In Domestic News...
CENTRAL BANK PUBLISHES SOLVENCY II NEWSLETTER
On 9 October, the Central Bank published the latest edition of its newsletter 'Solvency II Matters'. The Newsletter covers Solvency II developments at a European and domestic level since May 2014, many of which have been reported in previous editions of the Insurance Regulatory Update.
The Central Bank noted that at the time of writing, the Level 2 Delegated Act for Solvency II had not been published, despite the fact that they were due to be in finalised in September (note: see Article on the Delegated Act below). EIOPA is proceeding with its consultations on Level 2 technical standards and Level 3 guidelines as they planned.
On the domestic front, the Central Bank reminds undertakings to submit a FLAOR report before 31 December and cautions that the report must be submitted using the Central Bank's ONR System. The Central Bank also gives an update on the submission dates for the annual and quarterly reporting obligations for solo and group undertakings under the Submission of Information Guidelines.
In other news, the Central Bank will consult on the national specific templates for regulatory reporting under Solvency II in November and will also carry out a survey to determine undertakings' intention to apply for early approvals from April as contemplated in Omnibus II (e.g. on matters such as the use of volatility or matching adjustments for long-term guarantees etc.).
A link to the Newsletter is here.
INSURANCE IRELAND ISSUES NEW REPORT: 'A UNIVERSAL PENSION FOR IRELAND'
Insurance Ireland has recently issued 'A Universal Pension for Ireland—policy and implementation issues based on international best practice' (the Report) in response to the Irish Government-commissioned OECD review of the Irish Pension System. The review recommended the establishment of a universal defined contribution pension model to cover all workers in both the public and private sectors.
The Report looks at the role that the insurance industry can play in establishing and maintaining the proposed pension model in a manner consistent with best practice. Insurance Ireland highlights that the industry can bring a great deal of knowledge and experience to discussions by explaining what implementing issues may arise on the policy options under consideration. Also, Insurance Ireland emphasises that its members have the capacity to implement a universal pension solution at minimum cost to the State. The Report stresses the need for a consensus of opinion on the best way forward and that the new system should be guided by fairness, practicality and affordability.
A link to the Insurance Ireland press release is here.
A link to the Report is here.
In European And International News...
EUROPEAN COMMISSION ADOPTS SOLVENCY II DELEGATED ACT
On 10 October, the European Commission adopted a draft Delegated Act which contains the detailed implementing rules for Solvency II. The European Commission has adopted the Delegated Act by Regulation. Both the European Parliament and Council must scrutinise and approve the Delegated Act before it will have the force of law, for which they have a maximum period of 6 months.
The Delegated Act sets out implementing rules (based on 76 specific delegations of power to the Commission set out in Solvency II) and provides detailed requirements for insurance undertakings and groups. It runs to 312 pages and puts detail around the principles set out in the Solvency II Framework Directive. There is a helpful explanatory memorandum provided on page 2 of the Delegated Act. In terms of format, the Delegated Act is divided into 3 titles. Title I contains rules on: Pillar 1 (valuation and risk-based capital requirements); Pillar 2 (enhanced governance); and Pillar 3 (increased transparency). Title I is further sub-divided into 15 chapters that cover implementing rules on every aspect of Solvency II including valuation of assets and liabilities including 'long-term guarantee measures', own funds, solvency capital requirement, investment in securitisation positions, governance, reporting and disclosure etc. Title II sets out all implementing rules for insurance groups and Title III covers rules on third country equivalence and some final provisions.
The Commission also published a 'Frequently Asked Questions' document, which helpfully explains the purpose of the Delegated Act and provides guidance on 13 issues concerning the Delegated Act. For example, the FAQ addresses how the Delegated Act operates to stimulate long-term investment, how Solvency II will be applied in a proportionate manner to smaller and less complex insurers and how the Delegated Act addresses high quality securitisation.
A link to the Delegated Act is here.
A link to the FAQ is here.
EIOPA MULTI-ANNUAL WORK PROGRAMME 2015 – 2017
On 29 September, EIOPA published its Multi-Annual Work Programme 2015 – 2017 (the Programme).
The Programme sets out the five main strategic goals of EIOPA since it was established in 2011: (i) ensure transparency, simplicity, accessibility and fairness across internal markets for consumers; (ii) lead the development of sound and prudent regulations supporting the EU internal market; (iii) improve the quality, efficiency and consistency of the supervision of EU insurers and occupational pensions; (iv) identify, assess, mitigate and manage risks and threats to the financial stability of the insurance and occupational pension sectors; and (v) act as a modern, competent and professional organisation, with effective governance arrangements, efficient processes and a positive reputation.
Under each strategic goal, EIOPA explains what its objectives are in achieving that goal in the next 3 years. Annex 1 to the Programme is particularly helpful as it sets out the key outputs / deliverables of EIOPA to achieve each objective. A clear work programme is set out regarding EIOPA's role in a large number of legislative projects including: deliverables for the Second Insurance Mediation Directive (IMD2) including design of product disclosure documents, design of product governance structures etc; developing Implementing Technical Standards and Regulatory Technical Standards and Level 3 Guidelines for Solvency II; and proposals for an EU-wide insurance guarantee scheme etc.
The Programme also covers EIOPA's role in the cross-sectoral work of the Joint Committee with the European Banking Authority and the European Securities and Markets Authority. The core areas of focus for the Joint Committee include financial conglomerates, risk and vulnerabilities for financial stability and consumer protection together with anti-money laundering measures.
A link to the Programme is here.
EIOPA PUBLISHES CONSULTATION PAPER ON CONFLICTS OF INTEREST IN DIRECT AND INTERMEDIATED SALES OF INSURANCE-BASED INVESTMENT PRODUCTS
On 1 October, EIOPA published a Consultation Paper on Conflicts of Interest in Direct and Intermediated Sales of Insurance-Based Investment Products.
The Consultation Paper follows the adoption of MiFID II, which amended the Insurance Mediation Directive (Directive 2002/92/EC) (IMD1). MiFID II amended IMD1 by introducing a requirement for insurance undertakings and intermediaries to take all reasonable steps to prevent conflicts of interest from adversely affecting the interest of customers. The European Commission has requested EIOPA to provide technical advice on the possible content of delegated acts which the Commission is empowered to adopt regarding these new conflicts of interest requirements in the amended IMD1. Specifically, the Commission has requested technical advice on: (i) establishing minimum criteria for the identification of conflicts of interest that may be damaging to consumers; (ii) the content of a conflicts of interest policy; (iii) proportionality in the application of the new requirements for small undertakings and sole traders; and (iv) means of identifying remuneration arrangements and inducements which may give rise to conflicts of interest and means of avoiding or disclosing such arrangements.
While EIOPA has not been specifically requested to consider organisational measures for the purposes of insurers producing "investment research" within the meaning of MIFiD II, it does ask stakeholders whether they agree that insurers/intermediaries are principally not involved in the production and dissemination of investment research.
The Consultation Paper sets out EIOPA's draft technical advice and sets out questions to stakeholders. The cut-off date for responding to the Consultation Paper is 1 December 2014.
A link to the Consultation Paper is here.
INSURANCE EUROPE COMMENTS ON DRAFT EUROPEAN DATA PROTECTION REGULATION
In last month's edition of the Insurance Regulatory Update, we reported on Insurance Europe's recommendations on the proposed Data Protection Regulation (the Regulation). This month, Insurance Europe reports that the Regulation may have implications for the fight against insurance fraud. In its press release of 22 October, Insurance Europe notes that the right "to be forgotten" and the right to withdraw consent could hinder the efforts of insurance companies to identify those committing insurance fraud, as the company will no longer be able to track the volume and type of claims made by persons in the past. Insurance Europe calls for amendments to be made to the draft Regulation to address this.
A link to the press release is here.
IAIS FINALISES BASIC CAPITAL REQUIREMENTS
On 23 October, the International Association of Insurance Supervisors issued a press release announcing that it had finalised the development of the Basic Capital Requirements (BCR) for global systemically important insurers or "G-SIIs". The BCR is the first global insurance capital standard and has been endorsed by the Financial Stability Board. In 2015, the BCR will be reported confidentially to the group-wide supervisor and the IAIS will review the efficacy of the BCR during this period. The IAIS also state that the development of the BCR is the first step of a long-term project to develop risk-based group-wide global insurance capital standards.
A link to the press release is here.
COURT OF JUSTICE OF THE EUROPEAN UNION GIVES RULING ON TAXABLE POSITION OF VAT GROUPS
On 17 September, the Court of Justice of the European Union gave a ruling in the case of Skandia America Corp (USA), filial Sverige v Skatteverket (C- 7/13). The request for the ruling was brought by Skandia America Corp as a result of the Swedish tax authorities' decision to charge VAT on the supply of services from Skandia America Corp to its Swedish branch, filial Sverige. Traditionally, it had been understood that services supplied by a head office to its branch is not a separate taxable person for VAT purposes.
However, the Court held that where a head office insurer in a third country supplies services to a branch of that company within the EU, and the branch is a member of a VAT group in that EU member state, such supplies are potentially within the scope of VAT as they are being made to the VAT group, rather than the EU branch itself.
Although the Skandia case concerned the intra-group supply of services from a US-based company to its EU branch, the ruling will be of relevance to any insurance group which makes cross-border supplies of services to an EU branch. The Office of the Irish Revenue Commissioners does not appear to have yet commented on the ruling.
On 13 October 2014, the UK HM Revenue and Customs issued a customs brief stating that it will carefully consider the impact of the decision but noted at the outset that UK VAT grouping rules are different to the corresponding Swedish rules.
A link to the judgment is here.
A link to the HM Revenue and Customs brief is here.
BANK OF ENGLAND ISSUES LETTER TO INSURERS HIGHLIGHTING THE NEED FOR CLIMATE CHANGE PREPAREDNESS
The Financial Times has reported on an unusual decision of the Prudential Regulation Authority of the Bank of England (the PRA) to issue a letter to 30 insurers in the UK asking whether insurers have considered the effect of climate change on the viability of their business models and its potential effect on their investment portfolios.
The PRA has taken a proactive approach to the issue of climate risks for insurers, in part due to the double exposure which the insurance industry could face if it was unprepared to meet the challenges brought by extreme climate change i.e. increasing pay-outs to policyholders on catastrophe risks and the impact on investments in assets such as properties and fossil fuels. In the letter, the PRA hinted at possible regulatory requirements by asking insurers to consider the role of insurance regulation in response to climate change.
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