Financial Services Regulation and Compliance - Insurance January 2024

Domestic

CBI financial statements for Insurance Compensation Fund published

On 12 January 2024, the Central Bank of Ireland (the CBI) published the financial statements for the Insurance Compensation Fund for the year ending 31 December 2022. The fund is designed to facilitate payments to policy holders in the event of non-life insurer insolvency. It is financed through contributions from non-life insurers authorised in the EEA when covering certain risks located in Ireland. Key points to note from those financial statements include:

  • a decrease in total assets from €161,951 (at year-end 2021), to €63,342
  • a decrease in total income from €178,585 (at year-end 2021), to €116,808
  • that, in 2022, €80m was paid to the fund by the administrators of Quinn Insurance Limited

Government publishes legislative programme for Spring 2024

The Government Legislation Programme for the Spring 2024 session has been published (the programme). The programme identifies 24 bills to be prioritised for publication and a further 22 bills to be prioritised for drafting. Of particular interest to the insurance sector is the Motor Insurance Insolvency Compensation Bill. The purpose of that Bill is to transpose Article 10a and 25a of the revised EU Motor Insurance Directive (Directive 103/2009/EC) as amended by Directive (2021/2118). It aims to provide access to a compensation mechanism for victims of road traffic accidents where the relevant insurer is insolvent. The programme states that Heads of Bill were approved in November 2023.

European

EIOPA analyses internal models for non-life underwriting

The European Insurance and Occupational Pensions Authority (EIOPA) has published its findings from its comparative European-wide study on internal models for non-life underwriting. This examined both the internal models and the non-life underwriting risk profiles of 75 non-life (re)insurance undertakings. EIOPA sought to understand the similarities and differences in how insurance undertakings treated similar risks in their models. Key findings included where:

  • Where similar profits and loss distributions were identified between undertakings, EIOPA observed considerable variability in ‘capital intensities’ (determined by dividing the solvency capital ratio by a measure of an exposure, and the measures that were used in this particular study include premium risk, catastrophe risk and reserve risk).
  • Undertakings using internal models (as opposed to those using standard formulas) showed greater variation and lower capital in the case of premium and reserve risk.
  • EIOPA found the majority of undertakings were prepared for the EU-wide quantitative reporting templates, which are in use since the end of 2023.

EIOPA publishes monthly technical information for Solvency II

On 5 January 2024, EIOPA published its monthly technical information regarding the relevant risk-free interest rate term structures (RFR) with reference to the end of December 2023, for Solvency II purposes. This technical information is used for the calculation of technical provisions for (re)insurance obligations. On the same date, EIOPA also published technical information on the symmetric adjustment of the equity capital charge under Solvency II with reference to the end of December 2023.

EIOPA Report - Insurance Distribution Directive (IDD) application

EIOPA published its second report on the application of the Insurance Distribution Directive (the IDD) on 15 January 2024. Building on its first report published in January 2022, EIOPA’s key findings include that:

  • the number of registered insurance intermediaries continues to decrease
  • actions taken by certain national regulators has led to the improvement of the quality of advice given to customers (although EIOPA also identified several shortcomings in certain Member States and encouraged action be taken)
  • consumers faced challenges understanding new sustainability disclosures and concepts (and EIOPA highlighted that it expects insurance distributors to ensure personnel are sufficiently trained to enable them to advise consumers appropriately)
  • shortcomings exist in relation to conflicts of interest and renumeration disclosures, and that certain national regulators would be taking further action to address this

Minimum Standards for Revisions of Reported data - EIOPA

On 17 January 2024, EIOPA (and the ECB) published common minimum standards for data revisions in regulatory reporting. This is intended to aid insurers for the purposes of their Solvency II reporting. The common minimum standards aim to facilitate an understanding of (a) the minimum level of data quality required in such reporting and (b) when revised data should be submitted. National regulators are required to communicate these standards at national level to ensure that they are complied with going forward.

EIOPA – Annual report on IDD sanctions (2022)

On 17 January 2024, EIOPA published the fourth annual report on administrative sanctions and other measures imposed by national supervisors under the IDD. Member States imposed 2,762 sanctions in 2022. Key highlights of the report include that:

  • Breaches of information and conduct of business requirements resulting in sanctions have increased each year since the implementation of the IDD in 2018, with 647 sanctions imposed in 2022 (which was more than twice the amount seen in 2021).
  • There was a significant variation between Member States in the number of breaches related to professional and organisational requirements. However, EIOPA mentioned that this variation was most likely driven by differing approaches by regulators and differing definitions of what is considered a sanction in Member States.

EIOPA publishes report on consumer trends during 2023

EIOPA published its Consumer Trends Report 2023, which reports on the key trends impacting consumers in the insurance sector. In particular, the report explores the impact of the cost-of-living crisis on the financial well-being of consumers. Some of the key focal points identified of the report are:

  • the impact of inflation on consumers
  • the role of diversity, equity and inclusion in ensuring consumers are adequately served and fairly treated by the insurance sector
  • value for money in respect of insurance-based investment products
  • digital distribution and its role in the insurance sector
  • the challenge for consumers in interpreting complex product sustainability documentation (with EIOPA warning against the risk of greenwashing by insurance undertakings)

Country-specific fact sheets were prepared for each EU Member State, which illustrate responses compared to the EU average. It was observed that a greater number of Irish consumers believe it is more difficult to receive individualised advice when purchasing an insurance product online, versus over the phone. However, the majority of Irish consumers tend to believe digitisation has made the insurance claims process easier.

EIOPA publishes report on comparative study on diversification in internal models

EIOPA published a report on diversification in internal models on 24 January 2024. This follows a comparative study (based on year-end 2019 data) of approaches taken to diversification by EEA insurers which using an approved internal model. Diversification is a tool used in risk modelling (whereby an adverse outcome from one set of risks is offset by a more positive outcome from a different set of risks). The study examined diversification models used by the insurer participants (and their groups, where requested by the group supervisor). 

The study was conducted in two phases. Phase 1, which considered ‘top level’ risks (for example, life, non-life, health, market and credit risks); and phase 2 which considered ‘sub-risks’ (such as interest rates). The aim was to provide an overview of current modelling approaches, to provide regulators with a comparison that would assist them in their supervisory activities. The findings in the report confirm the need for ongoing supervisory scrutiny at both the local and European level. EIOPA has confirmed that it will run a follow-up study in this space.

For more information on these topics please contact any member of A&L Goodbody's Insurance & Reinsurance team.

Date published: 26 February 2024