Insurance Regulatory Update, August 2014


August 2014 Arthur Cox Insurance Regulatory Update

  • Central Bank Publishes Q&A on Solvency II Guidelines
  • Central Bank Publishes Service Standards Performance Report on Fitness and Probity
  • Central Bank Publishes Requirements Regarding Life Insurers Opting Into the Italian Tax Withholding Regime
  • Regulatory Notice on the Adaptation of Solvency I Minimum Guarantee Fund
  • National Consumer Agency Publishes Annual Report
  • Insurance Europe Publishes Insurance Industry Figures
  • European Commission Requests Technical Advice From EIOPA Regarding PRIIPS
  • EU Commission Launches Consultation on Insurance Block Exemption Regulation
  • EU-US Insurance Project Updates Its Strategy
  • Prudential Regulation Authority and HM Treasury Issue Consultation Papers on Solvency II


Central Bank Publishes Q&A on Solvency II Guidelines

On 22 August, the Central Bank published a Questions and Answers document (Q&A) regarding the operation of its Guidelines on Preparing for Solvency II published in November 2013 (the Guidelines). The Q&A provides clarity on the five sets of Guidelines issued by responding to questions raised by industry since the Guidelines were introduced.

The Q&A sets out answers in relation to questions raised on the introduction paper to the Guidelines, the System of Governance, the Forward Looking Assessment of Own Risks, the Submission of Information to the Central Bank and groups aspects of the Guidelines. Interestingly, no Q&A has been provided in relation to the Guidelines on the Pre-application for Internal Models. The Central Bank has provided some clarity regarding which entities are excluded from scope of the Guidelines and the dates by which high/medium/low impact firms must meet particular requirements of the Guidelines. Most questions addressed relate to the System of Governance Guidelines, followed closely by questions relating to the Submission of Information to the Central Bank.

The Central Bank does not intend to publish any further material on the Guidelines on Preparing for Solvency II except where further Q&As are necessary. In particular the Central Bank confirms that it will not issue guidance in relation to the Quantitative Reporting Templates and advises that any specific questions on those templates should be raised with EIOPA.

A link to the Q&A is here.

On a related note, the Central Bank issued its 2014 survey on preparedness for Solvency II on 7 August to compliance officers of all participating undertakings. This online survey will remain open until 26 September 2014 and focuses on firms’ progress towards compliance with the Guidelines on the System of Governance and Submission of Information to the Central Bank.

Central Bank Publishes Service Standards Performance Report on Fitness and Probity

On 1 August, the Central Bank published its Fitness and Probity Regulatory Transactions Service Standards Performance Report (the Report) covering the first half of 2014 (the January Insurance Regulatory Update contained the results of the report from July to December 2013). The purpose of the Report is to set out the turn-around time in which the Central Bank processes Individual Questionnaires (IQs). The Central Bank has also included an assessment of the timeframe for authorisation of new entities as part of its bi-annual service standards reports.  These authorisation service standards are being introduced on a phased basis from January 2014 for credit institutions, insurers, investment firms and regulated markets. The Report notes that the Central Bank exceeded its performance targets in six of the seven targets set. It indicates that the Central Bank processed over 85% of ‘standard’ IQ applications (i.e. non QIFs and individuals not previously approved) within 15 business days, and processed over 75% of authorisation applications within 3 months of completion.

The Report contains an appendix listing common reasons for the returning of IQ applications as incomplete. The list is unchanged from the list attached to the Report on the second half of 2013. Reasons given for returning applications include failing to provide a complete list of directorships/senior positions for the applicant in sections 6 and 9 of the IQ.

A link to the Report is here.

Central Bank Publishes Requirements Regarding Life Insurers Opting into the Italian Tax Withholding Regime

On 28 July, the Central Bank published Guidance and Requirements (the Guidance) addressed to those life assurance companies who have opted into the Italian Withholding Tax Regime (the Regime). The Guidance is based upon the results of a survey carried out by the Central Bank to test certain stresses in respect of tax assets (i.e. the methodology for valuing tax recoveries under the Regime) and incorporates the guidance it gave by way of a letter to the industry in 2009. Affected life assurance companies will be required to provide an undertaking to the Central Bank to comply with the updated requirements set out in the Guidance.

The updated requirements set out in the Guidance address three key areas of concern, namely that: a prudent value is placed on the tax asset recoveries; companies make provision for adequate recognition of the illiquid nature of the tax asset; and companies make provision for adequate recognition of any concentration risk. The Guidance addresses how the Central Bank expects tax assets to be taken into consideration by affected life assurance companies in their preparation for Solvency II.

A link to the Guidance is here.

Regulatory Notice on the Adaptation of Solvency I Minimum Guarantee Fund

On 28 August, the Central Bank published a regulatory notice (the Notice) on the adaptation of the Solvency I Minimum Guarantee Fund (MGF) for reinsurance undertakings. Pursuant to adaptations provided for under the European Communities (Reinsurance) Regulations 2006, changes in respect of the MGF will come into effect for all affected undertakings on 31 December 2014 and will apply to all Online Reporting Forms for reporting periods ending on or after that date. Whilst the MGF for captive reinsurance undertakings will not change, reinsurance undertakings will be subject to a revised MGF of €3,600,000 (an increase of €200,000).

A link to the Notice is here.

National Consumer Agency Publishes Annual Report

On 29 July, the National Consumer Agency (the NCA) published its Annual Report for the period 1 January 2013 to 31 December 2013 (the Report). The NCA will be dissolved from 31 October 2014 and its responsibilities regarding the enforcement of consumer legislation and advocacy will be carried out by a new body – the Competition and Consumer Protection Commission. This new body will also take over the powers and competencies of the Competition Authority.

The NCA reported that, in 2013 it received over 56,000 queries and contacts from consumers and took a number of enforcement actions in order to protect consumers. The Report discusses the activities undertaken in 2013 in furtherance of the NCA’s four strategic priorities for the period 2013 – 2016, namely to: (1) protect consumers by enforcing consumer law; (2) empower consumers to make informed choices; (3) represent consumer interests; and (4) continue to develop as an effective and professional public service organisation.

The Report summarises the results gathered from three surveys which looked at price differentials in the life insurance, motor insurance and home insurance markets. The research also assessed consumers’ ‘switching behaviour’. The surveys were completed by the NCA obtaining quotes using between four and eight sample profiles. In relation to consumer behaviour, the motor insurance sector experienced the second highest number of switches at 23%. There was a less significant degree of change in the home insurance and health insurance sectors at 14% and 9% respectively.

Notably the NCA found that the motor insurance quotes obtained for both male and female drivers were the same, following the implementation of the EU Gender Directive in December 2012.

A link to the Report is here.


Insurance Europe Publishes Insurance Industry Figures

On 6 August, Insurance Europe published figures following an analysis of various aspects of the European insurance industry during the period 2003 – 2012. The figures are based on data collected from 32 national insurance associations throughout Europe. The figures show an increase in the number of insurance premiums, with non-life increasing by 30% and life by 22%. The amount of benefits and claims paid out by insurers has also increased during this period (life by 64% and non-life by 41%). Insurance Europe notes that the “European insurance industry has maintained a path of stability and growth…”

A link to the press release is here.

European Commission Requests Technical Advice from EIOPA Regarding PRIIPS

The European Commission has asked EIOPA to provide technical advice on the content of the delegated acts pursuant to Articles 16(8) and 17(7) of the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPS Regulation). These articles relate to the temporary product intervention powers of competent authorities and EIOPA with respect to certain insurance-based investment products. The PRIIPS Regulation provides that competent authorities, or in exceptional cases EIOPA, may take steps to prohibit or restrict an insurance-based investment product on a precautionary basis before the product has been marketed, distributed or sold to investors, where they determine that such activity would give rise to serious concerns regarding investor protection, the orderly functioning and integrity of financial markets or the stability of the whole or part of the financial system. The European Commission is requesting EIOPA to provide technical advice outlining the criteria and factors that will be taken into account in making such a determination.

