Ireland: A Guide To Non-Life Insurance Regulation In Ireland

Last Updated: 1 November 2016
Article by Dillon Eustace

The key driver of insurance regulation over the past 30 years has been Ireland's membership of the European Union. The free movement of insurance services guaranteed by the treaties establishing the European Union ensures that insurance operations established in Ireland can provide their services across all Member States of the European Union, Norway, Iceland and Liechtenstein. Ireland offers the prospect of an experienced and professional English speaking labour force with convenient access to well-established and highly skilled third party service providers to support the provision of all insurance services.

Although the State's favourable corporation tax rate is a factor in attracting financial services and other groups to Ireland, there are many other factors which attract cross border insurers to Ireland, including its solid legal traditions and a well-educated and adaptable workforce with regulated service providers.

In particular, Ireland offers a strong and transparent legislative, regulatory and fiscal regime in a common law jurisdiction but having adopted the harmonised EU authorisation and supervisory frameworks.

Ireland has implemented the Solvency II Directive (as amended by the Omnibus II Directive) which became effective across all EU Member States from 1 January 2016. The Solvency II regime has been given legal effect by secondary legislation in the form of a Statutory Instrument namely, the European Communities (Insurance and Reinsurance) Regulations 2015 (the "2015 Regulations") which introduced a new prudential regulatory framework which reforms European insurance legislation affecting non- life undertakings.

Note that unless otherwise indicated, all references throughout to the Regulations are to be 2015 Regulations.

Dillon Eustace advises on the establishment and authorisation of non-life insurers with the structuring, formation and cross-border distribution of insurance products forming a key part of our service offering. We provide legal, regulatory and tax advice, as well as follow-on compliance advices, bringing to bear in-depth knowledge with a "can do" attitude.

October 2016

1. Introduction

The carrying on of insurance business is a regulated activity in Ireland which requires a non-life insurer to obtain an authorisation.

The competent authority responsible for the authorisation and supervision of insurance undertakings in Ireland is the Central Bank of Ireland (the "Central Bank"). The Central Bank maintains registers of all non-life insurance undertakings authorised to write business in or from Ireland whether through the establishment of a head office, a branch or by way of freedom of services and on a day-to-day basis is responsible for the regulation of non-life insurance undertakings in accordance with national and European Community legislative and regulatory provisions.

Ireland has a long established legislative framework for insurance business, with the principal legislative framework set out in EU membership domestic legislation, as amended and supplemented by national laws implementing EU laws. This framework is further supported by guidance notes and policy papers issued by the Central Bank.

Some of the main pieces of European and domestic legislation include:

1.1 European Legislation

Solvency II Directive (2009/138/EC)

Omnibus II Directive (2014/51/EU)

Commission Delegated Regulation (EU) (2015/35)

Solvency II specific implementing regulations

Financial Conglomerates Directive (2002/87/EC)

Distance Marketing Directive (2002/65/EC)

1.2 Irish Legislation

The principal domestic legislation includes:

Assurance Companies Act, 1909

Insurance Act, 1936

Insurance (No. 2) Act, 1983

Insurance Act, 1964

Insurance Act, 1989

Part IV of the Finance (Miscellaneous Provisions) Act 2015

European Communities (Financial Conglomerates) Regulations 2004

European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004

European Union (Insurance and Reinsurance) Regulations 2015

European Union (Insurance Undertakings: Financial Statements) Regulations 2015

Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Insurance Undertakings National Specific Templates Reporting Arrangements) Regulations 2016

1.3 Guidelines and Guidance Notes

Separately, Irish authorised non-life insurance undertakings need to adhere to European Insurance and Occupational Pensions Authority ("EIOPA") Guidelines and Central Bank Guidelines.

(i) EIOPA Guidelines

EIOPA has issued a number of non-legally binding Guidelines (the "Guidelines") relating to Solvency II. They 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 Solvency II Commission Delegated Regulation (2015/35/EC) which the guidelines aim to clarify. The Central Bank has indicated its intention to incorporate the Guidelines into its supervisory practices and expects insurance undertakings (non-life, life and reinsurance) to comply with the relevant EIOPA Guidelines.

(ii) Central Bank Guidance Notes

The Central Bank issued Guidance Notes in 2015 on completing and submitting life insurance, non-life insurance and reinsurance applications to the Central Bank. Details of other guidelines applicable to non-life insurance undertakings are set out in the Authorisation section of this Guide.

Care needs to be taken in considering the extent to which any reliance may be placed on the Guidance Notes, in particular as to whether they represent current Central Bank's policy or position on a particular matter.

The purpose of this Guide is to outline the main regulatory requirements applicable to a non-life insurance undertaking in Ireland.

1.4 Other Dillon Eustace Insurance Publications

Related Dillon Eustace publications include:

  1. Final Countdown to Solvency II – The Own Risk Solvency Assessment
  2. Solvency II – Aligning Risk and Capital Management
  3. New Outsourcing Rules under Solvency II
  4. Solvency II Look-Through
  5. Central Bank Programme of Insurance Sector Themed Inspections
  6. Packaged Retail Investment and Insurance Products (PRIIPs)
  7. (vii) Solvency II – the Central Bank's role under the Supervisory Review Process

We also publish a quarterly Insurance Legal and Regulatory Update available at www.dilloneustace.ie

2. Regulatory Regime

The Irish regulatory regime for non-life insurance is an extensive one covering the entire life of an undertaking from initial establishment through to winding-up. In a Guide of this nature, we can only cover the main areas to which the regulatory regime applies and readers must note that most actions taken by a non-life insurance undertaking during its life are subject to regulation, one of the reasons why a compliance matrix is an important document to be prepared at launch and followed and updated continuously.

