Corporate insurance newsletter – September 2015

Hogan Lovells Corporate Insurance Newsletter September 2015 UK • FCA/PRA launch new Handbook/Rulebook websites • FCA to launch new Financial Services Register • PRA publishes letter to insurers on SIMR • FCA publishes PS15/22: General insurance add-ons market study - remedies: banning opt-out selling across financial services and supporting informed decision-making for add-on buyers, including feedback on CP15/13 and final rules and guidance • PRA publishes its climate change adaptation report • Lloyd's update: code for underwriting agents: UK personal lines claims and complaints handling - charges for telephone calls • LMA publishes updated guidance on SIMR • Lloyd's publishes guidance on valuation of liabilities rules for 31 December 2015 solvency test INTERNATIONAL • European Commission publishes roadmap on the forthcoming Green Paper on retail financial services and insurance • IAIS launches thematic self assessment and peer review on solvency and solvency related issues • EIOPA publishes risk dashboard September 2015 SOLVENCY II • PRA publishes SS38/15: Solvency II: consistency of UK generally accepted accounting principles with the Solvency II Directive • PRA publishes CP30/15: Solvency II: applying EIOPA set 2, system of governance and ORSA guidelines • PRA publishes CP31/15: Solvency II: third-country insurance and pure reinsurance branches • Bank of England XBRL filing manual updated • PRA update Q&As on regulatory reporting • PRA publishes directors' update September 2015 • PRA publishes letter on related approvals for day 1 of the new regime • EIOPA updates draft ITS on supervisory approval processes - 2 - Hogan Lovells • EIOPA progress report on the equivalence assessment of the Bermudian supervisory system in relations to articles 172, 227 and 260 • Commission Delegated Decision on equivalence of Switzerland published in the Official Journal • Second set of EIOPA guidelines issued in the official EU languages • European Commission adopts Delegated Regulation amending Delegated Regulation on treatment of infrastructure and ELTIF investments • EIOPA opinion on group solvency calculation in the context of equivalence • EIOPA publishes XBRL taxonomy release 2.0.1CR • EIOPA advice on the identification and calibration of infrastructure risk categories UK FCA/PRA launch new Handbook/Rulebook websites On 1 September 2015, the Financial Conduct Authority (FCA) announced that it had launched its new Handbook website on 29 August 2015. A link to a video guide to the new Handbook is also given on the announcement page. The FCA says that as this is a new website, some of the links from other FCA systems will work differently, for example, they may not always link directly to a specific section of the Handbook, but be directed via the home page. The FCA will be monitoring the site closely to address any issues. The Prudential Regulation Authority (PRA) also launched its new PRA Rulebook website on 29 August 2015. FCA to launch new Financial Services Register On 3 September 2015, the FCA announced that it is to launch a new Financial Services Register on 7 September 2015, which will make it easier to find information on firms, individuals and other bodies that are, or have been, regulated by the FCA and/or the PRA. For the first time, firms that the FCA has been told are providing regulated products or services without the required authorisation, or are knowingly running a scam, will be included in the register. These firms will be highlighted in search results by red text and a warning symbol to make clear that the FCA thinks that they or individuals involved should be avoided. Search results on the new register will include consumer credit firms that have interim permission. The Mutuals Public Register and Regulated Covered Bonds Register are not included in the new register and will need to be searched separately. PRA publishes letter to insurers on SIMR On 28 August 2015, the PRA published the text of a letter sent by Sam Woods, the PRA's Executive Director, Insurance Supervision, to insurers about the senior insurance managers regime (SIMR). The letter says that on 13 August 2015, a significant milestone was reached in the implementation of the SIMR with the publication of the final rules and guidance. The purpose of the letter is to articulate the path towards implementation. All insurers will need to identify the individuals that are performing certain functions and either grandfather (or transfer) those individuals currently approved under the approved persons regime to an equivalent function in the SIMR and submit the necessary materials by 8 February 2016 at the latest or make a new application for approval of the individual after 1 January 2016. Key dates for implementation are set out in a table on page 2 of the letter. - 3 - Hogan Lovells In the letter Mr Woods says that the SIMR is a natural extension of the Solvency