1 | ARTHUR COX
Group Briefing
November 2015
KEY CONTACTS
If you require advice or further
information, please contact Elizabeth
Bothwell, Jennifer McCarthy, or your
usual Arthur Cox contact.
ELIZABETH BOTHWELL
PARTNER
+353 1 618 0506
elizabeth.bothwell@arthurcox.com
JENNIFER MCCARTHY
PARTNER
INSURANCE
Insurance Regulatory Update
NOVEMBER 2015 – THIS MONTH’S NEWS
»»
PUBLICATION OF LEGISLATION TRANSPOSING
SOLVENCY II INTO IRISH LAW
»»
EXCLUSION OF CERTAIN UNDERTAKINGS
FROM SOLVENCY II REQUIREMENTS
»»
CENTRAL BANK PUBLISHES THE CORPORATE
GOVERNANCE REQUIREMENTS FOR
INSURANCE UDNERTAKINGS 2015
PRA PUBLISHES CONSULTATION PAPER
CP43/15 ON AN EXTERNAL AUDIT OF THE
PUBLIC DISCLOSURE REQUIREMENT
»»
EIOPA PUBLISHES CONSULTATION PAPER ON
THE REVISED PROPOSALS FOR PREPARATORY
GUIDELINES ON PRODUCT OVERSIGHT AND
GOVERNANCE
»»
INSURANCE EUROPE ISSUES KEY MESSAGES
ON KEY INFORMATION DOCUMENT FOR PRIIPS
»»
CENTRAL BANK PUBLISHES SOLVENCY II
NEWSLETTER
»»
CENTRAL BANK ISSUES LETTER TO (RE)
INSURERS ON WEBSITE UPDATE AND REVIEW
»»
CENTRAL BANK PUBLISHES POLICY NOTICE
ON RING FENCED FUNDS UNDER SOLVENCY II
PUBLICATION OF LEGISLATION TRANSPOSING
»»
CENTRAL BANK PUBLISHES DRAFT
CONDITIONS ON THE DOMESTIC ACTUARIAL
REGIME AND RELATED GOVERNANCE
REQUIREMENTS UNDER SOLVENCY II
»»
CENTRAL BANK PUBLISHES INFORMATION
NOTE NO. 8 IN RELATION TO SET 2 OF THE
EIOPA SOLVENCY II GUIDELINES
»»
ADDRESS BY THE DIRECTOR OF INSURANCE
SUPERVISION, SYLVIA CRONIN, AT LIFE
INSURANCE CONFERENCE 2015
On 4 November 2015, the Minister for
Finance signed into law the European
Union (Insurance and Reinsurance)
Regulations 2015 (the Implementing
Regulations). The purpose of the
Regulations is to transpose into Irish law
Directive 2009/138, Solvency II, as amended
by Directive 2014/51, Omnibus II.
»»
CENTRAL BANK PUBLISHES REPORT
FOLLOWING ITS BODILY INJURIES THEMATIC
REVIEW IN IRELAND’S NON-LIFE INSURANCE
INDUSTRY
»»
CENTRAL BANK REFERS ADMINISTRATIVE
SANCTIONS PROCEDURE CASE TO INQUIRY IN
RESPECT OF CERTAIN PERSONS CONCERNED
IN MANAGEMENT OF QUINN INSURANCE
LIMITED (UNDER ADMINISTRATION)
»»
PRA PUBLISHES INSURANCE DIRECTORS’
UPDATE FOR SOLVENCY II AFFECTED FIRMS
+353 1 618 0504
jennifer.mccarthy@arthurcox.com
This document contains a general
summary of developments and is not
a complete or definitive statement of
the law. Specific legal advice should
be obtained where appropriate.
»»
IN DOMESTIC NEWS...
SOLVENCY II INTO IRISH LAW
The Regulations will come into effect
on 1 January 2016. However, certain
provisions which enable the CBI to
make decisions in advance of the
implementation date (e.g. decisions on
the use of internal models, USPs, ancillary
own funds etc.) take effect immediately
(Article 1(3) of the Regulations).
On 20 November 2015, the Finance
(Miscellaneous Provisions) Act 2015
was signed into law. The Act will ensure
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INSURANCE
INSURANCE REGULATORY UPDATE - NOVEMBER 2015
continued regulation for (re)insurers
falling outside the scope of Solvency II.