EIOPA is required to provide technical advice within six months of the date on which the PRIIPS Regulation comes into force.

A link to the request is here.

EU Commission Launches Consultation on Insurance Block Exemption Regulation

The EU Commission has issued a consultation questionnaire to determine how the Insurance Block Exemption Regulation (IBER) functions in the market and the role that it will play in the insurance industry going forward. The IBER provides an exemption to certain insurance-specific agreements which would otherwise be caught by EU competition laws which prohibit anti-competitive arrangements. The exemption covers two types of agreements between insurance and reinsurance companies: (1) agreements with respect to joint compilations, joint tables and studies and (2) common coverage of certain types of risks (co-insurance or co-insurance pools).

As the IBER is set to expire in March 2017, the EU Commission is seeking stakeholders’ views on whether it should be renewed, partially renewed or not renewed at all (the IBER was most recently renewed in 2010). The questionnaire will assist the EU Commission in coming to a decision regarding the future of the IBER and in formulating policy decisions for the industry.

Submissions on the IBER can be made to the EU Commission until 4 November 2014. It will draft a report for the European Parliament by March 2016.

A link to the questionnaire is here.

EU-US Insurance Project Updates its Strategy

The Steering Committee of the EU-US Insurance Project has updated its ‘Way Forward’ document, which provides for common objectives and initiatives to increase understanding, cooperation, consumer protection and business opportunities between the EU and the US. The ‘Way Forward’ was first published in December 2012 and outlines a set of objectives and initiatives to be pursued up to 2017.

The updated strategy reaffirms the Steering Group’s commitment to achieving the following goals and objectives: greater professional secrecy and confidentiality in the flow of information between EU and US supervisors; the establishment of a robust group supervision regime; the development of a more consistent approach to solvency and capital requirements; the development of a more consistent approach to reinsurance and collateral requirements; greater coordination in supervisory reporting, data collection and analysis; the consistent application of best practices through peer reviews; and independent third party reviews and supervisory on-site examinations for solo entities and groups.

The EU-US Project will host a public event to discuss the evolution of group supervision on 25 October 2014 in Amsterdam. At the event, the Steering Group will discuss the updated ‘Way Forward’ document and the future plans for the Project.

A link to the updated ‘Way Forward’ document is here.

Prudential Regulation Authority and HM Treasury Issue Consultation Papers on Solvency II

On 11 August, the Prudential Regulation Authority (the PRA) published a consultation paper on the proposed changes to the PRA’s rulebook (CP16/14). The consultation paper notes that these changes are required for the implementation of Solvency II (as amended). This is the third consultation on rules to transpose Solvency II. The consultation paper is divided into four sections. Section I considers the proposed rule changes necessary to implement Solvency II. Section II covers areas not considered in the previous consultation papers, or where the PRA’s approach has developed since the previous papers. Section III provides feedback on responses to two parts of CP12/13: the approach to Lloyds; and public disclosure to capital add-ons and undertaking specific parameters, and Section IV provides an economic cost benefit analysis that considers the impact of the most material proposed rule changes introduced in respect of the Long term Guarantee Package. The closing date for responses is 7 November 2014.

HM Treasury has also issued a consultation paper on Solvency II which it intends to complete the process of consultation on how the government should implement the Solvency II Directive in the UK. The consultation paper is seeking responses on two policy issues, namely (1) the use by firms of the volatility adjustment and whether it should be subject to prior approval by the PRA, and (2) on the approach to be adopted in removing business permissions where an undertaking fails to meet the Minimum Capital Requirement. HM Treasury is seeking views from interested parties, particularly insurance and reinsurance firms in the UK. The closing date for responses is 19 September 2014.

Download PDF