II Directive. Under Solvency II, the pillar 2 requirements must be well integrated and clearly tie the governance of a business to risk and capital management. Specifically, Solvency II introduces the concept of "key function holders". The system of governance of each Solvency II firm and group needs to cover at least the key functions of risk management, compliance, internal audit and actuarial. However, the PRA does not consider that "key function" is intended to be a closed category. Solvency II insurers will need to notify the PRA of their key function holders at 1 January 2016. In addition, as part of governance and risk management, firms will be required to make an ongoing assessment of the fit and proper status of all key function holders. They should also prepare and maintain a governance map. This should set out clearly the key functions at the firm and the relevant key function holders responsible for these functions, along with their lines of accountability and responsibility both within that firm and any wider group. The PRA recognises that non-Solvency II firms pose different risks to its objectives compared with Solvency II firms. As a result, many features of the SIMR have been streamlined to take a proportionate approach to the way the regime would apply to these firms. In consultation paper CP26/15, published on 13 August 2015, the PRA set out proposals detailing how it intends to implement a proportionate SIMR for firms outside the scope of Solvency II. Mr Woods also refers nonSolvency II insurance firms to CP27/15, also published on 13 August 2015, which sets out proposals for the prudential regime for non-Solvency II insurance firms from 1 January 2016. The PRA has published a one page document which aims to answer prevailing questions on the SIMR and help insurers with planning. Firms with questions on the PRA's expectations of firms under the SIMR should speak to their usual supervisory contact in the first instance. FCA publishes PS15/22: General insurance add-ons market study - remedies: banning opt-out selling across financial services and supporting informed decision-making for add-on buyers, including feedback on CP15/13 and final rules and guidance On 28 September 2015, the FCA published a policy statement, PS15/22, which reports on the feedback to its March 2015 consultation paper, CP15/13, on rules banning opt-out selling and improving information provided to customers buying add-ons. The policy statement sets out an overview of the consultation feedback and the FCA's response on: • its rules banning opt-out selling; and • its Handbook guidance. The FCA has also separately published the finalised non-Handbook Guidance, including a summary of feedback received, which can be found at appendix 2 of the policy statement. The final rules and guidance do not differ significantly from those consulted on. The rules banning opt-out selling, the Conduct of Business (Optional Additional Products) Instrument 2015, FCA 2015/47, come into force on 1 April 2016. The Handbook guidance will come into force at the same time. The non-Handbook guidance is effective immediately. The FCA recognises that firms will need time to implement any necessary changes, but expects that firms should already be working towards delivering appropriate and timely information for add-on sales. The FCA expect firms to have made the necessary changes to their sales journey by 30 September 2016. PRA publishes its climate change adaptation report Under the Climate Change Act 2008, the PRA received an invitation from the Department for Environment, Food and Rural Affairs (Defra) to submit a climate change adaptation report as part of the second round of adaptation reporting. Given the importance of the topic and its alignment with the PRA’s objectives, in April 2014, the PRA accepted Defra’s invitation, with a focus on insurance. - 4 - Hogan Lovells On 29 September 2015, the PRA submitted its report to Defra and published the report on the PRA's website. On 30 September 2015, the PRA published the text of a letter sent by Sam Woods, the PRA's Executive Director, Insurance Supervision, to PRA-regulated insurers and other industry participants, notifying them of the PRA’s response to Defra and giving them the opportunity to provide technical comments by Friday 30 October 2015. On 29 September 2015, the Governor of the Bank of England, Mark Carney, delivered a speech at Lloyd's of London in which he discussed climate change, including the PRA's response to Defra. Lloyd's update: code for underwriting agents: UK personal lines claims and complaints handling - charges for telephone calls On 18 September 2015, the Society of Lloyd's published a market bulletin giving the information that it is amending its code for underwriting agents: UK personal lines claims and complaints handling to reflect changes to the FCA Handbook in respect of charges for telephone calls. The market bulletin contains a