Ireland: Insurance Regulatory Update, October 2016

Last Updated: 15 November 2016
Article by Elizabeth Bothwell and Jennifer McCarthy

 OCTOBER 2016 – THIS MONTH'S NEWS

  • CENTRAL BANK ISSUES GUIDANCE FOR RE(INSURANCE) UNDERTAKINGS ON THE HEAD OF ACTUARIAL FUNCTION ROLE
  • FEEDBACK STATEMENT TO CONSULTATION PAPER ON EXTERNAL AUDITS OF REGULATORY RETURNS AND PUBLIC DISCLOSURES
  • INDUSTRY FUNDING LEVY REGULATIONS AND GUIDANCE PUBLISHED
  • OPENING REMARKS BY DEPUTY GOVERNOR (FINANCIAL REGULATION) AT THE COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM, AND TAOISEACH
  • PUBLICATION OF THE REVISED BOOK OF QUANTUM WELCOMED BY MINISTER EOGHAN MURPHY
  • RELEASE NOTES FOR VERSION 1.1.0 OF THE CBI SOLVENCY II NATIONAL SPECIFIC TEMPLATES DPM AND XBRL TAXONOMY
  • HIGH COURT RULES INSURANCE COMPANY ENTITLED TO VOID INSURANCE POLICY FOR MATERIAL NON-DISCLOSURE
  • PUBLICATION OF COMMISSION DELEGATED REGULATION IN THE OFFICIAL JOURNAL
  • JOINT LETTER ON PACKAGED RETAIL AND INSURANCE-BASED INVESTMENT PRODUCTS
  • JOINT COMMITTEE OF THE EUROPEAN SUPERVISORY AUTHORITIES PUBLISH 2017 WORK PROGRAMME
  • RESPONSES TO AN EIOPA CONSULTATION ON ITS DRAFT TECHNICAL ADVICE ON POSSIBLE DELEGATED ACTS
  • EIOPA SETS ITS STRATEGIC DIRECTION FOR THE NEXT THREE YEARS

IN DOMESTIC NEWS...

CENTRAL BANK ISSUES GUIDANCE FOR (RE) INSURANCE UNDERTAKINGS ON THE HEAD OF ACTUARIAL FUNCTION ROLE

On 27 October, the Central Bank issued a guidance document for (re)insurance undertakings on the Head of the Actuarial Function (HoAF) role. The Central Bank has previously issued the Domestic Actuarial Regime and Related Governance Requirements which require undertakings to appoint a HoAF as a PCF role.

The aim of the Guidance is to provide assistance to re(insurance) undertakings when completing certain of the actuarial tasks set out in Regulation 50 of the European Union (Insurance and Reinsurance) Regulations 2015. The guidance addresses general expectations of the HoAF role, and provides guidance on certain tasks that are undertaken by the HoAF, namely opinions on the overall underwriting policy, opinions on the adequacy of reinsurance arrangements and the contribution by the HoAF to the effective implementation of the Risk Management System (specifically in relation to the calculation of capital requests and the opinion on the ORSA process).

The application of the guidance to an undertaking will depend on its size, type and complexity. Undertakings are not required to adopt the practices outlined in the guidance. However they may need to explain how the way they have decided to proceed ensures compliance with both the 2015 Regulations and the requirements of the Central Bank.

It is intended that the guidance will be updated to reflect the development of the issues outlined therein.

A link to the guidance is here.

FEEDBACK STATEMENT TO CONSULTATION PAPER ON EXTERNAL AUDITS OF REGULATORY RETURNS AND PUBLIC DISCLOSURES

On 1 June, the Central Bank published Consultation Paper CP 104 on the External Audit of Solvency II Regulatory Returns / Public Disclosures. On 30 September, it published a Feedback Statement to CP 104 (the Feedback Statement). The Feedback Statement summarises the responses received to the consultation paper and outlines the Central Bank's decisions in relation to the themes arising from the comments received.

