Solvency II
(i) Solvency II Implementation Timeline
Following the publication of EIOPA's Opinion on Interim Measures, the Central Bank of Ireland (the "Central Bank") has confirmed that full implementation of Solvency II will be delayed beyond the implementation date of 1 January 2014 set out in the "Quick Fix" Directive (2012/23/EU). To date, there is no publicly available revised timetable for the implementation of Solvency II, however, the Opinion published by EIOPA proposes that national competent authorities should introduce certain aspects of the prospective and risk-based supervisory approach in order to promote supervisory convergence.
These proposals cover:
- An effective system of governance;
- An effective risk-management system including a forward looking assessment of the undertaking's own risk (based on ORSA principles);
- The pre-application of internal models; and
- Reporting to supervisors.
(ii) Omnibus II Directive
The draft Omnibus II Directive amends the Solvency II Directive to take account of the changes introduced by the Lisbon Treaty and also the new financial supervision measures introduced in the EIOPA Regulation (Regulation 1094/2010). Adoption of this Directive requires agreement from the Trialogue parties (the European Parliament, the Council of the EU and the European Commission). The negotiations on this Directive have been further delayed as a result of the Long Term Guarantee Assessment (see section (ii) of EIOPA Updates below) and as such the plenary vote of the Omnibus II Directive has been rescheduled from 10 June 2013 to 22 October 2013. For forecast updates please see the link below:
http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?id=589513
EIOPA Updates
(i) EIOPA launches public consultation on guidelines related to the preparation for Solvency II
As a follow up to the Opinion on Interim Measures issued in December 2012, EIOPA intends to publish guidelines later this year addressed to competent authorities on how to proceed in the interim phase leading up to the introduction of Solvency II. On 27 March 2013, EIOPA launched its public consultation on these guidelines which covers the areas of:
- The system of governance;
- The forward looking assessment of the undertaking's own risks (based on the ORSA principles);
- The submission of information to national competent authorities; and
- The pre-application for internal models.
EIOPA welcomes comments from all interested parties and these comments should be submitted before the deadline of 19 June 2013. EIOPA intends to publish the responses to this consultation in the Autumn.
Within two months of publication of the finalised guidelines, competent authorities must confirm whether they comply or intend to comply with the guidelines. If the competent authority does not comply, or does not intend to comply, it must inform EIOPA, stating the reasons for noncompliance. These consultation papers can be found at the following link:
https://eiopa.europa.eu/consultations/consultation-papers/index.html
(ii) EIOPA launches long term guarantee assessment
EIOPA launched the long term guarantee assessment ("LTGA") impact study agreed by the Trilogue parties (the European Parliament, the Council of the EU and the European Commission) in the context of the Omnibus II Directive negotiations on 28 January 2013.
The stated goal of the LTGA is to assess the effects that the implementation of the various elements of the package may have on policyholders and beneficiaries, insurance and reinsurance undertakings, supervisory authorities and the financial system as a whole.
The four key areas covered in the LTGA include:
- Extrapolation methodology;
- Counter cyclical premium;
- Matching adjustment; and
- Transitional requirements from Solvency I discount rate to Solvency II.
The Central Bank has selected a sample of life and non-life undertakings to participate and it was expected that these undertakings would submit results by 31 March 2013. A report containing the LTGA technical findings and EIOPA's conclusions is due to be published in June 2013.
(iii) EIOPA publishes report on good practices related to the provision of information for defined contribution schemes
On 22 February 2013 EIOPA published a report on good practices related to the provision of information for defined contribution schemes. The main purpose of this report is to adopt a new approach to the provision of information to enable members to plan for retirement and make appropriate financial decisions.
This is an 'own-initiative' project by EIOPA and it was undertaken in the context of the review of the IORP Directive. The report recommends a layering approach to the provision of information whereby members can derive answers to key questions from the first layer and then obtain information on more complex issues in subsequent layers.