revised version of the code, which takes effect from 26 October 2015. Lloyd's says that following further amendments made by the FCA to its Handbook, managing agents should note that: • Lloyd’s has updated its code for complaints handling to prohibit managing agents from charging eligible complainants who contact them by telephone more than the basic rate for the telephone call; • during 2016 Lloyd’s will be further revising the code to reflect the FCA’s new approach to complaints that are resolved by close of the third business day. These further changes take effect from 30 June 2016; • the FCA is introducing changes to the complaint reporting requirements. The changes follow the publication of the FCA's July 2015 policy statement, PS15/19, and its Quarterly Consultation Paper No 10, CP15/28. These set out further rule changes arising from the FCA’s consultation exercise. These latest changes: • with effect from 26 October 2015, limit the cost of calls consumers make to firms to a "basic rate". This new rule is of general application to firms in relation to their dealings with consumers but there are specific changes made that apply to complaints handling; and • with effect from 30 June 2016, extend the "next business day rule" that currently applies in complaints handling, which permits firms to handle complaints less formally where they are resolved by the next business day. From 30 June 2016, the next business day rule is being extended to the close of three business days after the day of receipt. While firms will still not have to provide final response letters when the complaint is resolved in this time, they will now have to promptly send the complainant a "summary resolution communication". As a first step, the code has been updated to reflect the FCA changes in relation to call charges. The updated code attached to the market bulletin highlights the changes made. The market bulletin says that Lloyd's is currently in discussion with the FCA with regard to the implementation of the remaining FCA changes that take effect from 30 June 2016 and Lloyd’s will issue a further updated version of the code during 2016. In the meantime, managing agents should familiarise themselves with these FCA rule changes. LMA publishes updated guidance on SIMR On 25 September 2015, the Lloyd's Market Association (LMA) published an updated version of its guidance for managing agents on the senior insurance managers regime (SIMR), which was first published on 1 July 2015. - 5 - Hogan Lovells The guidance, which is intended to provide a summary of the possible implications of the SIMR on managing agencies' governance structures and required regulatory approvals, has been updated due to the publication of the FCA and PRA final rules to implement the new regime. Lloyd's publishes guidance on valuation of liabilities rules for 31 December 2015 solvency test On 30 September 2015, the Society of Lloyd's published a market bulletin to inform managing agents of the publication of guidance relating to the setting of technical provisions for solvency, as at year-end 2015. The Valuation of Liabilities Rules for Lloyd's Solvency Purposes 31 December 2015 have also been published. The rules relate to the valuation of members' underwriting (general and life business) liabilities for solvency purposes. They set out the requirements to be met by both managing agents and syndicate actuaries. The market bulletin says that the 31 December 2015 issue is largely based on the 31 December 2014 issue. The basis for valuation is substantially the same as for the rules issued in September 2014. Lloyd's has also published a document which contains additional information which is designed to add further clarity on common issues to assist managing agents and actuaries in completing statements of actuarial opinions (SAOs) as at year-end 2015. The market bulletin says that it is highly recommended that all interested parties should read the additional information. The new items cover questions related to the best estimate basis and bad debt. A webpage on the Lloyd's valuation of liabilities rules contains links to number of other documents, including sample spreadsheets, reserving guidance, slides and advisory notes. The webpage states that the submission date for the 2015 year-end worldwide SAOs is 18 February 2016. The accompanying reports are due on or before 31 March 2016. INTERNATIONAL European Commission publishes roadmap on the forthcoming Green Paper on retail financial services and insurance On 7 September 2015, the European Commission published a roadmap on its forthcoming Green Paper on retail financial services and insurance. The roadmap, which is dated 2 September 2015, says, among other things, that the EU's retail financial services and insurance markets are still largely fragmented and a single market in this area does not truly exist at present. In these markets, consumers do not always receive all the benefits of