Ireland: Insurance Regulatory Update, August 2016

Last Updated: 7 September 2016
Article by Elizabeth Bothwell and Jennifer McCarthy

IN DOMESTIC NEWS...

CENTRAL BANK ISSUES NEW REQUIREMENTS IN RELATION TO SUBMITTING COMPLIANCE STATEMENTS AND DIRECTORS' ACCURACY CERTIFICATIONS

Pursuant to its powers under the Central Bank Act 1997, the Central Bank has issued a notice to each Solvency II (re) insurer, published in Iris Oifigiúil, requiring it to submit a statement to the Central Bank confirming compliance with the following legislation: the European Union (Insurance and Reinsurance) Regulations 2015; the Insurance Acts (as defined therein) and applicable European Commission Delegated Regulations and Implementing Regulations identified as designated enactments in section 2(2A) of the Central Bank Act 1942.

Solvency II (re)insurers are subject to this requirement from 18 August 2016. In the context of this new compliance statement requirement, the Central Bank has issued a new "Guideline for Solvency II (Re)Insurance Undertakings on Directors' Certifications" (the 2016 Guideline). It has revoked the old "Guideline for Life Insurance Undertakings, Non-Life Insurance Undertakings and Reinsurance Undertakings – Compliance Statements" (the 2014 Guideline) in respect of Solvency II (re)insurers, but that 2014 Guideline will still apply to non-Solvency II (re)insurers.

The 2016 Guideline sets out the scope of the guideline, the legal basis for it, the substantive requirements in relation to the compliance statement and the directors' accuracy certifications and, in the appendices, the forms of the compliance statement and the directors' accuracy certifications. The compliance statement must be submitted to the Central Bank no later than the date on which the (re) insurer is required to submit its annual quantitative templates, regular supervisory report or annual summary of the regular supervisory report and each own risk and solvency assessment. The directors' accuracy certifications are to be submitted at the same time as the reports to which they relate.

A link to Iris Oifigiúil and the 2016 Guidelines is here and here.

CENTRAL BANK PUBLISHES THE REGULATORY SERVICE STANDARDS PERFORMANCE REPORT FOR H1 2016

On 2 August, the Central Bank published its Regulatory Services Standards Performance Report (the Report) covering the first half of 2016. The Report outlines the Central Bank's effectiveness in meeting its performance targets for the processing of Pre-Controlled Function (PCF) Individual Questionnaire (IQ) applications and the authorisation of funds and financial service providers. The Service Standards outline the relevant time limits of each of the regulatory processes. There are currently 40 Service Standards in place including insurance / reinsurance undertakings authorisations and fitness and probity service standards. The Service Standards were met or exceeded in 39 of the 40 targets set.

The Central Bank achieved its performance target of processing complete applications for (re)insurance authorisations within 6 months. It also achieved its target of processing 75% of applications within 3 months. 100% of incomplete applications were returned within 2 weeks of receipt.

The Central Bank also had targets for processing IQ applications. Almost 85% of standard IQ applications were processed within 15 business days (12 business days where the individual applying was previously approved by the Central Bank or another EEA regulator). In almost 85% of cases a response was provided within 5 business days to the submitting entity where an IQ is incomplete. However the Central Bank cautions that these turnaround times do not apply where another regulator must be contacted or the applicant must be interviewed or the IQ is submitted in the context of an authorisation or an acquiring transaction. The Report also provides a helpful list of the main reasons why PCF IQs may be returned as incomplete. The list is unchanged from the list attached to the Report on the second half of 2015. Reasons given for returning applications include failing to provide a complete list of directorships/senior positions for the applicant in sections 6 and 9 of the IQ.

With effect from 1 July 2016, the Bank is introducing new Service Standards in relation to the handling of queries from financial service providers. The Service Standards Performance Report for H2 2016 will set out the Bank's performance against these new Service Standards.

A link to the report can be found here.

CENTRAL BANK – 2015 WEBSITE UPDATES

The Central Bank has published a helpful document which sets out certain updates it has made to its website in 2015 which are relevant for (re)insurers.

A link to the document can be found here.

