Worldwide: September 2012 Global Corporate Insurance & Regulatory Bulletin

Last Updated: 15 October 2012
Article by Martin Mankabady, Lawrence R. Hamilton and David W. Alberts

UK – Update on the transition to the new regulatory regime

FSA Handbook changes

On 12 September 2012, the FSA published a consultation paper on its proposed changes to the FSA Handbook in light of the planned transition from the FSA to the “twin peaks” system of the Prudential Regulatory Authority (“PRA”) and Financial Conduct Authority (“FCA”). This consultation paper includes consideration of the following topics:

  • changes to regulatory disclosure and use of regulators’ logos;
  • changes to the skilled persons’ powers;
  • changes to the way in which a firm will apply to vary or cancel authorisations, permissions and requirements imposed by the regulators;
  • changes to the way in which a firm will apply for waivers or modifications of rules;
  • how the new regime will deal with applications regarding controllers and close links, passporting and related issues, and various types of notification; and
  • changes to guidance on the roles of the PRA and FCA in relation to transfers of insurance business.

PRA developments

The FSA has sent a letter to firms to advise them of forthcoming publications that will set out the PRA approach and key elements of the framework.

The FSA has also launched a new webpage relating to the PRA’s approach to prudential regulation for insurance firms. This indicates that the FSA will issue a document outlining the PRA’s supervisory approach for those insurance firms designated for regulation by the PRA in early October 2012. This document is intended to provide an overall view of the PRA’s supervisory authority, with the aim of providing a principal point of reference for firms in understanding how the PRA will supervise firms once it becomes the prudential regulator in 2013.

FCA developments

On 18 September 2012, Martin Wheatley, FSA Managing Director and Chief- Executive designate of the FCA, gave a speech on how conduct regulation will change under the new regime, with a focus on what is expected from the insurance industry.

The Director General of the Association of British Insurers (“ABI”), Otto Thoresen, also gave a speech relating to the FCA, focusing on the ABI’s report entitled “The Way Ahead for Conduct Regulation”. The ABI has identified six themes that it considers can form the foundation of a successful conduct regime:

  • making markets and regulation work to support the delivery of public policy goals;
  • having a regulator that is in touch with consumers;
  • having regulation that focuses on ensuring markets deliver products which meet consumer needs;
  • having regulation which enables effective competition and innovation in financial services markets;
  • having strong engagement between industry and the regulator to shape the agenda in the UK and in Europe; and
  • having a relationship between the regulator and the regulated that is built on mutual confidence and respect and involves working in partnership.

On 26 September 2012, Clive Adamson, FSA Director of Supervision, Conduct of Business Unit, gave a speech on the supervision of firms under the FCA. Key points included the following:

  • firms will be categorised according to their impact on consumers and the market, and supervisors will be allocated accordingly; and
  • the FCA supervision model will be based on three key pillars – Firm Systematic Framework, Event Driven, and Issues & Products.

FPC developments

HM Treasury has published a consultation paper on the macro-prudential tools that will be available to the Financial Policy Committee (“FPC”) to help it to ensure financial stability. The FPC is the body that will be responsible for UK macro-prudential regulation under the new regulatory regime and it is designed to identify, and then take action to mitigate, risks to systemic stability. It is proposed that the FPC will have the power to make recommendations to the regulators, to the Treasury and within the Bank of England, and that it will also have the power to direct the regulators to take action in certain circumstances.

Europe – Solvency II update

Timing

The official timetable for Solvency II will require transposition by member states on 30 June 2013 followed by implementation by firms from 1 January 2014. However, in light of continued disagreement in the trialogue process and the consequent postponement of the European Parliament plenary sitting date for discussion of Omnibus II to November 2012, some voices in the insurance sector, including EIOPA Chairman Gabriel Bernardino, who has recently sent a letter to the trialogue parties in this regard, are questioning whether this timetable is still achievable.

It appears that the main sticking point in reaching agreement on the text of Omnibus II is in relation to the treatment of long-term guarantees under the regime. Insurance Europe has issued a statement in support of an impact assessment on this matter, even if it means a delay to the planned 1 January 2014 implementation date for Solvency II.

FSA developments

On 14 September 2012, the FSA published a report providing interim feedback to firms participating in its internal model approval process (“IMAP”) on the findings of its review of compliance with the requirements of Solvency II regarding the data used in the internal model. The report sets out the FSA’s approach to the data review, a summary of the results, and then detailed observations on the findings (from both general and life insurance firms). The FSA has said that most firms are moving in the right direction towards compliance with the Solvency II requirements on data used in internal models. It has also identified the following key findings:

  • although all firms have an established data policy, ensuring a consistent interpretation and application of the policy across the firm remains a challenge;
  • most firms have underestimated the time required to embed a group-wide data governance framework into “business as usual”;
  • most firms did not apply proportionality by conducting an impact and risk assessment;
  • some firms failed to grasp the underlying purpose of a data directory, and nearly all firms struggled with an efficient classification of data within the data directory;
  • some firms had difficulty in demonstrating the effective operation of data quality checks, primarily due to a lack of evidence of controls and inconsistent reporting of issues highlighted;
  • third party data was not always independently validated; and
  • compliance with existing end user computing policies and standards was often inadequate or non-existent, and many firms were implementing complex IT systems without a clear definition of user requirements, design, testing and appropriate controls for effective operation in business as usual.