competition and the levels of consumer protection that prevail in other sectors. Although recent legislation addresses some abusive practices in these markets, the Commission is aware that issues remain in many segments, including a lack of transparency and comparability of financial services, biased financial advice, excessively complex financial products, unfair contract terms, and misleading or aggressive selling practices. The main purpose of the Green Paper is to investigate issues not yet addressed in previous legislation and identify the competition obstacles and gaps in previous legislation that prevent or are likely to prevent firms from providing services in a single market and domestic consumers from enjoying the benefits of such a market. The initiative is not intended to review recently adopted legislation which is being implemented at national level, but rather to contribute to its consistent application across Member States and to further develop open, fair and competitive retail financial services and insurance markets between and within the EU's Member States. - 6 - Hogan Lovells IAIS launches thematic self assessment and peer review on solvency and solvency related issues On 9 September 2015, the International Association of Insurance Supervisors (IAIS) announced the launch of a thematic self assessment and peer review on solvency and solvency related issues. This will assess IAIS members' observance and understanding of five of the IAIS' Insurance Core Principles (ICPs): ICP 14 (valuation), ICP 15 (investment), ICP 16 (enterprise risk management for solvency purposes), ICP 17 (capital adequacy) and ICP 20 (public disclosure). IAIS members may respond by way of a questionnaire, which should be completed by 6 October 2015. EIOPA publishes risk dashboard September 2015 On 16 September 2015, the European Insurance and Occupational Pensions Authority (EIOPA) published its risk dashboard for September 2015. The dashboard is based on quarter 2 2015 indicators submitted on a best efforts basis. EIOPA says, among other things, that the risk environment facing the insurance sector remains challenging and market risk remains the most eminent risk. SOLVENCY II PRA publishes SS38/15: Solvency II: consistency of UK generally accepted accounting principles with the Solvency II Directive On 28 August 2015, the PRA published a supervisory statement, SS38/15, which is addressed to all insurance firms within the scope of Solvency II reporting under UK generally accepted accounting principles (GAAP) rather than using international accounting standards (IFRS). The PRA consulted on the supervisory statement in consultation paper CP16/15, which was published in April 2015, and the final version reflects the feedback received to the consultation. Some comments suggested altering wording and these suggestions have been accepted where clarity would be improved. There is no change in policy. Article 9 of the Solvency II Regulation contains a derogation for firms within the scope of Solvency II for which annual financial statements and consolidated financial statements (if any) are prepared under UK GAAP. This allows firms the option of recognising and valuing assets and liabilities under UK GAAP for Solvency II purposes if: • UK GAAP is consistent with Article 75 of the Solvency II Directive; • the valuation method is proportionate to the nature, scale, and complexity inherent in the business of the undertaking; and • the process of valuing the assets and liabilities using IFRS would impose costs which are disproportionate with respect to the total administrative expenses of the firm. Any firm that relies on the derogation will still be expected to apply in full the remaining valuation requirements of the Solvency II Regulation, regardless of whether the UK GAAP provisions are consistent with Article 75 of the Solvency II Directive. For insurance firms, most of the differences between UK GAAP and IFRS relate only to the level of detail which must be disclosed. Since the derogation addresses recognition and valuation of assets and liabilities rather than their disclosure, it is expected to have a limited effect in the UK. - 7 - Hogan Lovells PRA publishes CP30/15: Solvency II: applying EIOPA set 2, system of governance and ORSA guidelines On 28 August 2015, the PRA published a consultation paper, CP30/15, which consults on a draft supervisory statement setting out its expectations of firms and its general approach to the following EIOPA publications: • set 2 of the Solvency II implementing technical standards (ITS) and guidelines, which were published on 6 July 2015; • guidelines on the system of governance, which were published on 3 February 2015; and • guidelines on the own risk and solvency assessment (ORSA), which were published on 3 February 2015. It is the PRA’s responsibility to make every effort to comply with EIOPA guidelines and its intention is to comply with all of the set 