CENTRAL BANK PUBLISHES SPECIAL EDITION OF INTERMEDIARY TIMES

On 19 August, the Central Bank published a special edition of the Intermediary Times which contains updates in respect of compliance topics and supervisory priorities for 2016.

It sets out the results of the Central Bank's on-site inspections of retail intermediaries' compliance with their Anti-Money Laundering/Counter Terrorist Financing (AML/CTF) obligations. The special edition sets out what the Central Bank expects to see in place when it carries out its AML/CTF inspections and sets out the key issues identified from the inspections undertaken.

The variety in size, from subsidiaries of large multi-nationals/insurance companies/credit institutions to one-person operations, and legal structure of firms makes the retail intermediary sector very diverse. The Central Bank has regard to the nature and size of each retail intermediary therefore when carrying out AML/CTF on-site inspections.

For the retail intermediaries who had an on-site inspection, in general, a satisfactory level of AML/CTF processes and controls were found to be in place.

The Central Bank identified money laundering/terrorist financing risk assessment, customer due diligence and on-going monitoring, training, and policies and procedures as areas that retail intermediaries could make improvements to increase the effective management of money laundering and terrorist financing risks and to strengthen their existing AML/ CTF control framework.

A link to the Intermediary Times can be found here.

DEPARTMENT OF FINANCE PUBLISHES REPORT ON THE ADMINISTRATION OF THE INSURANCE COMPENSATION FUND

The Department of Finance has published a report on the Administration of Insurance Compensation Fund for the year ended 31 December 2015. The report indicates that the fund's deficit as at 31 December 2015 was €862,413,617.

A link to the report is here.

IN EUROPEAN AND INTERNATIONAL NEWS...

UK INSURANCE ACT 2015 COMES INTO FORCE

On 12 August, the Insurance Act 2015 (the Act) came into force in the UK. As previously reported, the Act represents the largest change to UK commercial insurance law in over a hundred years. All new (re)insurance contracts or variations to (re)insurance contracts will be governed by the Act. The June 2016 edition of the Arthur Cox Insurance Regulatory Update outlines some key changes introduced by the Act including the treatment of warranties, the introduction of a duty of fair presentation and remedies for fraudulent claims.

A link to the Insurance Act 2015 is here and a link to the June 2016 edition of the Arthur Cox Insurance Regulatory Update is here.

EIOPA CONSULTS ON THE PRESENTATION FORMAT OF THE INSURANCE PRODUCT INFORMATION DOCUMENT AND INSURANCE EUROPE COMMENTS

On 1 August, EIOPA published a consultation paper concerning draft Implementing Technical Standards which standardise the presentation layout of the Insurance Product Information Document (IPID). The Insurance Distribution Directive stipulates that the IPID is to be provided to non-life insurance customers prior to the conclusion of a contract in order to ensure that they are provided with and understand certain information concerning the product that they are purchasing. The aim of this consultation is to allow for public feedback about the format of the IPID. The consultation period extends until 24 October 2016 after which feedback submitted will not be taken into account.

On 2 August, Insurance Europe commented on the publication of the IPID Consultation Paper. The importance of adopting the correct format of the IPID was reiterated while a proposed format has been developed by Insurance Europe to provide input to the work already carried out by EIOPA.

A link to the consultation paper is here and a link to EIOPA's comment is here.

AMICE URGES EUROPEAN PARLIAMENT AND COUNCIL TO OBJECT TO PRIIPS DELEGATED ACT

The Association of Mutual Insurers and Insurance Cooperative in Europe (AMICE) have called on the European Parliament and the Council of the EU to object to the Commission Delegated Regulation adopted by the European Commission in mid-July, laying down regulatory technical standards (RTS) with regard to the presentation of key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (the Delegated Regulation). The Delegated Regulation is currently being considered by the European Parliament and Council. If neither objects, it will apply from 31 December 2016. AMICE cautions that only an objection will provide the Commission and the European Supervisory Authorities the time to resolve the outstanding issues with the RTS.