2.1 Competent Authority

As noted above, the competent authority responsible for the regulation and supervision of non-life insurance undertakings in Ireland is the Central Bank.

The Central Bank maintains registers of all non-life insurance undertakings authorised to write business in Ireland whether through the establishment of a head office, a branch or by way of freedom of services.

The registers are available on the Central Bank's website www.centralbank.ie.

Additionally, the Central Bank publishes annually an Insurance Statistical Review, also available on its website.

2.2 Powers of the Central Bank

(i) Authorisation and Supervision

The Central Bank is the competent authority for both the authorisation and ongoing supervision of insurers. It has extensive powers to request a wide range of information from insurers, to carry out investigations of the business of an insurer and of connected persons, as well as powers of intervention where it considers an insurer is or may be unable to meet its liabilities or unable to provide the required solvency capital requirements. In such cases it can direct the insurer to take such measures as it deems appropriate. Similar powers of intervention arise in other circumstances, such as failure to comply with insurance legislation, inadequacy of reinsurance arrangements etc.

The Central Bank can also withdraw an authorisation where an undertaking does not make use of its authorisation within 12 months, expressly renounces it or ceases to pursue business for more than 6 months.

Regulation 26 of the 2015 Regulations provides the Central Bank with broad supervisory powers and provides that the Central Bank may impose such conditions as it considers appropriate with respect to the conduct of insurance business with a view to ensuring the insurance undertaking carries out its responsibilities and obligations imposed by the 2015 Regulations in a proper manner.

(ii) Power to appoint Administrator

The Central Bank also has significant powers of intervention under the Insurance (No. 2) Act, 1983 to seek the appointment of an administrator to an insurer who can, upon court appointment, take over the management of the business of the insurer with a view to placing it on a sound commercial footing. Such an administrator is also granted power to dispose of all or any part of the business, undertaking or assets of the insurer concerned.

These powers have been used. In March 2010, the Central Bank successfully applied to the Irish High Court to appoint administrators to Quinn Insurance Limited on grounds of policyholder protection. The appointment allowed the business of Quinn Insurance to stay open for business, to continue to be run as a going concern under different management and to put the business on a sound commercial and financial footing.

(iii) Winding Up

The Central Bank may also petition for the winding up of a non-life insurance undertaking on the grounds of it being unable to pay its debts.

(iv) Enforcement/Sanctions

The Central Bank Act 1942, as amended by the Central Bank and Financial Services Authority of Ireland Act, 2004, empowers the Central Bank to impose significant monetary and other sanctions for "prescribed contraventions" of legislation or regulatory rules.

There is a particular enforcement framework, known as the Administrative Sanctions Procedure, which commences with an investigation or examination, potentially leading to an inquiry and sanctions being applied.

The sanctions include monetary penalties of up to the higher of Euro 10 million or 10% of annual turnover for regulated entities and of up to Euro 1 million for natural persons, as well as disqualifications (and several others).

The legislation provides that, at any time up to the conclusion of an inquiry, the Central Bank may enter into a binding settlement agreement with the undertaking and a person concerned in its management to resolve the matter.

(v) Other Powers

The Central Bank (Supervision and Enforcement) Act 2013 (the "2013 Act") has further enhanced the capacity of the Central Bank to supervise by giving the Central Bank the power to:

  • give directions in the interests of the proper and effective regulation of financial service providers (which includes insurance undertakings);
  • impose requirements on such an entity;
  • order redress;
  • require reports to be produced; and
  • other powers.

The 2013 Act also provides protection for persons making 'protected disclosures', which are disclosures made in good faith to the Central Bank commonly referred to as "whistle blowing".

Importantly, the Central Bank has the power under the 2013 Act to give directions in the interests of the proper and effective regulation of financial service providers (which includes insurance undertakings). Directions in relation to the business of the provider may cover areas such as suspension of the provision of services or the disposal of assets.

2.3 PRISM

The Central Bank supervises all regulated entities (including non-life insurance undertakings) by using a risk based approach called "PRISM". This model classifies financial entities in four groups based on their impact - High, Medium-High, Medium-Low and Low Risk - and dedicates resources to those entities with the largest impact on consumers and financial stability.

To be properly risk-based, one has to know where risks lie. Impact is a major component of this as impact indicates to the Central Bank the degree of damage a firm could cause to the financial system, economy and citizens were it to fail. The Central Bank considers that PRISM enables it to categorise based on impact so that supervisors can guard against the potential failure of firms posing higher potential impact.

2.4 Financial Supervision

The financial supervision of non-life insurance undertakings is the sole responsibility of the home State regulator, in Ireland, the Central Bank. This financial supervision must include verification, with respect to the entire business of the insurance undertaking, of its state of solvency, of the establishment of technical provisions, of its assets and of the eligible own funds, in accordance with the 2015 Regulations.

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