Tracker, Financial Services Regulation & Compliance - Insurance

DOMESTIC

Central Bank publishes additional Solvency II Information Notes

The Central Bank of Ireland (Central Bank) has recently published additional Solvency II Information Notes. The first of these, Note 4, outlines its approach to applications for approvals regarding undertaking-specific parameters (which are being accepted by the Central Bank since 1 April 2015).  Note 5 outlines the approval process for special purpose vehicles (SPV) and includes a checklist of supporting documentation to be provided with applications for authorisation as a SPV.  Finally, Note 6 sets out details of the Central Bank's approach to the first set of the European Insurance and Occupational Pensions Authority (EIOPA) Solvency II Guidelines (issued in February 2015). The Central Bank confirmed its intention to comply with all of the Guidelines and noted that it expects (re)insurers to do likewise.

Central Bank consultation - actuarial regime for Solvency II undertakings

On 2 April 2015, the Central Bank of Ireland (Central Bank) published a consultation paper (CP92) on its proposed actuarial regime and related governance requirements for (re)insurance undertakings under Solvency II.   In addition to the actuarial function rules in the Directive, the Central Bank intends to introduce specific Irish requirements in order to retain elements of the existing regime which are not provided for within Solvency II, e.g. actuarial reporting to the Central Bank. In particular, rules set out in the Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers (e.g. relating to peer reviews, reserving policy and reserving committees) are to be retained.  With certain exceptions, the proposals outlined in the consultation paper will apply from 1 January 2016 to all (re)insurers subject to Solvency II.  Submissions are invited until 29 May 2015. 

Central Bank feedback on reporting templates

On 23 April 2015, the Central Bank of Ireland (Central Bank) published a feedback statement on its recent consultation on national specific templates (NSTs) for reporting under Solvency II.  Key changes to be reflected in the NSTs as a result of responses received by the Central Bank include that (a) reinsurers will not be in scope for the templates, (b) non-life NSTs 3 - 7 will be collected twice per annum (rather than quarterly), (c) NSTs 1 – 7 will only apply to High impact insurers; and (d) NSTs 8 – 11 (variable annuity business) will allow use of own (rather than Solvency II) hedging bases. The Central Bank intends to issue the revised NSTs by the end of May 2015.

High Court ruling - limitation period for mis-selling claims

In a recent case before the Irish High Court, an appeal by policyholders against a decision of the Financial Services Ombudsman was rejected by the Court on the basis that the limitation period for dealing with claims of mis-selling of financial products had passed. The Court reiterated that the limitation period (of six years) runs from the time of selling the product.  The Court upheld the test in Ulster Bank v. Financial Services Ombudsman [2006] IEHC 323 that the decision reached by the Ombudsman must be vitiated by a serious and significant error or series of errors, in order for such an appeal to be successful before the Court.

Central Bank Solvency II Forum

On 20 April 2015, the Central Bank of Ireland (Central Bank) held a Solvency II Forum. One of its key aims was to communicate the Central Bank's expectations to insurers, regarding the implementation of Solvency II.  Amongst other matters, the benefits (including that Solvency II would lead to improved governance, risk assessment and reporting, as well as increased investment flexibility) and challenges (including that Solvency II did not revise the pre-existing conditions for (re)insurer authorisation, which may lead to a lack of supervisory flexibility given that solvency II is a maximum harmonisation Directive).  Notably, the Central Bank commented that reporting effected to date regarding Solvency II had provided the Central Bank with certain insights, including the need for greater Board input and more robust stress testing.  Availability of external user testing for insurers in Q3 of 2015 was also highlighted (as was the low-take up by firms during the current test phase) and the Central Bank urged firms to avail of this.

Central Bank ONR demonstration for Solvency II reporting

On 14 April 2015, the Central Bank of Ireland (Central Bank) published explanatory documentation on the ONR System to be used for the submission of Solvency II Preparatory Reporting data.  The slide pack from a demonstration given to insurance undertakings on 13 April, together with user manuals on XBRL and narrative reporting, are now available on the Solvency II section of the website.

Central Bank publishes latest edition of Solvency II newsletter

The Central Bank of Ireland (Central Bank) recently published the latest edition of its Solvency II newsletter.  Amongst other matters, the newsletter highlights that (a) the Central Bank will be accepting formal internal model applications from 1 April 2015, (b) following its consultation on national specific (reporting) templates (NSTs), the Central Bank has decided that only high impact and variable annuity undertakings are required to provide NSTs, (c) the Central Bank is exploring opportunities for reducing reporting burdens on (re)insurers and will soon be introducing national specific templates for statistical purposes as a first step towards streamlining reporting and (d) the Central Bank has issued a number of practical recommendations in relation to the format of applications for internal models. 

EU AND INTERNATIONAL DEVELOPMENTS

EIOPA update - symmetric adjustment of Solvency II equity capital charge

On 10 April 2015, EIOPA published technical information on the symmetric adjustment of the equity capital charge for Solvency II. The aim of this is to assist insurers in calculating their solvency positions as at the end of March 2015.  This information will be updated on a monthly basis, based on the behaviour of an equity index built by EIOPA exclusively for that purpose.