CP 104 set out the Central Bank's proposal in relation to Regulation 37 of S.I. No. 485 of 2015 – European Union (Insurance and Reinsurance) Regulations, 2015 (the Regulations) which enables the Central Bank to require that elements of the quantitative information submitted by insurance and reinsurance undertakings be audited, and that the audit report should include a reasonable assurance opinion on the elements of the Solvency and Financial Condition Report relevant to the balance sheet, own funds and capital requirements. Section 3 of the Feedback Statement sets out the Central Bank's requirement in this regard and will apply to all (re)insurance undertakings subject to Solvency II for financial years ending on or after 31 December 2016.

Comments on the proposed scope and the application of proportionality, appeals for further explanation in some areas, and various queries relating to audit technical points were some of the key themes in the responses. To provide greater clarity as to the purpose of the requirement the Feedback Statement incorporated a number of high level observations and recommendations to enhance the proposals made in CP 104.

A link to the Feedback Statement and all of the responses is here.

INDUSTRY FUNDING LEVY REGULATIONS AND GUIDANCE PUBLISHED

On 4 October, the Central Bank Act 1942 (Section 32D) Regulations 2016 (S.I. No. 508 of 2016) (the Regulations) were signed into law.

The Regulations set out the framework for this year's levying process and the basis on which individual financial service providers' levies will be calculated. From 4 October, all financial service providers are liable to pay an annual levy. The objective of the regulations is to raise approximately 50% of the budget attributed to the Central Bank's financial regulation activities directly form the financial service providers it regulates.

The Central Bank issued guidance on the Regulations. Section 2 of the guidance sets out significant changes to the levy in 2016. One of these changes is that, retail intermediaries will now pay levies based on a minimum flat rate levy and a variable levy based on the portion of income from fees and income from commissioners that exceed a specified threshold. Section 3 (Category B and Category C) of the guidance sets out the calculation of the industry funding levy for insurance undertakings and intermediaries respectively.

A link to the regulations is here and the guidance is here.

OPENING REMARKS BY DEPUTY GOVERNOR (FINANCIAL REGULATION) AT THE COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM, AND TAOISEACH

On 6 October, Cyril Roux, Deputy Governor (Financial Regulation) at the Central Bank, made opening remarks at the Committee on Finance, Public Expenditure and Reform, and Taoiseach which is looking into the rising cost of motor insurance premiums in Ireland. Mr. Roux set out the Central Bank's role in the regulation of motor insurance in Ireland and made clear that the Central Bank cannot intervene to set the rates of premiums.

Mr. Roux set out a series of factors that have contributed to the increase in motor insurance premiums in recent years, including: the decrease in premiums and investment income; increased claims frequency due to increased activity in the economy; increased claim costs due to changes in court limits, the introduction of Periodic Payment Orders and the potential impact of lower discount rates; and the low interest rate environment.

Mr. Roux attributed the large upswing in premiums to prices previously being artificially low due to a delay in insurers responding to claim costs increases. He commented that this delay was due to insurers assuming claim costs increases were cyclical rather than structural and some insurers making a commercial decision to keep their premiums below the break-even point in order to maintain market share.

Mr. Roux stated that policies that reduce the number of road traffic accidents and reduce the volatility of claims factors would contribute to more sustainable insurance premiums.

A link to the statement is here.

PUBLICATION OF THE REVISED BOOK OF QUANTUM WELCOMED BY MINISTER EOGHAN MURPHY

On 5 October, the revised Book of Quantum, which sets out the general guidelines for the amounts that may be awarded or assessed for personal injury claims, was published. Minister of State for Financial Services, Eoghan Murphy TD welcomed this publication but warned that a revised Book of Quantum alone would not address the issue of the increased cost of motor insurance premiums. Minister Murphy is chair of the Cost of Insurance Working Group which has brought together all the relevant Departments and Offices to review the causes of rising motor insurance premiums. It is tasked by the Government to come up with both short term and long term strategies to address increasing costs. Minister Murphy was due to bring the Cost of Insurance Working Group's preliminary recommendations to the Minister for Finance by the end of October.

A link to the press statement is here.