The report can found at the following link:
https://eiopa.europa.eu/publications/reports/index.html
(iv) EIOPA publishes report on the functioning of colleges of supervisors and the Action Plan 2013
On 29 January 2013, EIOPA published its annual report on the functioning of supervisory colleges and the Action Plan 2013. According to this report, EIOPA attended almost all college meetings for 75 out of the 78 insurance cross border groups. Some of EIOPAs main observations were that:
- Supervisors were making great efforts towards the implementation of Solvency II, in particular in relation to the pre-application process for internal models despite uncertainty around the implementation date for Solvency II; and
- Differences in relation to information exchange and approaches to risk assessment and analysis existed.
In this context, the aim of EIOPA's Action Plan 2013 is to promote consistency of supervision and a level playing field for cross-border groups during the period until Solvency II implementation by developing a common understanding of risks and on the further alignment of work on the preapplication of Internal Models in the period leading up to Solvency II.
The report can be found at the following link:
https://eiopa.europa.eu/publications/reports/index.html
(v) EIOPA and World Bank sign agreement to cooperate on developing global insurance Sector
On 15 March 2013, EIOPA and the World Bank signed a memorandum of understanding to cooperate on developing the global insurance industry through promoting risk based supervision and consumer protection worldwide.
Central Bank of Ireland
(i) Central Bank Enforcement Priorities in 2013
On 12 February 2013, the Central Bank published its enforcement priorities for 2013 which highlight the importance of enforcement within its risk-based regulatory framework (PRISM). The Central Bank intends to pursue enforcement actions across a number of areas, including noncompliance identified by their Supervisory Divisions in the following enforcement priority areas for 2013:
- Retail Intermediaries;
- Payment Protection Insurance;
- Client Asset Requirements;
- Prudential Requirements;
- Anti-Money Laundering and Counter Terrorist Financing;
- Systems and Controls;
- Timeliness and Accuracy of Information submitted to the Central Bank;
- Errors and Overcharging;
- Payment Services Regulations; and
- Suitability Requirements (Consumer Protection Code - 2012).
This list of enforcement priorities comprises the priority areas highlighted in 2012 and the inclusion of three new priority areas relating to 'errors and overcharging', 'payment services regulations' and 'suitability requirements (Consumer Protection Code - 2012)'.
The Central Bank has advised that enforcement actions taken in 2013 will not relate solely to these 'pre-defined' enforcement priorities, but will also encompass 'reactive' enforcement in respect of issues identified through day-to-day supervisory work and from other information sources.
(ii) Central Bank Programme of Themed Reviews for 2013
On 12 February 2013, the Central Bank also published its planned series of themed reviews and inspections for 2013. Themed reviews and inspections form part of the Central Bank's supervisory framework allowing for review, assessment, transparency and mitigation of risks which have emerged in various industry sectors and across individual firms. They may also form the basis for the Central Bank taking regulatory or enforcement action where necessary. The publication of planned themed inspections enables the relevant sectors to prepare and raise standards by identifying and highlighting both good and poor practices across the firms in each sector.
The main themes for 2103 include:
- Code of Conduct on Mortgage Arrears;
- Sales incentives in the banking, insurance, investment and stockbroking sectors;
- Provision of information to consumers by investment and stockbroking firms;
- Property insurance claims handling;
- Retail intermediaries compliance (insurance, investment and mortgage intermediaries);
- Moneylenders;
- Outsourcing;
- Post-authorisation application of business plans to delegating UCITS and non- UCITS managers;
- Client assets;
- Review of governance on pricing procedures;
- Data integrity of regulatory returns; and
- Anti-Money Laundering, Countering the Financing of Terrorism and Financial Sanctions.
In addition to the planned series of inspections, the Central Bank will also continue to conduct additional reactive inspections on key issues and themes as they arise throughout the year.
(iii) The Central Bank signs the IAIS Memorandum of Understanding
On 14 February 2013, the Central Bank became the latest signatory to the International Association of Insurance Supervisors Multilateral Memorandum of Understanding on Cooperation and Information Exchange (the "IAIS MMoU").
This IAIS MMoU establishes a formal basis for cooperation and information exchange between the various signatory authorities regarding the supervision of insurance companies where cross-border aspects arise such as licensing, ongoing supervision and winding-up processes.
