Ireland: Insurance Regulatory Update, December 2015

Last Updated: 11 January 2016
Article by Elizabeth Bothwell and Jennifer McCarthy

IN DOMESTIC NEWS...

CENTRAL BANK PUBLISHES THE CENTRAL BANK REFORM ACT 2010 (SECTIONS 20 AND 22) (AMENDMENT) REGULATIONS 2015 (S.I. NO. 545 OF 2015)

These Regulations amend the Central Bank Reform Act 2010 (Sections 20 and 22) Regulations 2011 (S.I. No 437 of 2011) by replacing the list of Pre-Approval Controlled Functions in Schedule 2. Under the Regulations, the roles of Chief Actuary and Signing Actuary have been removed from the list and a new PCF role of Head of Actuarial Function is introduced. The amendments take effect from 1 January 2016. The Central Bank has issued Guidance in relation to these recent amendments to the Fitness and Probity regime which is reported on below.

A link to the Regulations is here.

CENTRAL BANK ISSUES GUIDANCE FOR (RE) INSURANCE UNDERTAKINGS ON 2015 AMENDMENTS TO THE FITNESS AND PROBITY REGIME

The Central Bank has published Guidance for (re)insurers on changes to the fitness and probity regime in consequence of Solvency II. Guidance is provided on the effect of the legislation reported on above whereby the roles of Chief Actuary (PCF20) and Signing Actuary (PCF44) have been removed as PCFs and a new PCF has been included- the Head of Actuarial Function (PCF48) (HoAF).

From 1 January 2016, where an individual is appointed to the role of HoAF for the first time, approval from the Central Bank must be obtained. Further guidance on the approval process is set out in the Central Bank's Guidance on Fitness and Probity Standards 2015. Where an undertaking considers a person already fulfils the role of HoAF as at 31 December 2015, pre-approval of the Central Bank is not necessary. However, undertakings were required to provide certain information to the Central Bank regarding such in-situ function holders by 30 November 2015. Section 5 of the Guidance sets out detailed requirements for the HoAF role including the preferred nature and depth of experience. The Central Bank expects that the HoAF will be able to influence decision making at board level in relation to key areas of actuarial expertise. (Re)Insurers are reminded to conduct due diligence on the function holder and ensure the individual complies with the Fitness & Probity Standards.

Section 4 of the Guidance covers aspects of the fitness and probity regime more generally and includes direction on the outsourcing of, as well as combining, Key Functions. A useful section of frequently asked questions is included in the Guidance. The Guidance attaches two useful "Decision Trees" setting out instructions for undertakings regarding the impact of the new regime for PCF 12 – 15 and PCF 48.

A link to the Guidance is here.

CENTRAL BANK PUBLISHES SOLVENCY II NEWSLETTER

The December edition of the Newsletter notes that reporting requirements will remain a challenge for undertakings in 2016 and urges Solvency II firms to focus on regulatory reporting to ensure they are ready for the first submissions due in May 2016. The Central Bank intends to hold an industry workshop in February 2016 to provide guidance on Solvency II reporting, details of which will be published shortly.

The Central Bank reports that a draft set of conditions of authorisations were issued to Solvency II (re)insurers and the 21 day review period to submit comments had commenced. As previously reported, the Central Bank's final decision on the revised conditions is not expected until after the commencement of the Solvency II Implementing Regulations on 1 January 2016.

(Re)Insurers seeking to be excluded from the Solvency II regime are required to notify the Central Bank. Template notification forms are available on the Central Bank website for (re)insurers who are eligible for exclusion on the basis of size or because they are closing their activity.

The reporting update notes that a Public Working Draft of National Specific Template taxonomy is available on the Central Bank website. An invitation is extended to Low and Medium Low impact firms to sign up for external user testing of the Central Bank ONR system. The Central Bank also reports that EIOPA has published two new draft implementing technical standards on: (1) the submission of information to supervisory authorities; and (2) the procedures, formats and templates of the solvency and financial condition report.