AMICE supports the objectives of the PRIIPs Regulation of increasing consumer protection through the use of a standard KID, but it is extremely concerned over a number of outstanding issues with the RTS which is now in its final approval stage (these issues have also been raised by a number of stakeholders and reported in the July edition of the Arthur Cox Insurance Regulatory Update). AMICE cites examples of such issues: the presentation of the 'biometric risk premium' for insurance products as part of overall costs related to PRIIPs rather than on a stand-alone basis; the risk categorisation of insurance products and the calculation of credit risk; and the treatment of multi-option products and their underlying funds.

A link to the AMICE letter is here.

SOLVENCY II IMPLEMENTING REGULATIONS ON INFORMATION FOR CALCULATION OF TECHNICAL PROVISIONS AND BASIC OWN FUNDS REPORTING ADOPTED BY EUROPEAN COMMISSION

The European Commission has adopted a Solvency II implementing regulation laying down technical information for the calculation of technical provisions and basic own funds for Q3 2016 reporting i.e. reporting with reference dates from 30 June until 29 September 2016. The implementing regulation aims to ensure uniform conditions for (re) insurers to calculate technical provisions and basic own funds by providing the technical information, for every reference date, on: the relevant risk-free rate term structures (Annex I); the fundamental spreads for the calculation of the matching adjustment (Annex II); and, for each relevant national insurance market, the volatility adjustments (Annex III).

The implementing regulation was published in the Official Journal of the European Union on 18 August and applies retrospectively from 30 June 2016.

A link to the implementing regulation is here.

FSB FIFTH REPORT TO G20 ON PROGRESS IN RESOLUTION

On 18 August 2016, the Financial Stability Board (FSB) published its fifth report, entitled "Resilience through resolvability: moving from policy design to implementation", to the G20 on progress on resolution. The Report reviews what has been achieved so far and sets out further actions to fully implement the FSB's key attributes of effective resolution regimes for financial institutions and ensure that all global systemically important financial institutions are resolvable. The FSB also sets out in the Report the findings from the annual resolvability assessment process for global systemically important banks and global systemically important insurers.

The Report concludes that, while some work is still necessary to implement the policies which have been developed to address the risks posed by too-big-to-fail banks. In addition, further steps must be taken to establish effective policies and regimes for systemically important non-bank financial institutions, in particular central counterparties and systemic insurers. The Report concludes that renewed efforts are required to ensure that regimes consistent with the key attributes are in place in all FSB jurisdictions. However, the Report does acknowledge that legislative reforms in many jurisdictions have meant that good progress has been made in implementing the key attributes.

The FSB has identified a number of priorities for the remainder of 2016 and 2017. One of these priorities is to monitor implementation of the FSB's June 2016 guidance on developing effective resolution strategies and plans for systemically important insurers along with developing a key attributes assessment methodology for insurers.

A link to the Report can be found here.

INSURANCE EUROPE PUBLISHES KEY FACTS FOR 2015

On 30 August, Insurance Europe published a Key Facts documents setting out statistics in relation to the European insurance sector in 2015. Some interesting statistics include: the insurance industry had almost €9,800 billion in investments in 2015 which represented an increase of 1.7% on 2014. Total claims and benefits paid out increased by 2% in 2015 to €976 billion. Life benefits paid out in 2015 were €649 billion which represented an increase of 1.7%, non-life claims amounted to 2.3% which represented an increase of €222 billion and health claims amounted to €101 billion, an increase of 4.3%.

The document sets out helpful graphs and charts illustrating the statistics on a country by country basis. It also provides statistics on various lines of cover – motor, life, health etc.

In the press release announcing the publication of the statistics Insurance Europe's director general, Michaela Koller, took the opportunity to comment on Solvency II and the limitations that it places on insurers' ability to invest in the right way on behalf of customers and their ability to provide long term investment and stability to the European economy.

A link to the Key Facts document and the press release are here and here.

EIOPA UPDATES Q&A TOOL

EIOPA published an update to its Q&A Tool on regulation providing new questions and answers uploaded in July on the areas of EIOPA's Guidelines on valuation of technical provisions (1 new question), a final report on the ITS on procedures, formats and templates of the solvency and financial condition (8 new questions), the Guidelines on Reporting and Public Disclosure (1 new question) and the Final report on the ITS on the templates for the submission of information to the supervisory authorities (13 new questions).

Links to the relevant documents are here, here, here and 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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