The FSA has said that it aims to complete its review process by the third quarter of 2013, as per its current Solvency II implementation plan.

Europe – EIOPA and FINMA enter into memorandum of understanding

The European Insurance and Occupation Pensions Authority (“EIOPA”) has entered into a memorandum of understanding with the Swiss Financial Market Supervisory Authority (“FINMA”) on the supervision of insurance groups. The principal objective of the memorandum is stated to be to ensure optimal co-operation in the supervision of insurance groups with international activities in the European Economic Area and in Switzerland, and creates a formal basis for co-operation in the following areas:

  • group supervision;
  • assistance in the work of EEA and FINMA colleges of supervisors;
  • action required in emergency situations;
  • safeguarding financial stability by monitoring and assessing risks;
  • interconnectedness; and
  • conducting stress tests.

The memorandum will not modify or supersede laws or regulatory requirements that are in force, nor will it affect any arrangements in other memoranda signed between FINMA and EEA national supervisory authorities.

US – EU-US insurance regulators issue joint draft report comparing certain aspects of the insurance supervisory and regulatory regimes in the EU and the US

On 27 September 2012, the Steering Committee of the EU-US Dialogue Project released for public comment a draft report comprising the Technical Committee Reports “Comparing Certain Aspects of the Insurance Supervisory and Regulatory Regimes in the European Union and the United States.” This Dialogue Project began in early 2012 and involves insurance regulators from the European Commission, European Insurance and Occupational Pensions Authority (“EIOPA”), the National Association of Insurance Commissioners in the US (“NAIC”), and the Federal Insurance Office of the US Department of the Treasury (“FIO”). The stated goal of the project is “to contribute to an increased mutual understanding and enhanced cooperation between the EU and the US to promote business opportunity, consumer protection and effective supervision.” The three US members of the six person Steering Committee are Kevin McCarty, Commissioner of Insurance, Florida and current President of the NAIC, Michael McRaith, Director, FIO, and Terri Vaughan, CEO, NAIC.

The report addresses seven areas based upon the work of a separate Technical Committee that was assembled for each topic as part of the exchange of information and discussion under the Dialogue Project. The EU-US jointly drafted technical reports identify key commonalities and differences of the EU and US insurance regulatory regimes in relation to the following topics:

  • professional secrecy and confidentiality;
  • group supervision;
  • solvency and capital requirements;
  • reinsurance and collateral requirements;
  • supervisory reporting, data collection and analysis and disclosure;
  • supervisory peer reviews; and
  • independent third party reviews and supervisory on-site inspections.

The draft report can be found here. Public hearings will be held on 12 October 2012 in Washington, DC and on 16 October 2012 in Brussels and written comments are requested by 28 October 2012. Based upon the public comments, the project will move to a second phase that will involve discussions among the EU-US regulators about the commonalities and differences between the EU and US regimes and “will lead to policy decision by their respective organizations regarding whether and how to achieve further harmonization in regulation and supervision.” The project is intended to conclude by 31 December 2012.

US – New statute penalizes California insurers for Iran-related investments

On 23 September 2012, California Governor Edmund G. Brown Jr. signed into law a bill that will require insurance companies domiciled in California to treat investments in any company identified as having financial ties to Iran’s energy sector (based on the inclusion of such company on a list published by the California Department of General Services) as non-admitted assets in their financial statements filed with the California Department of Insurance. Assembly Bill 2160 (codified as section 1241.2 of the California Insurance Code) will become effective on 1 January 2013. The bill was generally opposed by the insurance industry and is likely to become the subject of a constitutional challenge, since a series of decisions from the US Supreme Court have clearly established that actions by state and local governments that infringe on the conduct of foreign policy by the federal government are pre-empted by federal law.

Global – IAIS consultations

Consultation on global systemically important insurers

The International Association of Insurance Supervisors (“IAIS”) has published a compilation of the responses it has received to its May 2012 consultation on a proposed methodology for identifying global systemically important insurers (“G-SIIs”). Responses were received from a range of insurers and institutions from across the globe, including the American Insurance Association, the Association of British Insurers, the Institute of International Finance, Insurance Europe and the International Actuarial Association.

The IAIS has also published its proposed resolution, setting out its comments on the 49 main issues that were apparent from the responses received and its proposals to resolve these issues. Some of the key points made by the IAIS are as follows:

  • the G-SIIs process will have three stages of data collection: (i) public data used to select participating insurers, (ii) data call from all participating insurers, and (iii) additional data from G-SII candidates;
  • the designation of G-SIIs will be done by the Financial Stability Board and national authorities, in consultation with the IAIS;
  • there is no intention to designate a fixed number of insurers as G-SIIs and it is possible that no G-SIIs will be identified by the process;
  • the assessment methodology will involve the use of both qualitative and quantitative indicators to assess whether any insurers should be considered to be systemically important at a global level;
  • national authorities will be relied upon to implement agreed measures for G-SIIs; and
  • the IAIS will finalise the weightings given to certain criteria after reviewing the results from the 2011 data call, after which a list of G-SII candidates will be determined for the supervisory judgment process.