2015 Requirements) will take effect on
1 January 2016. In the meantime, (re)
insurers will continue to be subject to
the requirements of the Existing Code.
period to submit comments. The CBI’s
final decision on the revised conditions
is not expected until after the
commencement of the Implementing
Regulations on 1 January 2016.
A link to the Regulations is here.
A link to the Act is here.
EXCLUSION OF CERTAIN UNDERTAKINGS FROM
SOLVENCY II REQUIREMENTS
The Implementing Regulations, which
transpose Solvency II into Irish law,
exclude certain undertakings from their
remit. A positive obligation is placed on
(re)insurers to notify the CBI if it believes
it will meet the requirements set out in
the Regulations for exclusion from the
Solvency II regime.
On 26 November, the CBI published
two template notification forms to
be used where a (re)insurer meets the
requirements for exclusion: (i) due to
size (this will largely be firms with gross
premium incomes below €5m and gross
technical provisions below €25m); and
(ii) due to closing activity (this will
largely be firms which before 1 January
2016 cease to conduct new business and
will terminate activity before 1 January
2019). Any undertaking that expects
to meet the conditions for exclusion
from Solvency II should notify the CBI,
using the appropriate template, by 14
December 2015.
The template notification form for
exclusion due to size is here.
The template notification form for
exclusion due to closing activity is here.
CENTRAL BANK PUBLISHES THE CORPORATE
GOVERNANCE REQUIREMENTS FOR INSURANCE
UDNERTAKINGS 2015
The Corporate Governance Code for
Credit Institutions and Insurance
Undertakings 2013 (the Existing
Code) has been split and renamed to
provide separate requirements for (re)
insurers and credit institutions. The
Corporate Governance Requirements
for Insurance Undertakings 2015 (the
The 2015 Requirements impose
minimum core standards upon all
(re)insurers authorised by the CBI
(this includes reinsurers but excludes
captives and special purpose reinsurance
vehicles) and additional requirements
on (re)insurers designated as ‘high
impact’ by the CBI. The nature of the
requirements applicable to (re)insurers
under the 2015 Requirements have not
changed from those applicable under
the Existing Code. The CBI has indicated
that the legal basis and substance of the
document is unaffected by the change to
the title of the document from a “Code”
to “Requirements”.
The CBI provides clarity on statistical
reporting requirements under Solvency
II and on the review being undertaken of
CBI guidance provided on their website.
Other topics covered in the Newsletter
which are dealt with elsewhere in this
Update include: the publication of
proposed conditions for the domestic
actuarial regime and related governance
requirements under Solvency II; the
CBI’s Policy Notice on Ring Fenced Funds
and the CBI’s Information Note (No.8).
A link to the Newsletter is here.
A link to the 2015 Requirements is here.
CENTRAL BANK ISSUES LETTER TO (RE)INSURERS
ON WEBSITE UPDATE AND REVIEW
CENTRAL BANK PUBLISHES SOLVENCY II NEWSLETTER
The latest edition of the Newsletter
notes that the Implementing
Regulations and the Finance
(Miscellaneous Provisions) Act
2015 (which will ensure continued
regulation for (re)insurers falling
outside the scope of Solvency II) have
now been published. Information is
also provided on the publication of
implementing regulations relating to
EIOPA’s second set of Implementing
Technical Standards (ITS) and the
CBI’s industry survey on preparedness
for Solvency II.
The CBI advises that where
applicable, (re)insurers should focus
on submitting applications for
the establishment of the four key
functions required under Solvency
II (compliance, risk, audit and
actuarial) in advance of 1 January
2016. Guidance is provided on this
process and on the fitness and probity
treatment when outsourcing these
functions. As previously reported,
the CBI has also issued a draft set of
conditions of authorisation to all (re)
insurers. Firms have a 21 day review
On 27 November 2015, the CBI
wrote to all (re)insurers informing
them of updates being made to
certain sections of the CBI website in
preparation for the commencement of
the Implementing Regulations, on 1
January 2016.
The CBI has categorised documents
currently on the website under six
headings: (i) documents which will
remain unchanged; (ii) documents
which will be updated prior to
commencement of the Implementing
Regulations; (iii) documents which
will be reviewed in 2016; (iv) nonstatutory guidance which will not be
available on the Solvency II section
of the website; (v) requirements
which will be revoked following
implementation of the Implementing
Regulations; and (vi) requirements
which were imposed as Conditions
of Authorisation and which will be
revoked following implementation of
the Implementing Regulations.