Finally, the Central Bank notes that the European Commission has granted equivalence to Bermuda and Japan. These decisions, if approved by the European Parliament and the Council, will enter into force 20 days after publication in the Official Journal. An update on the decision to grant provisional equivalence to the US, Canada, Brazil, Mexico, Australia and Bermuda is reported on below.

A link to the Newsletter is here.

CENTRAL BANK UPDATES WEBSITE GUIDANCE

In the November edition of the Insurance Regulatory Update, we reported that the Central Bank issued a letter to (re)insurers informing them of updates being made to certain sections of the Central Bank website in preparation for the commencement of the Implementing Regulations for Solvency II on 1 January 2016. In that letter, the Central Bank undertook to publish new Solvency II compatible versions of several key documents on or before January 2016. Updated versions of these documents have now been published by the Central Bank including the checklists for completing and submitting life assurance, non-life assurance and reinsurance applications, the Acquiring Transaction Notification Form, the Central Bank's Principles of Best Practice applicable to the distribution of Life Insurance Products on a Cross-Border basis within the EU or a Third Country and a Guidance note on withholding tax.

A link to the letter is here.

CENTRAL BANK PUBLISHES MACRO-FINANCIAL REVIEW

This second Review of 2015 summarises the current state of the macro-financial environment in Ireland by evaluating updates since June 2015.

As part of the Review, the Central Bank notes that, despite an improved macrofinancial environment, insurers in the domestic non-life sector continue to contend with a challenging operating environment. In the first half of 2015, high-impact non-life insurance firms suffered underwriting losses due to intense competition for market share. The sector has also been affected by a deteriorating claims environment as the severity and frequency of claims are increasing; the legal environment is changing which is pushing costs up. Motor and liability insurance performed particularly poorly. Investment income has been declining since 2012 and is no longer sufficient to compensate for underwriting losses.

According to the Review, the domestic life insurance sector has benefited from the improving economic environment and has a broadly positive outlook. However, the report notes that domestic life insurance firms face challenges of operating in a competitive market against firms offering similar services. Total life premium income increased by 9.3% in the first six month of 2015 compared to the same period of 2014. The retail protection segment of the market saw a decline of 5% compared with the same period of 2014. However, the investment segment of the life market saw on increase of 35% in that period.

While a figure for the first six months of 2015 has not been provided, Irish reinsurers' global market share in 2014 was 4.7%. On a global level, the reinsurance sector faces uncertainty due to reduced demand caused by primary insurers adopting more sophisticated approaches to risk management and a continuing increase in alternative reinsurance capital such as catastrophe bonds and reinsurance sidecars. Reinsurers have responded to these pressures through merger and consolidation which may cause integration risk. The Review concludes that the impact of Solvency II will clarify needs and allow firms to make decisions on how to deploy capital more efficiently.

A link to the Review is here.

IN INTERNATIONAL NEWS...

PRA GRANTS APPROVAL OF SOLVENCY II INTERNAL MODELS FOR 19 INSURERS

The PRA has announced a list of 19 insurers in the UK whose Solvency II full or partial internal models were approved ahead of the implementation of Solvency II on 1 January 2016. Whilst the approvals take effect from the implementation date, the PRA has noted that it will monitor the use of internal models going forward to ensure they remain appropriate. Rejections or withdrawals of internal model applications have not been disclosed.

A link to the list of insurers who received approval is here.

PRA RESPONDS TO INDUSTRY QUESTIONS ON SENIOR INSURANCE MANAGERS REGIME

In August 2015, the PRA published proposals for a new Senior Insurance Managers Regime (SIMR). The new regime, which will replace the current Approved Persons Regime, addresses the fitness and propriety requirements for designated Senior Insurance Managers as well as the application of Conduct Standards and allocation of responsibility to certain senior individuals within an undertaking.

