Ireland has become one of the leading European jurisdictions for domiciling head office life insurers targeting the wider European market place for a variety of reasons including:
- EU Membership, opening up the EU on a freedom of services and / or branch basis
- long standing legislative and regulatory framework for life business
- 12.5% corporation tax rate
- international financial services hub (asset management, investment funds, cross-border insurance / reinsurance, captive and SPRV domicile)
- availability of experienced TPAs, actuarial consultants and other advisers
- flexible labour laws
- availability of qualified staff, and
- grant aid available in certain cases from government agencies.
International life assurers writing foreign cover from Irish operations include Allianz Global Life, Arca Vita International, Area Life International, Aviva Life International, AXA Life Europe, AXA MPS Financial, AZ Life, Barclays Assurance, Canada Life Assurance Europe, CitiLife Financial, CNP Europe, CUNA Mutual, Darta Saving, Eagle Star European Life, Eurizon Life, Generali Pan Europe, Hansard, Hartford, HSBC Life, Inora Life, Irish Life International, Legal & General Mediolanum, MetLife, Oney Life, Prudential International, Scottish Mutual International, SEB, Sella, Skandia, St. James' Place International, The Lawrence Life, UBS International and Vicenza (Central Bank Industry Registers, June 30, 2010).
Latest available aggregate industry statistics for end 2010 show that life business gross premium income amounted to €28.23 billion split between €10.67 billion of Irish risk and €17.56 billion of foreign risk.
Types of business written from Ireland by cross-border operations include:
- traditional unit linked business
- portfolio bonds
- index-linked or tracker products (with or without capital protection)
- group pension products, and
- variable annuity business (including GMXBs)
The purpose of this Guide is to outline the main legal and regulatory requirements for establishing cross-border life operations in Ireland, the taxation implications of same, the passporting regime and the organisational and ongoing operational requirements that need to be addressed by Irish head office operations.
Related Dillon Eustace publications include:
- A Guide to Solvency II
- Transferring an EEA Insurance Undertaking to Ireland
- Cross-Border Insurance Portfolio Transfers
- Increased Corporate Governance Requirements for Insurers
We also publish a quarterly Insurance Legal and Regulatory Update available at www.dilloneustace.ie
Although Ireland has regulated life assurance activities for over 100 years, with many provisions of its historic regulatory regime still relevant today, the key driver of insurance regulation and the basis for the development of its cross-border industry, for the last 30 years, has been its membership of the European Union ("EU") and the harmonised insurance regime which has evolved at EU level since the introduction of the First Life Directive in 1979.
The Irish legal framework governing insurance business is set out in pre-existing domestic legislation as amended and supplemented by national laws which implement EU legislative provisions. This framework is further supported by Guidance Notes and policy papers issued by the Central Bank of Ireland (the "Central Bank").
We have summarised the main pieces of European and domestic legislation below. A full list of applicable domestic legislation is provided in Appendix A.
A. European Legislation
The main pieces of European legislation in the life assurance sector are:
Consolidated Life Directive (2002/83/EC)
The Consolidated Life Directive consolidated and amended the First (79/267/EEC), Second (90/619/EEC) and Third (92/96/EEC) Life Directives which had established a common framework for the authorization, solvency and operation of life assurance undertakings within the EU. The common framework enables entities authorised in one EU Member State to write cover in other Member States on the basis of a single authorisation utilising the freedom of services and/or establishment options common to all financial services sectors within the EU.
Solvency II Directive (2009/138/EC)
Solvency II seeks to enhance the supervision and prudential regulation of insurance and reinsurance undertakings, particularly through the imposition of new solvency and governance requirements. It also establishes a new framework for EU regulation through the recasting of 13 insurance directives into a single text. It will apply to all insurance and reinsurance entities with an annual gross premium income exceeding €5 million or gross technical provisions in excess of €25 million. Solvency II was originally due to be implemented by Member States by October 31, 2012, however, this deadline has been delayed until at least January 1, 2013.
Some of the main aspects of Solvency II are as follows:
- insurance undertakings will be required to have in place an effective system of governance to ensure the sound and prudent management of the business proportionate to the nature, scale and complexity of the undertaking's operations and it must be subject to regular review;
- insurance undertakings will be required to perform an annual Own Risk and Solvency Assessment ("ORSA") based on their risk profile, risk appetite and risk strategy. This assessment will provide a view as to the level of capital required to run the undertaking;
- insurance undertakings will be required to calculate their Solvency Capital Requirement ("SCR"), required to reflect all quantifiable risks that the undertaking might face such as underwriting risk, market risk, credit risk and operational risk;
- insurance undertakings will be required to submit written policies and procedures for risk management, internal control and (where relevant) outsourcing to the Central Bank for prior approval;
- every insurance undertaking will have to have an effective and independent internal audit function in place which must evaluate the adequacy and effectiveness of the internal control system and other elements of the system of governance. Any Internal Audit findings shall be reported to the Central Bank who shall determine what actions are to be taken and ensure those actions are carried out; and
- insurance undertakings will be required to provide annual reports in respect of their solvency and financial condition.
The draft Omnibus II Directive proposed by the European Commission, if adopted, will make significant changes to Solvency II:
- Solvency II's implementation by Member States be delayed until at least 1 January 2013;
- more flexible transitional provisions will be introduced for firms affected by Solvency II;
- greater powers will be given to the European Insurance and Occupational Pensions Authority ("EIOPA");
- Solvency II will be modified to reflect changes arising under the Lisbon Treaty; and
- Solvency II will be amended to reflect the new supervisory regime in the EU.
The vote of the European Parliament on the final version of the Omnibus II Directive is due to take place in September 2012.
Insurance Groups Directive (98/78/EC)
In the context of an insurance group having regulated insurance companies established in more than one Member State, the purpose of this Directive was to put in place a framework to ensure that, in addition to home Member State supervision, a supplemental level of supervision could be applied to protect the interests of insured persons through access to information by competent authorities of different Member States and greater co-operation between those competent authorities. This Directive will be replaced by Solvency II.
Reorganisation and winding-up of Insurance Undertakings Directive (2001/17/EC).
This Directive imposes coordinated rules at EU level for winding up proceedings in respect of insurers, both to ensure / restore financial health of insurers and to protect the interests of policyholders and creditors.
Distance Marketing Directive (2002/65/EC)
The Distance Marketing Directive covers remotely negotiated consumer contracts in financial services sector. It seeks to protect consumer interests (to include specifying certain minimum information to be provided, consumer's right of withdrawal, rules applicable to unsolicited services) while facilitating the intra-community cross-border market in financial services.
Financial Conglomerates Directive (2002/87/EC)
This Directive provides for the prudential supervision at group level of financial conglomerates (financial groups providing services and products in different sectors of the financial markets – banking, insurance, investment services).
Third AML Directive (2005/60/EC)
The Third AML Directive seeks to consolidate existing anti-money laundering and counter terrorist financing provisions and introduces new and more extensive anti money laundering and counter terrorist financing measures across the EU.
The aim of the Third AML Directive is to widen the scope of previous legislation based on the revised 40 recommendations of the Financial Action Task Force ("FATF").
The responsibilities of "designated persons" in relation to the prevention and detection of money laundering and terrorist financing has widened significantly with the implementation of the Criminal Justice (Money Laundering and Terrorist Financing) Act, 2010 in Ireland.
B. Irish Legislation
The main pieces of Irish legislation applicable to the life sector include:
Assurance Companies Act, 1909
Original UK foundation legislation for insurance business. Parts of this Act remain relevant to Irish life assurers.
Insurance Act, 1936
Although many sections repealed by later legislation, the 1936 Act remains relevant in relation to certain authorisation issues and winding up proceedings.
Insurance (No. 2) Act, 1983
The 1983 Act provides powers to petition the court to appoint an administrator to a life insurer as well as granting extensive powers to such an administrator, including the power of sale.