A link to the letter is here.
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INSURANCE REGULATORY UPDATE - NOVEMBER 2015
CENTRAL BANK PUBLISHES POLICY NOTICE ON
The conditions retain elements of the
existing Reserving Requirements for
Non-Life Insurers and Non-Life and
Life Reinsurers, which took effect
for financial years after 31 December
2014. This includes the requirement to
conduct a peer review of the technical
provisions, Actuarial Opinion on
Technical Provisions and Actuarial
Report on Technical Provisions. Firms
will also be required to ensure they
have a written reserving policy in
place and continue to provide actuarial
certification of technical reserves.
A link to EIOPA’s Solvency II Guidelines
is here.
RING FENCED FUNDS UNDER SOLVENCY II
In a recent Policy Notice the CBI
gives guidance to the industry for the
assessment of whether an arrangement
constitutes a Ring Fenced Fund (RFF) for
Solvency II. RFF classification arises as a
result of a restriction (even for a limited
time) on a going concern basis of own
funds items so that they are not fully
available to absorb losses.
All (re)insurers within the scope of
Solvency II and groups supervised by
the CBI are required to assess whether
arrangements should be classified as a
RFF. The Policy Notice sets out a nonexhaustive list of 14 criteria which
should be taken into consideration as
part of this assessment.
The Policy Notice provides some
clarification on particular types of
arrangements which may give rise to a
RFF. The CBI expects with-profits funds
will display the characteristics of a RFF.
While conventional reinsurance is not
intended to be within the scope of a
RFF classification, certain reinsurance
arrangements may display the
characteristics of a RFF.
A link to the Policy Notice is here.
CENTRAL BANK PUBLISHES DRAFT CONDITIONS ON
THE DOMESTIC ACTUARIAL REGIME AND RELATED
GOVERNANCE REQUIREMENTS UNDER SOLVENCY II
The CBI has published draft conditions
on the domestic actuarial regime and
related governance requirements under
Solvency II, which are intended to
come into force from 1 January 2016.
This follows a public consultation
on its proposals to introduce specific
domestic requirements in relation to
the actuarial function for (re)insurers in
addition to those set out under Solvency
II. The CBI has indicated the conditions
are still subject to consultation. Once
finalised, (re)insurers will be required to
comply with the conditions and related
governance requirements and failure
to do so may result in administrative
sanctions being imposed by the CBI.
The prescribed form of the Actuarial
Opinion on Technical Provisions,
required to be submitted to the Central
Bank, has been provided in an appendix
to the conditions.
A link to the document is here.
CENTRAL BANK PUBLISHES INFORMATION NOTE
NO. 8 IN RELATION TO SET 2 OF THE EIOPA
SOLVENCY II GUIDELINES
To ensure consistent application of
principles of EU Law, EIOPA can issue
guidelines and recommendations to
NCAs regarding the application of EU
legislation. For Solvency II it has done so
on a “comply or explain” basis. EIOPA’s
first set of Solvency II Guidelines was
issued on 2 February 2015 and its second
set was published on 14 September 2015.
NCAs must comply with the Guidelines or
explain why it does not comply with them.
In April, the CBI confirmed that it
would comply in full with the first set
of Guidelines. Its recently published
eighth information note in relation to
Solvency II confirms that the CBI also
intends to comply in full with EIOPA’s
second set of Solvency II Guidelines. (Re)
insurers affected by Solvency II will also
be required to comply.
The second set of nine Guidelines addresses
topics including financial stability
reporting, methods for determining market
shares for reporting, reporting and public
disclosure, system of governance and own
risk and solvency assessments.
A link to Information Note No. 8 is here.
ADDRESS BY THE DIRECTOR OF INSURANCE
SUPERVISION, SYLVIA CRONIN, AT LIFE
INSURANCE CONFERENCE 2015
At the Institute and Faculty of Actuaries
30th Life Insurance event on 18
November 2015, the Director of Insurance
Supervision delivered a speech entitled
“Culture and Governance: Acting
Together for a Happy Marriage”. She
analysed the corporate governance
failures which led to the recent financial
crisis and identified the supervisory
measures needed to avoid another
financial crisis in the future.
Ms Cronin identifies the restoration of
consumer and shareholder confidence
in the financial services sector as the
main challenge in the fall-out of the
crisis. While there has been speculation
as to the governance factors which lead
to the global financial crisis including
for example, board members lacking
relevant experience and understanding.