The IAIS also noted that it intends to publish a list of G-SIIs along with its final policy measures in April 2013.

Consultation on a common framework for the supervision of internationally active insurance groups

The IAIS has also published a compilation of the responses it has received to its July 2012 consultation on a common framework (known as “ComFrame”) for the supervision of internationally active insurance groups. Responses were received from a broad range of insurers and institutions from across the globe, including the FSA, Lloyd’s, the Association of British Insurers, the European Commission, EIOPA, Insurance Europe, the American Insurance Association, NAIC, the Institute of International Finance, the International Actuarial Association and the International Network of Insurance Associations.

Global – Monte Carlo Rendez-Vous report – “It ain’t over till it’s over”

First published in Insurance Day, 20 September 2012

As Monte Carlo returns to some degree of normality after the recent reinsurance industry invasion one of the familiar themes to again reflect upon is the relationship between renewal rates, capital flows and consolidation in the market.

While last year’s Monte Carlo Rendez-Vous was dominated by the unprecedented severity and number of natural catastrophes of 2011, leading to record insurance claims, 2012 has to date seen a relatively benign period for major global property catastrophe loss. On the eve of Monte Carlo, latest industry estimates for Hurricane Isaac suggested something in the region of $1-$2 billion of loss on an industry-wide basis. Although a significant hurricane to make US landfall this will not move the market.

In fact, at this year’s Rendez-Vous the general mood pointed towards flat rates at the next major renewal season on 1 January 2013 with an industry well capitalised despite the events of last year and an increasing investor appetite for reinsurance products distributed via the capital markets. ILS and other forms of alternative risk transfer were a hot topic this year.

What is the message from an M & A perspective? In common with most industries, convincing arguments can be made in favour of increased M & A from varied and sometimes contradictory factors. For instance, some commentators point towards excess capital being a driver of M & A while others can easily point to periods of increased M & A in the past which followed significant capital outflow from the industry. The reality is more likely to be that there is no one dominant factor that points to the health or otherwise of M & A activity in the sector. Rather, it is always a combination of many factors. There are certainly regulatory and macro-economic headwinds to contend with and, like any other industry, transactional activity requires a degree of certainty, stability and confidence in order to flourish – conditions not much in evidence of late.

Against the backdrop of the latest predictions flowing out of Monte Carlo one thing to bear in mind is that the North Atlantic hurricane season still has some way to go – the shape of next year’s renewal season could be very different because that’s the nature of the global reinsurance industry.

Hong Kong – New Companies Ordinance published

In what represents a significant milestone for the development of company law in Hong Kong, a new Companies Ordinance (the “New Ordinance”) was published in the Government Gazette in August 2012, and will become effective on a day to be appointed (expected to be in 2014). The changes introduced by the New Ordinance are extensive and, in this article, we discuss a couple of significant changes which might be of interest to insurance companies:

Codification of directors’ duty of care, skill and diligence

Certain directors’ duties, namely the duty to exercise reasonable care, skill and diligence, have been codified (whereas previously those duties were found mainly in case law). Directors’ fiduciary duties remain defined by case law and uncodified.

In line with the UK Companies Act 2006, under the New Ordinance, a director must exercise the care, skill and diligence that would be exercised by a reasonably diligent person with:

  • the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director relating to the company (objective test); and
  • the general knowledge, skill and experience that the director has (subjective test).

The civil consequences for breach of these duties under common law and equity are preserved.

Auditor’s rights to information and liabilities

Under the New Ordinance, an auditor may require a wider range of persons (including persons who hold or are accountable for the accounting records of non- Hong Kong subsidiary undertakings of a Hong Kong company) to provide information or explanation reasonably required for the performance of the auditor’s duties, and the company must take all reasonable steps to obtain such information or explanation as soon as practicable. A person commits an offence if he makes a statement to an auditor that conveys or purports to convey any information or explanation that is materially misleading, false or deceptive.

In addition, the auditors will face criminal liabilities (fines only, not imprisonment) if, in the event of accounting fraud, they knowingly or recklessly failed to include in their report a declaration that the financial statements were materially different from the company’s accounting records, or that they could not obtain all the information or explanation needed for the audit.

Directors’ report

The New Ordinance introduces a requirement on a public company (listed or unlisted), or larger private companies which do not qualify for simplified reporting, to prepare a more comprehensive directors’ report, which will include an analytical and forward looking business review of the company, containing information regarding the risks and uncertainties the company faces, the future development of the company’s business, and matters relating to employees, customers and suppliers that have a significant impact on the company.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2012. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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
Related Topics
 
Related Articles
 
Related Video
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions