The Irish Government has now transposed into Irish law the Solvency II Directive (Directive 2009/138/EC) as amended by the Omnibus II Directive (Directive 2014/51/EC) which will become effective across all EU Member States from 1 January 2016.
In Ireland, the Solvency II regime has been given legal effect by secondary legislation in the form of Statutory Instrument namely, the European Communities (Insurance and Reinsurance) Regulations 2015 (the "2015 Regulations").
The 2015 Regulations introduce a new prudential regulatory framework which reforms European insurance legislation affecting life, non-life and reinsurance undertakings.
The 2015 Regulations will also be supplemented by more detailed technical Commission Level 2 measures and they in turn will be supplemented by Level 3 guidance for national supervisors developed and adopted by the European Insurance and Occupational Pensions Authority (EIOPA).
A New Prudential Supervisory Approach
As the implementation date of 1 January 2016 for Solvency II draws closer, reinsurance and insurance undertakings in Ireland are well under way with their Solvency II implementation programmes.
Solvency II is built on a three pillar structure which seeks to ensure that insurance and reinsurance undertakings:
- hold adequate financial resources (Pillar 1);
- maintain effective governance (Pillar 2); and
- increase market discipline through disclosure requirements (Pillar 3).
Significantly, Solvency II will introduce dynamic economic risk-based solvency requirements for insurance and reinsurance undertakings which will ensure that risk is measured on consistent principles and that capital requirements are aligned with the underlying risks of the undertaking concerned.
As a result, the 2015 Regulations establish new capital requirements, valuation techniques, governance and reporting standards to replace the existing Solvency I requirements.
The 2015 Regulations also provide the Central Bank of Ireland (the "Central Bank") with increased supervisory responsibilities. The Central Bank has stated that its supervisory teams will be examining the extent to which certain Solvency II requirements are embedded within insurance and reinsurance undertakings. Documenting compliance with all required Solvency II obligations will be crucial going forward for insurance and reinsurance undertakings to demonstrate full compliance with the 2015 Regulations to the Central Bank.
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