Ms Cronin suggests that a dysfunctional
culture at board level is the root cause of
the financial failures.
Ms Cronin cautions that minimum
compliance with regulatory
requirements or reliance on the CBI to
be the “conscience” of an organistaion
is insufficient to achieve a sustainable
business. The roles of the Chief Risk
Officer and the Head of Actuarial
Function are central to the creation of an
effective risk management framework.
Risk management should be fully
incorporated into the governance
structure of an organisation.
Moving forward, the shift in the CBI’s
approach from a backward looking
system of supervision focused solely on
financial risks to a more forward-looking
approach with a complete assessment
of risks both financial and non-financial
(including culture and behaviours) will
continue. The areas of focus for the CBI
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INSURANCE REGULATORY UPDATE - NOVEMBER 2015
in the future will be product oversight
and governance and conduct risk. The
CBI will continue to hold boards more
accountable for the behaviour and
culture within an organisation and
will intervene where board dynamics
are ineffective. The CBI will increase
its awareness of the culture within an
organisation by more on-site inspections.
reserving and pricing practices in light of
the changing market.
for technical provisions, applying for
Solvency II waivers and modifications as
well as national specific templates.
A link to the report is here.
CENTRAL BANK REFERS ADMINISTRATIVE SANCTIONS
PROCEDURE CASE TO INQUIRY IN RESPECT OF
CERTAIN PERSONS CONCERNED IN MANAGEMENT OF
A link to the speech is here.
CENTRAL BANK PUBLISHES REPORT FOLLOWING
ITS BODILY INJURIES THEMATIC REVIEW IN
IRELAND’S NON-LIFE INSURANCE INDUSTRY
The CBI carried out a Bodily Injuries
Thematic Review for accident years
2012 – 2014 in relation to private motor,
employer liability and public liability
and has recently published a report on
its findings together with a number of
general observations.
The CBI will follow up on issues
identified with individual firms. It
outlines changing trends in relation to
claims in the non-life sector including
a rise in the number of private motor
injury claims, a fall in settlement rates
and a higher average cost per claim. It
also highlights considerable disparity
between companies’ reserving practices,
with some firms holding half the level
per vehicle in comparison to others in
the market. The CBI has also set out
its assumptions on the impact which
legislation introducing Periodic Payment
Orders (PPOs) is likely to have on
insurers’ reserves, together with actions
firms should take in preparation for
their introduction (i.e., scenario testing
and producing a central estimate). The
need for insurers to account for market
changes in their pricing assumptions
and strategy to ensure risk is adequately
provided for is also highlighted.
Whilst the report acknowledges the
many challenges currently faced by
non-life insurance companies (such
as increasing court awards and the
proposed legislative changes), the CBI
hopes its comments will encourage
firms to review and test current
QUINN INSURANCE LIMITED (UNDER ADMINISTRATION)
In a press release issued on 11
November 2015, the CBI confirmed
it has referred its recent investigation
into Quinn Insurance Limited (Under
Administration)(QIL) under its
Administrative Sanction Procedure to
full inquiry. The focus of the inquiry
will be to determine whether persons
concerned in QIL’s management
participated in a prescribed
contravention of Regulation 10(3) of
European Communities (Non-Life
Insurance) Framework Regulations
1994, i.e., the requirement to have
sound administrative accounting
procedures and internal controls. In
circumstances where the CBI determines
a contravention took place, it has the
power to administer sanctions.
A link to the Central Bank’s press release
is here.
IN INTERNATIONAL NEWS…
PRA PUBLISHES INSURANCE DIRECTORS’ UPDATE
FOR SOLVENCY II AFFECTED FIRMS
In its latest Insurance Directors’ Update
Letter for all firms affected by Solvency
II, the PRA has confirmed that its priority
prior to implementation of Solvency II
on 1 January 2016 remains the approval
of Solvency II applications. The PRA’s
approach to approvals is set out in a
letter from the Director of Insurance
Supervision on 24 September 2015.
In the Update, the PRA sets out its
position in relation to a number of
areas within the Solvency II regime.
It covers valuation difficulties with
equity release mortgages, dealing with
reinsurance counterparty risk credit, the
calculation of the transitional deduction
In October 2014, the PRA recommended
that firms commission a ‘balance sheet
review’ (“BSR”) in order to demonstrate
certain calculations have been carried out in
accordance with Solvency II requirements.