CJEU decision - importance of plain, intelligible language

A decision of the Court of Justice of the European Union (CJEU) delivered on 23 April 2015 (case C-96/14) (a) highlights the importance of ensuring that plain, intelligible language is used in consumer insurance contracts and (b) provides guidance as to how this may be interpreted where the insurance contract forms part of a wider contractual framework (e.g. insurance taken out in connection with a loan).  Terms in insurance contracts which define/restrict the insured risk or scope of cover cannot generally be challenged on the basis that they are unfair under the Directive 93/13/EEC as long as they are drafted in plain, intelligible language.  According to the CJU, a term is not necessarily 'plain and intelligible' if it is clear/unambiguous in its grammar or form.  Instead, the CJEU held that the crucial factor is that the contract clearly sets out how the specific insurance arrangements work and how they relate to the wider contractual framework, so that the consumer can evaluate the possible economic consequences of the term.  Interestingly, the CJEU was also of the view that, where an insurance contract is taken out in conjunction with a loan, a consumer cannot be expected to have the same degree of vigilance regarding scope of coverage as would be expected in circumstances where the insurance and loan contracts are concluded separately.

Updates on relevant risk free interest rate term structures from EIOPA

On 10 April 2015, EIOPA published updated Technical Information on the relevant risk free interest rate (RFIR) term structures with reference to end March 2015. This information is to be published monthly and is to be applied by (re)insurers in the calculation of their technical provisions for solvency II purposes.

Updated Solvency II data point model and XBRL taxonomy

EIOPA has released updated information on its Solvency II data point model (DPM) and XBRL taxonomy package (version 1.6).  This is a first draft version of the full scope Solvency II package.  Its purpose is to demonstrate planned changes in modelling and changes to the earlier preparatory DPM and XBRL taxonomy releases (versions 1.5.2.b and 1.5.2.c).  The information published also identifies areas that are potentially subject to change.

EIOPA Q&As on certain Solvency II guidelines

Earlier this month, EIOPA published three short sets of Q&As in relation to its Guidelines on Group Solvency, Classification of Own Funds and Undertaking-Specific Parameters.  Of particular note are the FAQs on Classification of Own funds, where EIOPA sets out its position on the impact of dividend stopper arrangements on Tier 1, 2 and 3 own fund items.

Insurance Europe - supplementary comments regarding IFRS implementation

On 21 April 2015, Insurance Europe published supplementary comments to its March 2015 letter (written jointly with the European Insurance CFO Forum and submitted to the European Financial Reporting Advisory Group), which raised concerns regarding implementation of IFRS 9 and IFRS 4 Phase II.  The supplementary comments focus mainly on the negative effects of IFRS 9 being implemented ahead of IFRS 4 Phase II. Key concerns highlighted include that this will lead to (a) accounting mismatches in insurers' income statements and (b) significant costs and other operational impacts.

EU/US bilateral agreements

On 21 April 2015, the Council of the EU announced that it had directed the European Commission to negotiate an agreement (on behalf of the EU) with the US regarding reinsurance. The Council's President welcomed the development, noting that the agreement would lead to mutual recognition of prudential rules between the US and EU.  Separately, on 16 April 2015, Insurance Europe, the American Insurance Association and the American Council of Life Insurers jointly reiterated their desire for financial services to be included in the proposed Transatlantic Trade and Investment Partnership agreement.

EIOPA opinion on internal model applications

On 14 April 2015, EIOPA published a formal opinion (addressed to national supervisors) on certain aspects of the preparation and approval of internal model applications.  The opinion identifies three areas where EIOPA believes that diverging practices/approaches would lead to the inconsistent results and confusion in the sector.  These are (a) modelling of sovereign exposures, (b) absence of certain formal decisions at EU level (e.g. in relation to the risk-free interest rate term structure and third country equivalence) and (c) use of comparative studies in analysing internal models.  The opinion also sets out EIOPA's preferred options/approaches in these respects.

EIOPA publishes revised work programme

On 7 April 2015, EIOPA announced that it has re-prioritised its 2015 work programme due to a (7.6%) reduction in its budget and published a revised version of the programme to reflect this.   EIOPA noted that 31 projects had been reduced in scope, 12 had been downgraded and 27 had been eliminated.  EIOPA has confirmed that Solvency II work will remain at the top of its agenda, but that this will also be adversely affected.  EIOPA's latest press release notes that some projects on its 2015 programme have been "severely hit" including areas such as, financial stability and consumer protection.  

IAIS review of Insurance Core Principles

In its April 2015 newsletter, the International Association of Insurance Supervisors (IAIS) provided an overview of the current and planned review of its insurance core principles (ICPs).  ICPs currently under review by its working groups include ICP 4 (Licensing), ICP 7 (Corporate Governance) and ICP 23 (Group-wide Supervision).  The paper also reports that a number of ICPs will be revised during 2016, including ICP 11 (Enforcement) and ICP 25 (Supervisory Cooperation and Coordination).  A task force has been set up to consider ICPs not within the scope of existing IAIS subcommittees.