Insurance Act, 1989
A key domestic statute for the regulation of the insurance sector, the 1989 Act provides for the supervision of insurers, the fitness and probity regime, the valuation of assets, minimum share capital, amalgamations and transfers, preparation and submission of annual returns, regulatory powers of intervention and the separation of the assets applicable to the life business and other business of the insurer.
European Communities (Life Assurance) Framework Regulations 1994 (as amended)
The 1994 Regulations are the main regulations transposing the harmonised European regime for life business (the three European Life Directives as now consolidated into Consolidated Life Directive 2002/83/EC) into domestic law. Regarded as a cornerstone of Irish/EU insurance service provision, the 1994 Regulations cover authorisation, internal organisation, solvency, passporting, ownership etc.
Life Assurance (Provision of Information) Regulations 2001
The 2001 Regulations require life assurers to provide certain pre-contractual information to persons before they enter into life assurance contract and to provide certain information to policyholders during the life of the policy. Required information relates to the policy, fees/charges and information as to the insurer or intermediary itself. These Regulations do not apply to policyholders outside Ireland.
The Central Bank has issued a set of Guidance Notes which explain and clarify various aspects of the 1994 Regulations.
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 Irish regulatory regime for life assurance is an extensive one covering the entire life of an undertaking from initial establishment through to winding-up. In a brochure of this nature, we can only cover the main areas to which the regulatory regime applies but note that most actions taken by a life company 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 / updated continuously.
Whilst the full list of both EU and domestic legislation set out in Appendix C has to be taken into account, the "bedrock" legislation governing the establishment and authorisation of life assurance undertakings in Ireland is the European Communities (Life Assurance) Framework Regulations, 1994 (as amended) (the "1994 Regulations") to which we refer to extensively below.
We have broken down the key elements of the regulatory regime in subsequent sections covering:
- Internal organisation
- Financial resources / solvency
- Related party transactions
- Appointed Actuary
- Asset management, and
The competent authority responsible for the regulation and supervision of life assurance undertakings in Ireland is the Irish Central Bank which has additional responsibilities in relation to:
- branch establishments of European Economic Area ("EEA") authorised life assurance undertakings;
- EEA authorised life assurance undertakings conducting business by way of services; and
- third country branch establishments.
The Central Bank maintains registers of all life assurance 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. Additionally, the Central Bank publishes annually an Insurance Statistical Review, also available on its website.
Powers of the Central Bank
The Central Bank is the competent authority for both the authorisation and ongoing supervision of insurers.
Under the Insurance Act, 1989, the Central Bank 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 margin. 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 revoke an authorisation where no business is being carried on for two consecutive years or suspend an authorisation where business has ceased temporarily.
The Central Bank also has significant powers under the Insurance Act (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.
In addition, the Central Bank may petition for the winding up of a life company on the grounds of it being unable to pay its debts under the Insurance Act, 1936.
The Central Bank and Financial Services Authority of Ireland Act, 2004 also provides power to the Central Bank to impose sanctions for prescribed contraventions of legislation or regulatory rules under its sanctions regime.
If the Central Bank has reasonable cause to suspect that a regulated life assurance undertaking and/or person concerned in the management of the undertaking has committed or is committing a 'prescribed contravention'. There is a particular framework commencing with an investigation or examination, potentially leading to an enquiry and sanctions being applied.
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/or a person concerned in its management to resolve the matter.
Relations with Responsible Authorities in Member States
Member States collaborate with one another in supervising authorised life assurance undertakings in the EC. The responsible authority of the Member State in whose territory the head office of a life assurance undertaking is situated is under an obligation to verify the state of solvency of the undertaking with respect to its whole business. The responsible authorities of the other Member States provide all the information, where necessary, to enable such verification to be carried out. Various powers are given to the Central Bank in this regard under the 1994 Regulations.
An undertaking must hold an authorisation granted either by the Irish Central Bank under the 1994 Regulations or by the competent insurance authority in its home EU Member State to carry on life assurance business.