In response to its proposals, the PRA received questions from industry stakeholders on the application of the new regime to Solvency II insurers and has published answers to 14 questions. The PRA's Q&A document addresses a number of industry concerns, including the process for individuals already approved for a Senior Insurance Management Function (SIMF) who are moving to a new function; the impact of the SIMR on UK branches of incoming EEA insurance firms and qualification requirements for a Chief Actuary. Questions around the outsourcing of Key Functions have also been addressed and detailed guidance provided.

A link to the PRA's Q&A document is here.

EUROPEAN SYSTEMIC RISK BOARD (ESRB) PUBLISHES REPORT ON SYSTEMIC RISKS IN THE EU INSURANCE SECTOR

In light of the vital role the insurance sector plays in the economy, the ESRB has identified four main ways in which it considers the insurance sector can have systemic impact. These four scenarios, set out in section 3 of the Report, are: (i) involvement in "nontraditional and non-insurance activities", such as speculative derivatives and variable annuities; (ii) procyclicality in asset allocation or in the pricing and writing of insurance; (iii) vulnerability to a so-called "double-hit scenario" where sustained low risk-free rates are combined with a sudden drop in asset prices (which the ESRB has identified as the most pressing of the four systemic risks identified); and (iv) underpricing which, if unchecked, could lead to a lack of substitutes in certain insurance classes deemed critical to the economy, such as liability insurance.

The ESRB considers that reinsurers pose many of the same systemic risks that primary insurers do but in section 4, features specific to reinsurance are analysed which may give cause for concern in the context of systemic risks. Sections 5 and 6 cover incentives in prudential regulation and macroprudential policies and measures respectively, which look at how regulatory authorities are able to address systemic risks in (re) insurance. The Report comments on the anticipated impact of Solvency II in this regard, focusing on the tools available to regulatory authorities. However, the ESRB has questioned whether the tools available to address concerns at a macroprudential level are adequate and recommends further analysis to assess their effectiveness.

A link to the Report is here.

IAIS ADOPTS REVISIONS TO THE INSURANCE CORE PRINCIPLES

The International Association of Insurance Supervisors (IAIS), the voluntary membership organisation of insurance supervisors and regulators, has published revisions to the Insurance Core Principles (ICPs). The ICPs set out a globally accepted framework of essential elements for a financially sound system of regulatory supervision to ensure policyholder protection. There are 26 ICPs in total. The revisions relate to ICP 4 (Licensing), ICP 5 (Suitability of Persons), ICP 7 (Corporate Governance), ICP 8 (Risk Management and Internal Controls), ICP 23 (Group-wide Supervision) and ICP 25 (Supervisory Cooperation and Coordination).

The revisions are the result of a combination of Self-Assessments and Peer Reviews carried out by the IAIS and recent developments in group supervision, corporate governance and risk management.

A link to the updated ICPs is here.

EIOPA HOLDS PRESS EVENT ON THE IMPLEMENTATION OF SOLVENCY II

EIOPA has published the speaking notes and presentations from its press event on the implementation of Solvency II held on 10 December. In his opening comments, the Chairman of EIOPA, Gabriel Bernardino, reiterated the positive features of Solvency II and explained that it allows for a modern, robust and proportionate supervisory regime which facilitates the alignment of capital and risk management. He anticipates a paradigm shift in companies' risk culture as Solvency II incentivises good governance and good management. Solvency II also guarantees a common level of consumer protection across Europe. EIOPA's efforts will be focused on the consistent application of EU Regulation, guaranteeing a level playing field and preventing regulatory arbitrage in the internal market. Presentations were given by EIOPA Insurance Experts on two essential principals of Solvency II being: (i) the total balance sheet approach and the economic market consistent valuation of assets and liabilities; and (ii) the information flows in Solvency II and public disclosure.

Copies of slides of both presentations have been provided and can be accessed here.

EIOPA RECOMMENDS IMPROVEMENTS TO THE SALES OF MOBILE PHONE INSURANCE

On 4 December 2015, EIOPA published a Report on Consumer Protection Issues arising from the sale of Mobile Phone Insurance (MPI). The EU wide survey follows the discovery of a number of issues with the sale of MPI including high premiums, high commissions, large exclusions, long duration contracts and burdensome claims-handling processes. Country specific thematic investigations into the MPI sector also reveal that consumers are receiving insufficient information on the terms of their contract and claims/complaints processes.

The Report identifies a disparity between consumer perception of the protection they are receiving under MPI products and the protection they are actually receiving. For example, 50% of MPI products contain theft related exclusions. The Report recommends the use of plain language and adding simple and straightforward explanations of essential product features to manage consumer expectations.

Other recommendations made in the Report include improvements to the sales process of MPI products. Consumers should be adequately informed of the duration of their contract and of their cancellation rights. The need for greater transparency in the claims administration process was also highlighted.

The Report notes that many of the recommendations will be covered by the Insurance Distribution Directive (IDD), which replaces the EU Insurance Mediation Directive (2002/92/EC). The IDD introduces new enhanced regulatory standards for insurance sales in the broader context and will be transposed into national law in the next two years.

A link to the Report is here.

INSURANCE EUROPE RESPONDS TO EIOPA'S CALL FOR INFORMATION ON INFRASTRUCTURE INVESTMENT RISK CATEGORIES

EIOPA has consulted on the European Commission's call for further technical advice on the identification and calibration of infrastructure investment risk categories in Solvency II.

Insurance Europe has published a response to the consultation which sets out its position in a series of key messages on the matter. Insurance Europe is concerned that the current definition of the infrastructure asset class is too narrowly constructed and may exclude many investments by focusing on project finance. Consequently, it welcomes the inclusion of infrastructure corporates as a type of investment structure as the assessment of the eligibility of infrastructure investments should be based on the substance of the investment, such as its characteristics and risk profile, rather than its legal form. Insurance Europe also provides responses to 17 specific questions raised by EIOPA on the nature of infrastructure investments, particularly focusing on infrastructure corporates. For example, EIOPA requested information on why a corporate, rather than project, structure would be used for infrastructure investments and whether corporate structures are more prevalent in certain sectors. Insurance Europe put forward a number of reasons why the corporate might be used as the legal form and noted that corporate structures are simply more prevalent in certain sectors e.g. transport, utilities and energy.

EIOPA's call for evidence closed on 10 December 2015 and, based on feedback received, it will prepare its formal advice to the Commission, which it anticipates publishing in the first half of 2016. This may lead to amendments to the Solvency II legislation.

A link to Insurance Europe's response is here.

EUROPEAN COMMISSION DELEGATED DECISION 2015 / 2290 AS PUBLISHED IN THE OFFICIAL JOURNAL

As reported in the June edition of the Insurance Regulatory Update, the European Commission issued a decision confirming that the solvency regimes in force in Australia, Bermuda (with the exception of rules on captives), Brazil, Canada, Mexico and the United States are deemed provisionally equivalent to the Solvency II Regime for a period of ten years from 1 January 2016. After a period of scrutiny by the European Parliament, the decision was approved and was published in the Official Journal of the European Union on 9 December 2015. It entered into force twenty days thereafter, on 29 December 2015, in advance of the Solvency II Regime going live on 1 January 2016.

A link to the decision is here.

INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB) CONSULTS ON AMENDING IFRS4

The IASB has published proposals to amend the existing Insurance Contract Standard IFRS4, requesting stakeholder feedback by 8 February 2016. It is intended that IFRS4 will be replaced by the new Insurance Contracts Standards in the next couple of years. However, before those new Standards are introduced, amendments are being made to IFRS9 (which is relevant to Financial Instruments, including insurance contracts). Companies are concerned that the tension between the existing IFRS4 and the revisions to IFRS9 will lead to accounting volatility for companies that issue insurance contracts in the period before IFRS4 is replaced. The IASB proposes amendments to IFRS4 to mitigate that potential increased accounting volatility and invites comments from interested parties by comment letter.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.