UK: Corporate Insurance Newsletter - May 2013

Welcome to the latest update from Clyde & Co's corporate insurance team. This update summarises recent developments with links to further reading (where available).

REGULATORY

EIOPA launches public consultation on Solvency II guidelines

EIOPA has launched a public consultation on its draft Guidelines relating to Solvency II. The principal purpose of the Guidelines will be to assist National Competent Authorities (NCAs) and undertakings with their preparation for the implementation of Solvency II.

The Guidelines cover the following areas of Solvency II:

  • system of governance, including risk management
  • forward looking assessment of the undertaking's own risk (based on the Own Risk and Solvency Assessment (ORSA) principles)
  • submission of information to National Competent Authorities (NCAs)
  • pre-application for internal modes

Public consultation on the Guidelines will end on the 19th of June 2013. EIOPA intends to subsequently publish the final Guidelines in the autumn.

Once published, NCAs will have two months to confirm to EIOPA whether or not they will comply with the Guidelines and, if not, explain the reason for any non-compliance.

The Guidelines are to apply from the 1st of January 2014, although some flexibility in their application will be allowed through provisions for "phasing-in" and the use of thresholds. Furthermore, EIOPA has made clear that the Guidelines are to be applied proportionately – particularly in relation to small and medium sized undertakings.

Read the consultation paper on the draft guidelines

Updating disclosures to reflect the creation of the FCA and PRA

The FCA has published a statement explaining that it expects firms to review their documents and other disclosures as a priority so as to ensure that they are up-to-date and accurate and reflect that they are now authorised by the FCA and/or the PRA. The FCA recognises that whilst it may not have been possible to make all the required disclosure updates immediately firms must be able to demonstrate that they have plans to make these updates at the earliest practicable opportunity.

Read the statement

The FCA's approach to firm-wide culture

In a speech given on the 19th of April, Clive Adamson (the FCA's director of supervision) outlined why the FCA is interested in the culture of firms and how the FCA will go about assessing it. Adamson highlighted that culture is important to the FCA as conduct regulator because of its role in driving behaviours in firms and the direct impact it may have on customers.

The speech emphasises that the FCA sees an effective culture within a firm as one that supports a business model and business practices that have, at their core, the fair treatment of customers and behaviours that do not harm market integrity, rather than a "tick-box approach" which simply focuses on compliance with a set of rules.

Read the speech

The PRA and FCA publish approach to investigating regulatory failure

The PRA and FCA have each published a statement of policy setting out the approach they would take to investigating possible instances of regulatory failure and providing reports to HM Treasury for publication.

Read the PRA policy statement

Read the FCA policy statement

The PRA's power of direction over unregulated holding companies

The PRA has published a policy statement on its use of the power to direct a "qualifying parent undertaking" (which may include unregulated insurance holding companies) under section 192C of the Financial Services and Markets Act 2000.

The policy statement includes details of the conditions for the exercise by the PRA of the power of direction over qualifying parent undertakings, as well as the contents of any such direction.

Annexed to the policy statement is a non-exhaustive list of possible scenarios in which the PRA may consider exercising the power of direction, as well as a non-exhaustive list of possible directions which the PRA may consider taking.

Read the PRA policy statement

LLOYD'S

Lloyd's announces a profit of GBP 2.77 billion for 2012

Lloyd's announced a profit of GBP 2.77 billion for 2012, despite experiencing one of the costliest natural catastrophes in history, Superstorm Sandy. This marks a return to profit from the previous year's losses of GBP 516 million. Lloyd's CEO, Richard Ward, said: "While the economic environment remains challenging, the Lloyd's market is capitalised at record levels and our overall financial strength is recognised in our A+ ratings."

Total net incurred claims were GBP 10.1 billion, while gross written premium reached a record high of GBP 25.5 billion.

Read the press release and Lloyd's 2012 Annual Report

GLOBAL

China's CIRC sets out rules for breakthrough of 20% ownership cap in a domestic insurer

The China Insurance Regulatory Commission (CIRC) has increased the maximum shareholding limit of any one shareholder in a domestic insurance company. However, a shareholder who wants to break through the 20% shareholding limit must meet certain requirements.

According to the CIRC, it is anticipated that the move will help attract more strategic investors to invest in the Chinese insurance industry so as to enhance its financial capacity.

Read more

Middle East insurance markets predicted to grow

It is predicted that the insurance markets of the Gulf Cooperation Council will grow 20% annually over the next five years. Potential sources of demand flow from low rates of penetration for both short and long term retail products, as well as signs that developing businesses across the region will increasingly require more sophisticated covers. However, legal and regulatory obstacles to orthodox M&A activity remain – particularly, where insurers seek to establish operations across multiple jurisdictions – and insurers are looking creatively at non-traditional models to expand operations.

Read more

EMPLOYMENT

TUPE: Why TUPE's state of flux is relevant to insurers

The UK's insurance sector has become increasingly used to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) potentially applying to changes in the way insurance businesses are operated. Examples of this include when insurance businesses are reorganised or activities such as claims handling are offshored or outsourced. However, in certain instances, there has been a lack of certainty as to the application of TUPE and new government proposals, which aim to remedy this state of affairs, have been put out for consultation.

Read more

SANCTIONS

For all our latest articles on sanctions please see our sanctions web page.

The impact of sanctions regimes

The burden of sanctions compliance is often cited by insurers as a big concern. That burden is not going to ease any time soon with insurers coming under increasing regulatory scrutiny on both sides of the Atlantic. Recent developments, which non-US insurers operating in London or the Continental market need to be aware of, include the expanding extra-territorial effect of the US sanctions regime against Iran. The following two articles explore this issue in more detail:

Read Article (1)

Read Article (2)

Sanctions microsite

We have developed a dedicated sanctions microsite where you will find all our sanctions articles and events and useful information relating to Iran, Libya, North Korea, Syria, Cuba and Burma/Myanmar.

Access microsite

CASES AND UPDATES

We produce regular weekly updates which are aimed at keeping you up to speed and informed of the latest developments in case law and regulatory changes relevant to your practice.

Insurance and Reinsurance (weekly update)

For access to our latest weekly insurance and reinsurance update please click here.

Financial services regulatory (weekly update)

For access to our latest weekly financial service regulatory update please click here.

For all our newsletters, legal updates, articles and events please see here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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