The IAIS MMoU can be found at the following link:
http://www.iaisweb.org/MMoU-381
The full list of signatories can be found at the following link:
http://www.iaisweb.org/MMoU-signatories-605
(iv) Central Bank publishes report on the Retail Intermediary Sector in Ireland
On 28 February 2013, the Central Bank published a report on the Retail Intermediary Sector in Ireland. This report gives an overview of this sector in Ireland, the Central Bank's supervisory approach to this sector and some of the key issues and risks facing the sector and its customers. The report can be found at the following link:
(v) Fitness and Probity Frequently Asked Questions
The Central Bank issued a revised version of its Frequently Asked Questions on the Fitness and Probity Regime on 5 March 2013.
The revised document provides that PCFs who were in situ in a particular role at the time of introduction of the regime on 1 December 2011 will be required to go through the pre-approval process and submit an Individual Questionnaire ("IQ") to the Central Bank when they are re-elected or re-appointed to that role.
For example, where a person held the position of chairman on 1 December 2011, that person was not required to submit an IQ to the Central Bank seeking approval at that time. Now, on reappointment to that role, the chairman will be required to submit an IQ, though only for the first such re-appointment to that role provided there is no break in service.
This procedure will also apply to in-situ PCFs who are subject to employment contract renewals. On 28 March 2013, the Central Bank issued another revised Fitness and Probity FAQ document which provides further clarification in relation to individuals who were in-situ at the time the regime was introduced. This clarification provides that the Central Bank does not require an IQ to be submitted for individuals who were in-situ at the time the regime was introduced and who have been re-elected or re-appointed in the interim period prior to the publication of the revised FAQs on 5 March 2013. However, an IQ will be required for re-elections/re-appointments made on/after 5 March 2013.
Health Insurance
(i) Health Insurance (Amendment) Act 2012
The Health Insurance (Amendment) Act was enacted on 26 December 2012 and provides for a new Risk Equalisation Scheme (the "RES") for private health insurance in Ireland.
The aim of the RES is to neutralise the differences in health insurer's costs arising as a result of the variations in the risk profiles of their customers. It seeks to achieve this aim by allowing for better risk sharing between insurers by compensating insurers with a worse-than-average risk profile in their portfolio.
On 20 February 2013, the European Commission approved the compensations to be granted through the RES. After assessing the RES under the EU Framework for State aid, the Commission found that the RES satisfies rules on services of general economic interest.
The Commission decided that the RES was justified as it was necessary to support the principles enforced by the Irish authorities that concern the private medical insurance market, namely:
- Community Rating: meaning that regardless of the age, health status or risk presented by an insured person, an insurer must apply the same premium for a specific level of cover;
- Open Enrolment: meaning that regardless of the age or health status of an applicant an insurer is obliged to accept any applicant who wishes to conclude an insurance contract; and
- Lifetime Coverage: meaning that an insurer cannot terminate the insurance contract against the will of the insured.
The new RES will operate for the period of 2013 to 2015.
Pensions Update
(i) Revised certification conditions for sovereign annuities
On 18 January 2013 the Pensions Board published revised certification conditions for sovereign annuities (i.e. an annuity contract issued by insurance companies where the annual income payment is linked directly to payments under bonds issued by Ireland or any other EU Member State) for both trustees and insurers.
The changes are said to reflect market developments regarding the type of bonds likely to underpin sovereign annuity products.
The updated FAQs for trustees are available at the following link:
The updated FAQs for insurers are available at the following link:
(ii) Investment guidelines for trustees of defined contribution pension schemes
On 21 January 2013, the Pensions Board published investment guidelines for trustees of defined contribution pension schemes. The purpose of these guidelines is to help trustees in deciding which investment choices to make available for scheme members.
The guidelines can be found at the following link:
http://www.pensionsboard.ie/en/Publications/Information_Booklets/Investment_Guidelines.pdf
(iii) Central Bank address to 'A future for the Life & Pensions Industry' conference
On 31 January 2013, Mark Burke, Head of Life Insurance Supervision in the Central Bank, addressed the 'A future for the Life & Pensions Industry' conference. The focus of his speech was the prudential regulatory agenda in 2013 for life assurance companies and their business partners and how this may impact life assurance business. The full speech can be accessed here:
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