disclosure – guidance on information to be provided to the NCAs in the regular supervisory report, quantitative supervisory reports and publicly disclosed in the solvency and financial condition report;
  • Recognition and valuation of assets and liabilities other than technical provisions –guidance to promote convergence and to assist undertakings to recognise and value assets and liabilities other than technical provisions;
  • System of governance – guidance on the sound and prudent management of the business of undertakings on issues including remuneration policy, the fit and proper requirements and risk management; and
  • Own risk solvency assessment – guidance is provided on what is to be achieved by the ORSA rather than how it is to be performed.

A link to the Solvency II Guidelines is here.

INSURANCE EUROPE COMMENTS ON THE GENERAL DATA PROTECTION REGULATION (GDPR)

Insurance Europe recently published its comments on the GDPR, which is the subject of EU trialogue discussions. While it recognises the importance of pan-European effective data protection regulation, it urged caution to ensure the GDPR does not have unintended consequences for the insurance industry and consumers.

It commented on specific provisions of the draft GDPR such as the provisions regarding the lawfulness of processing, definition and processing of health data, the right to erasure, profiling and transmission of data between group companies. In relation to the lawfulness of processing under Articles 6 & 7, Insurance Europe noted its support for the inclusion of fraud prevention as a "legitimate interest," giving insurers a legal basis for processes designed to tackle insurance fraud. It also recommended that any right to withdraw consent should be qualified to permit data processing where it is necessary for contract performance, compliance with a legal obligation, or for legitimate interests. It is opposed to a blanket ban on the ability to consent to processing of personal data of third persons.

A link to the Insurance Europe publication is here.

EUROPEAN INSURERS' INVESTMENTS GROW TO ALMOST 10 TRILLION EURO IN 2014

European insurers' investments continued to grow in 2014 with statistic reporting approximately 9.9 billion euro worth under management.

Michael Koller, Director General of Insurance Europe warns that for life assurance, policymakers must be careful to ensure regulatory capital charges are commensurate with the actual risk that long term investments pose so insurers can continue to make long-term investments. He stated that policymakers play an important role in protecting people and businesses across Europe and emphasised the need to ensure that "smart regulation" enables insurers to keep the cost of premiums as low as possible.

EIOPA PUBLISHES OPINION ON THIRD COUNTRY GROUP SOLVENCY CALCULATION

EIOPA recently published an opinion on group supervisors' approach towards third country capital requirements to be used for calculating group solvency for insurance groups operating in a Solvency II equivalent third country. In order to ensure supervisory convergence in respect of such groups, EIOPA recommends that NCAs apply the highest level of capital requirement in the third country for calculation of the group solvency position. It also urges groups to form an economic view of the level of risk associated with the business conducted in the equivalent third country. EIOPA recommends that the group supervisor monitor and take that economic view into account, perhaps as part of the own risk and solvency assessment of the insurance group. The opinion sets out recommendations regarding the assessment of the availability of eligible own funds at group level. In the Annex, two potential third country group examples are set out - the US and Brazil.

A link to the opinion is here.

EIOPA CHAIRMAN DELIVERS SPEECH ON THE DOS AND DON'TS OF SOLVENCY II

At a recent conference "Solvency II: what can go wrong?" in Ljubljana, Slovenia, the Chairman of EIOPA shared his views on the "dos and don'ts of Solvency II." He explained that the purpose of Solvency II is to bring a new risk culture and enhanced consumer protection to the insurance industry, while using the latest international developments in risk-based supervision, actuarial science and risk management. He notes that while there are risks in Solvency II implementation, there are also opportunities. He emphasised that EIOPA will closely monitor the consequences of the Solvency II implementation to ensure it has no unintended consequences, especially if they impact on consumers. Mr Bernardino emphasised that as Solvency II is a risk-based regime, it encourages innovation by insurers in product design. He explained that Solvency II does not intend to unduly penalise specific products and that is why adjustments were made with the long term guarantee package so insurers can continue to provide long term products to their clients. He believes there is a risk that insurers will put emphasis on capital requirements and consider the ORSA a second priority which would be a "dramatic error". One of the core principles of Solvency II is to look at risk and capital in an integrated way. Insurers need to look at Solvency II as a tool to foster a true risk culture in an organisation and not to view it as a "compliance exercise". Solvency II is also a game changer for supervision where supervisors need to move toward riskbased supervision and go beyond a "tick the box approach".

A link to the speech is here.

EIOPA CHAIRMAN DELIVERS SPEECH AT CONFERENCE ON GLOBAL INSURANCE SUPERVISION

On 9 September, the Chairman of EIOPA delivered a speech entitled 'Globally Under Pressure?' at the 4th Conference on Global Insurance Supervision in Frankfurt, Germany.

Mr Bernardino stated that the focus of the conference was threefold: recovery and resolution in insurance; international capital standards; and conduct risks. In respect of recovery and resolution, he noted that there are a number of potential risks to the insurance sector and that it was important for the insurance industry to create a specific recovery framework which could be implemented in the event of the failure of an insurer.

In relation to capital standards, Mr Bernardino expressed his view that a single unified international standard in respect of capital requirements should be the ultimate goal. Finally, with regards to conduct risks, he noted that EIOPA is putting in place a 'Strategic Approach' in order to create a structure for the supervision of conduct of business which will be both risk-based and contain preventive measures for conduct of business supervision.

A link to the speech is here.

IAIS LAUNCHES THEMATIC SELF ASSESSMENT AND PEER REVIEW ON SOLVENCY AND SOLVENCY RELATED ISSUES

On 8 September, the International Association of Insurance Supervisors launched a thematic self-assessment and peer review on solvency and solvency related issues via an online questionnaire (the Assessment). The Assessment seeks responses in relation to IAIS Insurance Core Principles (ICPs) and addresses ICP 14 (Valuation); ICP 15 (Investment); ICP 16 (Enterprise Risk Management for Solvency Purposes); ICP 17 (Capital Adequacy); and ICP 20 (Public Disclosure).

The deadline for submissions is 6 October and publically reported data will be reported in aggregate to maintain the confidentiality of the participants.

A link to the Assessment is here.

EIOPA LAUNCHES SELECTION PROCEDURE FOR ITS STAKEHOLDER GROUP MEMBERS

On 7 September, EIOPA launched the Call for Expression of Interest regarding the setting up of certain EIOPA Stakeholder Groups (SGs) – namely, the Insurance and Reinsurance Stakeholder Group (IRSG) and the Occupational Pensions Stakeholder Group (OPSG).

Each SG contains 30 members (at least 5 of whom must be top rated academics) who serve a 2.5 year period with the option to renew the mandate once. The current mandates expire in early 2016. The purpose of the SGs is to assist EIOPA to consult with stakeholders throughout Europe, advise EIOPA on any issue which is relevant to that SG, and notify EIOPA regarding any inconsistent application of either EU law or supervisory practice throughout the EU.

The deadline for applications is 8 November 2015 and EIOPA anticipates that it will complete the selection process by February 2016.

A link to the press release 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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