RELEASE NOTES FOR VERSION 1.1.0 OF THE CENTRAL BANK SOLVENCY II NATIONAL SPECIFIC TEMPLATES DPM AND XBRL TAXONOMY

On 5 October, the Central Bank issued Release Notes for version 1.1.0 of the Central Bank Solvency II National Specific Templates (NST) Data Point Model (DPM) and XBRL Taxonomy. These reporting templates are deemed necessary to address requirements specific to the local market and/or the nature of insurance undertakings supervised in Ireland and which are not catered for in the set of Solvency II harmonised reporting templates produced by EIOPA. NST's extend the information requirements of Solvency II defined by EIOPA. Therefore the Central Bank NST DPM extends the EIOPA Solvency II DPM and the Central Bank XBRL taxonomy is an extension of the EIOPA Solvency II XBRL Taxonomy.

The Release Notes introduce the DPM and XBRL taxonomy deliverables covering information requirements defined by the Central Bank in the NSTs. The Release Notes are planned to be used for collection of NST quarterly submissions from Q4 2016 onwards.

A link to the Release Notes can be found here.

HIGH COURT RULES INSURANCE COMPANY ENTITLED TO VOID INSURANCE POLICY FOR MATERIAL NON-DISCLOSURE

On 19 October, the judgment of Mr. Justice Hunt in the case of Richardson v Financial Services Ombudsman & anor was uploaded to the courts website. This was an appeal of a decision of the Financial Services Ombudsman (FSO) stating that an insurance policy could be rendered void by material non-disclosure. The High Court upheld the FSO finding as it was not vitiated by a serious or reviewable error.

The facts of the case were that the relevant insurer refused to provide indemnity under a life insurance policy purchased in 1996 as the insured, who died in 2013, had not disclosed certain matters in relation to his medical history. While the incidents, which occurred in 1991, did not require any additional treatment, the insurer's assertion was that, had they known these facts, they would not have issued the policy of insurance.

The High Court held that neither a lack of intent to wilfully mislead or deliberately conceal information nor a belief that a matter is trivial are relevant to the issue of material non-disclosure. The proposal form explicitly set out that if the applicant was unsure as to the materiality of a fact it should be included. The proposal form also clearly outlined the duty on the insured to answer the questions, which were not open ended or ambiguous, "fully, correctly and truly". This obligation was not qualified by reference to the best of the insured's knowledge. The form also defined the term 'material fact', as a fact which would have reasonably affected the mind of a reasonably prudent insurer in determining whether it would issue a policy, and specified that these facts could relate to matters not raised in the form. The policy conditions stated that the insurer would be entitled to avoid the policy if the questions were answered incorrectly.

Despite the fact that the issues were relatively immaterial and occurred long before the death of the policy holder the High Court held that the insurer was entitled to repudiate the policy. It pointed out that it is well established that if the insurer proves misrepresentation of a material fact it is entitled to avoid the policy.

A link to the judgment is here.

IN EUROPEAN AND INTERNATIONAL NEWS...

PUBLICATION OF COMMISSION DELEGATED REGULATION IN THE OFFICIAL JOURNAL

On 29 October, Commission Delegated Regulation (EU) 2016/1904 supplementing Regulation (EU) No 1286/2014 with regard to packaged retail and insurance-based investment products (PRIIPs) intervention was published in the Official Journal of the European Union.

This Delegated Regulation will enter into effect on 31 December 2016.

Both EIOPA and competent authorities, such as the Central Bank, have intervention powers when a significant investor protection concern exists or there is a threat to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the financial system of least one Member State for competent authorities or of the European Union for EIOPA. The Delegated Regulation sets out the criteria and factors to be considered when assessing the existence of a significant investor protection concern or such a threat. It should be noted that the need to access all criteria that could be present in a specific situation will not prevent temporary intervention powers being used where only one of the factors gives rise to a concern.

A link to the publication in the Official Journal is here.

JOINT LETTER ON PACKAGED RETAIL AND INSURANCE-BASED INVESTMENT PRODUCTS

On 13 October, the European Fund and Asset Management Association (EFAMA) and Better Finance sent a joint letter to the European Parliament, European Commission, European Supervisory Authorities and Presidency of the Council of the EU & Financial Attachés relating to the Packaged Retail and Insurance-based Investment Products (PRIIPs) Key Information Document (KID).

As covered in the September edition of the Arthur Cox Regulatory Update, the European Parliament rejected the Commission Delegated Regulation which set out a template for the KID. The Delegated Regulation has therefore been returned to the Commission for revision.