Insurance Europe concern - consumer impact of new EU disclosure requirements

In a press release on 14 April 2015, Insurance Europe raised a number of concerns in relation to the cumulative impact of the pre-contractual disclosure requirements under the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs), the Solvency II Directive and the Insurance Distribution Directive (IMD2).   According to Insurance Europe, the new measures risk overloading consumers with too much information, including due to the level of duplication across sources of disclosure requirements (as, in some cases, consumers may be provided with the same type of information more than once in different wording and formats).

EIOPA publishes speech delivered in Dublin

On 24 April 2015, EIOPA published a speech given by its Chairman at the Central Bank's Solvency Forum held in Dublin on 20 April 2015. Key issues addressed include (a) the fundamental elements of Solvency II with a particular focus on EIOPA's expectations in relation to the ORSA (own risk and solvency assessment), internal models and reporting, (b) EIOPA's future role and strategy in developing a harmonised European supervisory culture to ensure that Solvency II is implemented and applied consistently across EU Member States and (c) future issues/challenges for conduct regulation and supervision (e.g. product oversight and governance, adherence to local conduct of business rules by cross-border insurers and harmonisation in the area of enforcement).

IAIS progress on draft Conduct of Business Risk paper

On 22 April 2015, the IAIS published a draft Issues Paper on Conduct of Business Risk and its Management, together with a memo containing a list of questions directed to interested stakeholders. The paper recognises the importance of conduct of business risk in the context of insurer supervision and explores approaches to its management and mitigation.  Responses were sought informally by 1 May 2015 and it is intended that the issues paper will be finalised and proposed for public consultation later in the year.

Insurance focuses in FCA policy development update

On 2 April 2015, the Financial Conduct Authority (FCA) published a policy development update (PDU 21). Notably, the FCA intends to publish a number of policy statements affecting the insurance sector, including on (a) whistleblowing in insurers and other entities (due in June 2015), (b) the approach to non-executive directors Solvency II (and other) firms (due in May and July 2015) and (c) the general insurance add-ons market study and proposed remedies (due in October 2015).

PRA - various Solvency II publications

On 1 April 2015, the Prudential Regulation Authority (PRA) issued updated versions of its Solvency II supplementary information forms, to take account of the recently finalised Implementing Technical Standards (Set 1).  On 10 April 2015, the PRA issued a consultation (CP16/15) setting out its position on whether provisions of UK generally accepted accounting principles (GAAP) are consistent with the Solvency II Directive.  Firms which seek to value assets and liabilities under local GAAP under the derogation in Article 9(4) of Commission Delegated Regulation (2015/35) are expected to apply the PRA's conclusions in this regard. Comments are invited by 10 July 2015.  On 22 April 2015, the PRA issued a supervisory statement (SS22/15) on the application of EIOPA's first set of Solvency II guidelines. This provides PRA commentaries on a number of those guidelines.  The PRA recently issued a consultation (CP14/15; closed on 1 May 2015) on its expectations that firms take into account material risks associated with sovereign debt when using an internal model.

FCA fines for telephone sales failings

On 23 April 2015, the Financial Conduct Authority (FCA) published a notice detailing a significant fine levied on an insurance intermediary for failures regarding its telephone sales. Following a review of the intermediary's sales of commercial vehicle and add-on insurance products, the FCA identified failings including in relation to (a) systems and controls to ensure customers were provided with correct information (including regarding limitations/exclusions of such add-ons) and (b) quality assurance processes (e.g. monitoring telephone sales). 

Chartered Insurance Institute launches data protection guidance

On 28 April 2015, the Chartered Insurance Institute in the UK published best practice guidance (dated 23 April 2015) regarding requests made under section 29(3) of the UK's Data Protection Act, which allows organisations to share information in order to detect and prevent fraud.  The guidelines state that it is expected that insurers will be one of the main types of entity to adopt the guidelines.  Amongst other matters, the guidelines aim to (a) improve the quality of information shared under, and increase regulatory compliance with, the Act and (b) to increase (where appropriate) the exchange of relevant personal data between insurers in respect of requests made under section 29(3). It is intended that the Insurance Fraud Bureau will administer (and further develop) the guidelines.

Lloyd's publishes market oversight supervisory plan

On 2 April 2015, the Society of Lloyd's in the UK published its first market supervisory plan, which aims to provide managing agents with a summary of how Lloyd’s is planning on supervising the market.  A key priority includes ensuring that managing agents are prepared for Solvency II.  Lloyd's approach to market oversight includes reviewing and monitoring syndicate business plans.  It also intends to conduct thematic reviews during 2015 in areas such as (a) reserve adequacy and (b) governance, risk and operations.

Date published: 07 May 2015