The Update sets out details of the PRA’s
findings on the appropriateness of firms’
risk margin methodologies, examined
during step 1 of the BSR.
A useful timetable of the PRA’s activity
during November / December 2015,
together with a summary of all Solvency
II web updates since the previous
Directors’ Update was published in
September 2015, is also provided.
A link to the Insurance Directors’ letter
is here.
PRA PUBLISHES CONSULTATION PAPER CP43/15
ON AN EXTERNAL AUDIT OF THE PUBLIC
DISCLOSURE REQUIREMENT
The PRA has issued consultation paper
CP43/15 in relation to its proposals to
require Solvency II firms to obtain an
external audit of certain aspects of the
publicly disclosed Solvency & Financial
Condition Report (SFCR). The focus
of such external audit would be those
sections of the SFCR dealing with
‘valuation for solvency purposes’ and
‘capital management’. The paper sets
out details of the background to as well
as the rationale for the PRA’s proposals.
It identifies two possible exemptions
from the requirements, one of which is
an exemption from an external audit of
the Solvency Capital Requirement for
firms using an approved internal model.
The paper also includes information
on the PRA’s cost / benefit assessment
of the proposals, offering insight into
the PRA’s position on the benefits of
an external audit of the SFCR. Its view
is that the cost of the proposed audit
would be proportionate and increasing
confidence in insurers’ publicly available
information would have a positive
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INSURANCE REGULATORY UPDATE - NOVEMBER 2015
impact on the market more generally.
relation to the impact of the proposed
Guidelines. Explanatory notes for the
full suite of Guidelines are also provided,
together with a list of questions for
stakeholders to answer in relation to the
Chapter 2 Guidelines.
insurance-based investments products.
It welcomes the introduction of an
assessment of the appropriateness and
suitability of these products as well as
the new rules around product oversight
and governance.
The consultation period will close on
29 January 2016 and EIOPA anticipates
publishing a final report in the second
quarter of 2016. EIOPA has also indicated
that, following approval from its Board
of Supervisors, final guidelines will
only be published once the Insurance
Distribution Directive/IMD2 has been
officially adopted and published in the
Official Journal of the EU.
A link to the key messages document
is here.
The consultation period will close
on 19 February 2016 and the PRA has
indicated it will consider feedback from
stakeholders before producing a policy
statement containing its final rules and a
supervisory statement. Its intention is to
implement the requirements with effect
from 30 June 2016.
A link to the consultation paper is here.
EIOPA PUBLISHES CONSULTATION PAPER ON THE
REVISED PROPOSALS FOR PREPARATORY GUIDELINES
ON PRODUCT OVERSIGHT AND GOVERNANCE
EIOPA has published a Consultation
Paper on its revised proposals for
preparatory Guidelines on product
oversight and governance arrangements
by insurers and distributors. The
Guidelines are designed to protect
policyholders and beneficiaries by
requiring that insurance products are
designed and distributed in such a way
as to meet consumers’ needs.
A link to the Consultation Paper is here.
INSURANCE EUROPE ISSUES KEY MESSAGES ON
KEY INFORMATION DOCUMENT FOR PRIIPS
EIOPA’s original draft Guidelines, subject
to public consultation from October
2014 to January 2015, applied only to
product manufacturers. Chapter 1 of the
Consultation Paper sets out an amended
text of the Guidelines for product
manufacturers, incorporating feedback
from that first consultation. Chapter 2
sets out the new Guidelines applicable
to insurance distributors which
cover an intermediary’s distribution
strategy, the need to review distribution
arrangements as well as the role of
management in such a review.
Insurance Europe recently outlined
its views on the Key Information
Document (KID) to be used for packaged
retail and insurance-based investment
products, highlighting the importance
of appropriately setting out features of
a product in the KID. One of the main
takeaways is Insurance Europe’s view
that the premium for an insurance-based
investment product should be set out
separately to the product’s investment
cost. It believes combining the two
figures prevents consumers from being
able to meaningfully compare either the
premiums or investment costs between
different products. It also fears that an
aggregate ‘costs’ figure may make products
appear more expensive thereby deterring
consumers from purchasing them at all.
More generally, the Consultation
Paper contains details of a cost / benefit
analysis carried out by EIOPA in
Insurance Europe also reflects on
the impact of the new Insurance
Distribution Directive in relation to
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