The letter states that there are two crucial issues concerning the KID which need to be addressed. Firstly, the KID should allow the disclosure of past performance as investors should not be deprived from accessing information. Secondly, the proposed calculation methodology in respect of disclosure of fees and costs, in particular the method of calculating transaction costs, in the views of the authors, will deliver misleading results.

The letter proposes replacing the methodology with the methodology suggested by the European Supervisory Authorities in their draft regulatory technical standards and extending this to existing PRIIPs.

On 17 October, the Joint Associations Committee, which is sponsored by multiple associations with an interest in structured products, including the International Swaps and Derivatives Association (ISDA), the International Capital Market Association (ICMA), the Global Foreign Exchange Division of the Global Financial Markets Association (GFMA) and FIA, sent a letter to the European Commission, EIOPA, European Banking Authority and European Securities and Markets Authority proposing that the application of the PRIIPs Regulation be postponed for reasons similar to those outlined in the EFAMA and Better Finance joint letter.

A link to the joint letters are here and here.

JOINT COMMITTEE OF THE EUROPEAN SUPERVISORY AUTHORITIES PUBLISH 2017 WORK PROGRAMME

On 30 September, the Joint Committee of the European Banking Authority (EBA), EIOPA and the European Securities and Markets Authority (ESMA), collectively known as the three European Supervisory Authorities (ESAs), published its Work Programme for 2017.

In 2017 the ESAs aim to make a more detailed assessment of the fintech threats and opportunities. They will continue their cooperation on financial reporting relevant to the banking, insurance and securities sectors.

During 2017, the ESAs will also continue their joint regulatory work and oversight in the areas of: consumer protection and financial innovation; risk assessment; anti-money laundering; financial conglomerates; and other regulatory work.

A link to the Work Programme is here.

RESPONSES TO AN EIOPA CONSULTATION ON ITS DRAFT TECHNICAL ADVICE ON POSSIBLE DELEGATED ACTS

On 4 October, Insurance Europe issued a press release on EIOPA's draft technical advice on possible delegated acts for the Insurance Distribution Directive (IDD).

Insurance Europe stated that in respect of product oversight and governance, consumers should be free to purchase insurance products even though they fall outside their pre-set market. Insurance Europe also commented that the IDD rules on conflicts of interest need to take into account the insurance specific characteristics of insurance-based investments products, and that commission based remuneration should not, of itself, be viewed as a conflict of interest.

William Vidonja, head of conduct of business at Insurance Europe stated "It is extremely important that the overall process for finalising the delegated acts is completed as soon as possible. Many of the requirements will require significant changes to current business models and organisational structures, which will take time and significant costs to implement. Companies must therefore be left with sufficient time after the final level 2 delegated acts are confirmed to effectively prepare and implement the new rules, while minimising additional and unnecessary costs."

A link to the press release can be found here.

EIOPA SETS ITS STRATEGIC DIRECTION FOR THE NEXT THREE YEARS

On 4 October, EIOPA issued its Single Programming Document 2017 - 2019. The document states that EIOPA will focus on three main strategic priorities: enhancing supervisory convergence; reinforcing preventive consumer protection; and preserving financial stability.

Section II of the document sets out the relevant strategic objectives and actions and the direction of the developments of EIOPA for the period 2017 - 2019. It identifies four multi-annual objectives: (1) to strengthen the protection of consumers; (2) to improve the functioning of the EU internal market in the field of pensions and insurance; (3) to strengthen the financial stability of the insurance and occupational pensions sectors; and (4) to ensure that EIOPA is a responsible, competent and professional organisation. It sets out its key performance indicators and strategic actions for achieving each of these objectives. It also provides an overview of its human and financial resource outlook for 2017 – 2019.

The second part outlines the tasks EIOPA will perform in 2017. EIOPA states that its defined priorities for 2017 are: in relation to consumer protection, enhancing a risk based and preventive approach to conduct risk; in relation to policy, installing an evidence based policy feedback loop; in relation to oversight, development of a risk-assessment framework; in relation to financial stability, developing EIOPA's data management capacities; and in relation to corporate support, reinforcing legal and technical expertise.

A link to the SPD 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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