INSURANCE QUARTERLY LEGAL AND REGULATORY UPDATE
Solvency II
(i) Solvency II comes into force
On 1 January 2016, Solvency II came into force. The Solvency II regime comprises different levels of national and European legislation. The Solvency II Directive (2009/138/EC) and the relevant Solvency II provisions in the Omnibus II Directive (2014/51/EU) were transposed into Irish law by the European Union (Insurance and Reinsurance) Regulations 2015 (S.I. 545/2015). The Irish Solvency II regime is supplemented by Commission Delegated Regulation 2015/35/EU and various Commission Implementing Regulations. EIOPA has published Guidelines which provide further guidance on various areas of Solvency II. The Central Bank confirms that it intends to comply with the EIOPA Guidelines and incorporate them into its supervisory practices and in turn expects (re)insurance companies to comply with any relevant Guidelines. The Central Bank has also updated and/or issued guidance and requirements for (re)insurance companies subject to Solvency II.
Details of legislation, requirements and guidance applicable to Solvency II (re)insurance companies can be found on the Central Bank website:
http://www.centralbank.ie/regulation/industry-sectors/insurance-companies/Pages/default.aspx
On 4 January 2016, EIOPA published a press release on Solvency II going live and announced that it has a new 'Solvency II – Going Live!' webpage which explains the changes to the public.
This webpage can be accessed via the following link:
https://eiopa.europa.eu/Pages/Supervision/Insurance/Solvency-II-Going-Live.aspx
(ii) EIOPA publishes Solvency II relevant risk-free interest rate term structures
On 8 January 2016, EIOPA published the first Solvency II relevant risk-free interest rate term structures. This technical information is used for the calculation of the technical provisions for (re)insurance obligations. EIOPA intends to publish the risk-free interest rate term structure on a monthly basis to ensure consistent calculation of technical provisions across the EU resulting in increased supervisory convergence for the benefit of the European insurance policyholders.
On 5 February 2016, EIOPA published the technical information for January 2016 and on 7 March 2016, the technical information for February 2016 was published.
Undertakings should note that EIOPA have stated on their website that, in certain circumstances, it may be necessary to amend and/or republish the technical information after it has been published.
EIOPA's background material and the monthly technical information on the relevant risk-free interest rate term structures can be accessed via the following link:
(iii) EIOPA publishes Opinion on the application of a combination of methods to the group solvency calculation
On 27 January 2016, EIOPA published an Opinion on the application of a combination of methods to the group solvency calculation (the "Opinion"). Under Solvency II, group solvency can be calculated by using the consolidation-based method ("Method 1") or the deduction and aggregation method ("Method 2") or a combination of Method 1 and Method 2. Supervisory approval is required where the (re)insurance group wishes to apply Method 2 or a combination of methods. This Opinion intends to provide clarity and recommendations on issues relating to the application of the combination of methods and covers such matters as how the methods should be applied if a combination of methods is to be used, considerations for the group supervisor when making the decision to allow a combination of methods and the need to allow specific solutions where a combination of methods is permitted so as to avoid unjustified disadvantages for those groups exclusively applying Method 1.
EIOPA states it will monitor the developments of the issues addressed in the Opinion and, if appropriate, will review it accordingly.
EIOPA's Opinion may be accessed via the following link:
https://eiopa.europa.eu/Publications/Opinions/20160127_EIOPA opinion_combination of methods.pdf
(iv) Central Bank Guidance on In-Situ Pre-Approval Controlled Functions (PCFs): Notification of In-Situ and Confirmation of Due Diligence undertaken
On 27 January 2016, the Central Bank published guidance on the Head of Actuarial Function (PCF – 48) ("HoAF") In- Situ Notification and Confirmation of due diligence undertaken process (the "Guidance"). An individual in-situ in the role of HoAF as at 31 December 2015 may continue in that position and is not required to seek the approval of the Central Bank to continue to perform that PCF-48. However, regulated entities are required to notify the Central Bank of any such individuals and must confirm that the required due diligence has been undertaken in respect of those individuals.
The Guidance sets out how regulated entities can comply with these requirements by providing guidance on how to complete and save the PCF-48 Information file and how to complete the submission on the Central Bank's Online Reporting System ("ONR").
The Guidance notes that the In-Situ Return will only be available from 1 February 2016 to 31 May 2016. Where the In-Situ Return is not submitted to the Central Bank within that timeframe, the individuals will be deemed to not hold the PCF-48 role and the regulated entity will have to formally apply to the Central Bank (through the online individual questionnaire process) for the individual to be approved to the role.
Information on this In-Situ Return, the Guidance and the PCF-48 Information file template can be found at the following link:
https://www.centralbank.ie/regulation/processes/fandp/serviceproviders/Pages/InSituPCFs.aspx
(v) Solvency II Commission Implementing Regulation ((EU) 2016/165) published in the Official Journal of the EU
On 9 February 2016, Commission Implementing Regulation (EU) 2016/165 of 5 February 2016 laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 1 January until 30 March 2016 in accordance with the Solvency II Directive (2009/138/EC) (the "Commission Implementing Regulation") was published in the Official Journal of the EU.
For prudential reasons, it is necessary for (re)insurance companies to use the same technical information for the calculation of technical provisions and basic own funds for reporting irrespective of the date on which they report to their competent authorities and this Commission Implementing Regulation provides that (re)insurance companies must use the technical information on relevant risk-free interest rate term structures, fundamental spreads for the calculation of the matching adjustment and volatility adjustments referred to in Article 1 (2) when calculating technical provisions and basic own funds for reporting with reference dates from 1 January until 30 March 2016.
In order to ensure uniform conditions for the calculation of technical provisions and basic own funds by (re)insurance undertakings, this Commission Implementing Regulation states in the recitals that this technical information should be laid down for every reference date.
This Commission Implementing Regulation entered into force on 10 February 2016, applies from 1 January 2016 and is binding in its entirety and directly applicable in all Member States.
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