Authorisations are granted in one or more classes of life business (the full list of classes is set out in Appendix A) and, as provided for in Regulation 6(2) of the 1994 Regulations, an authorisation is valid throughout the EU Member States and allows an undertaking to carry on insurance business in other EU Member States by way of freedom of services or by way of establishment.
The principal conditions applicable to an applicant for Irish head office authorisation are as follows:
- it must be a company established under the Irish Companies Act, 1963 to 2009 (see section headed "Legal Structures for Life Companies" for certain other options) and have its head office and registered office in Ireland;
- it must submit to the Central Bank a scheme of operations to include particulars or proof concerning:
- the nature of the commitments which it proposes to cover;
- its guiding principals as to reassurance;
- the items constituting its Minimum Guarantee Fund;
- estimates of the cost of setting up the administrative services and the organisation of securing business and financial resources intended to meet those costs;
- in addition, for its first three financial years, it must submit to the Central Bank a plan setting out detailed estimates of income and expenditure in respect of direct business, reassurance acceptances and reassurance cessions;
- it must submit a forecast balance sheet; and estimates relating to the financial resources intended to cover its underwriting liabilities and solvency margin;
- it possess a Minimum Guarantee Fund (equal to one third of the solvency margin, subject to a minimum of Euro 3.5 million. This minimum requirement is due increase to Euro 3.7 million with effect from December 31, 2012);
- it must have a paid-up share capital of at least Euro 635,000;and
- it must demonstrate that it shall be effectively run by persons of good repute with appropriate professional qualifications or experience.
Note that the figures given above are minimum figures only. The actual financial resources requirement for a life company will be determined in association with the Appointed Actuary and the Central Bank in line with its business plan.
Limit on Activities
An Irish head office life undertaking may only carry on the business of life assurance (cannot carry on non-life insurance business) and must limit its operations to the types of business provided for in the 1994 Regulations and to operations directly arising therefrom to the exclusion of all other commercial business.
Application for Authorisation
A pre-application meeting with the Central Bank should be held at which the applicant should outline its plans to the Central Bank in broad terms including:
- nature of the business
- broad projections
- outsourcing, and
- target markets.
Once it is clear that the Central Bank is satisfied with the outcome of the initial discussions, a detailed application for authorisation must be submitted to the Central Bank. The information which should be submitted as part of the application is set out in Appendix B, but in summary includes :
- details of the applicant
- overview of parent/group
- regulatory supervision
- ownership structure
- legal structure
- objectives and proposed operations
- organisation of the applicant and governance arrangements
- risk oversight
- capital, solvency and financial projections (5 years projections required)
- proposed appointed actuary
- policy and claims administration
- policy documents
- sales and distribution, and
- IT/ Business Continuity Plan
Particular provisions of the Consolidated Life Directive address the concept of the 'close links' of an assurance undertaking. These provisions may have a bearing on the grant of authorisation from the Irish supervisory authority as Article 6(2) provides that where "close links" exist between the assurance undertaking and other natural or legal persons, the competent authorities shall grant authorisation only if those links do not prevent the effective exercise of their supervisory functions.
Although draft policy documents etc. should be submitted as part of the application, there is no requirement for prior approval or systematic notification of general and special policy conditions, scales of premiums, technical reserves, forms and other printed documents which the insurance undertaking intends to use in its dealings with policyholders.
As a general guide, one should expect the authorisation process to take 4 to 6 months (closer to 6 months in fact).
Grant of Authorisation
Prior to formal authorisation, a successful applicant will normally be provided with confirmation of "authorisation in principle" when the application has been fully examined, reviewed and approved by the Central Bank. The applicant must then address final outstanding matters (often the introduction of capital, formal appointment of directors, finalising the company's name and objects and demonstrating its ability to comply with its conditions of authorisation), before formal authorisation is granted (in the form of a physical certificate of authorisation).
"Authorisation in principle" does not entitle an applicant to write any business before receiving a certificate of authorisation.
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.