2, system of governance and ORSA guidelines. The PRA will be taking full account of the guidelines in its ongoing supervision of the new Solvency II regulatory framework. The PRA expects firms to comply with all of the guidelines that apply to them in a proportionate manner, in accordance with the principle set out in the Solvency II Directive. This consultation paper, which is relevant to all UK firms within the scope of Solvency II and to Lloyd’s, does not include the PRA’s expectations regarding the guidelines on supervision of branches of thirdcountry insurance undertakings which are the subject of PRA consultation paper CP31/15, see item 2.3 below. The draft supervisory statement provides commentary on the following aspects of the EIOPA set 2, system of governance and ORSA guidelines: • recognition and valuation of assets and liabilities other than technical provisions; • methods for determining the market shares for reporting; • reporting for financial stability purposes; • reporting and public disclosure; and • ORSA. EIOPA’s preparatory guidelines on which the PRA set out its expectations in SS4/13 are replaced, with effect from 1 January 2016, by the EIOPA guidelines. SS4/13 will therefore be withdrawn and replaced by the final version of this draft supervisory statement when the guidelines come into effect. Comments are requested by 30 September 2015. The PRA will consider the feedback received and publish the final supervisory statement before the implementation of Solvency II. PRA publishes CP31/15: Solvency II: third-country insurance and pure reinsurance branches On 28 August 2015, the PRA published a consultation paper, CP31/15, which consults on revisions to Supervisory Statement SS10/15 "Solvency II: third-country branches", which was published in March 2015, concerning the PRA’s approach to third-country insurance and pure reinsurance branches under the Solvency II Directive. This consultation paper is relevant to non-EEA insurance undertakings that have a UK branch (thirdcountry branch undertakings) including non-EEA insurance or reinsurance undertakings that have a UK branch that solely carries out reinsurance activities. It is the PRA’s intention to comply with the European Insurance and Occupational Pensions Authority (EIOPA) branch guidelines and to take full account of them in its on-going supervision of the new Solvency II regulatory framework for third-country branch undertakings. The main changes to the supervisory statement are: - 8 - Hogan Lovells • the expectation that third-country branch undertakings comply with the requirements in the EIOPA branch guidelines that are relevant to them and comply with the rules in the PRA Rulebook that apply to third-country branch undertakings in line with the EIOPA branch guidelines and that undertakings with pure reinsurance branches also do so as if those guidelines applied to them; • details of how the PRA expects third-country branch undertakings to report to the PRA where those EIOPA branch guidelines permit the PRA to take a proportionate approach according to the nature, scale and complexity of the branch business; • in particular, third-country branches will be required to use the XBRL format for reporting and provide an analysis of the home country winding-up regime. Comments are requested by 30 September 2015. The PRA will consider the feedback received and publish the final supervisory statement before the implementation of Solvency II. Bank of England XBRL filing manual updated On 17 September 2015, the PRA updated the taxonomy webpage in the "Preparing for Solvency II" section of its website to give the information that the Bank of England has published an updated version (v1.1) of its Solvency II XBRL filing manual. The Bank has produced the manual to assist firms and software vendors in creating XBRL instance documents for Solvency II Pillar 3 reporting in the preparatory phase, ahead of Solvency II implementation on 1 January 2016. The first version (v1.0) was published in May 2015. There is a large degree of flexibility in the XBRL reporting standard and certain decisions have been taken to remove any ambiguity and uncertainty between firms and the Bank of England (and, ultimately, EIOPA). The filing manual describes the filing rules applicable to remittance of XBRL instance documents for Solvency II Pillar 3 reporting in the preparatory phase. The aim of the manual is to: • define filing rules that limit the flexibility of XBRL in construction of XBRL instance documents (in addition to rules defined in the XBRL specifications and EIOPA Solvency II XBRL taxonomy); • provide additional guidelines related to the filing of data in general or in specific cases; • provide guidance on common issues found with Solvency II XBRL instance documents and how to resolve them. PRA update Q&As on regulatory reporting During the preparatory phase for Solvency II the PRA has invited regulatory reporting questions via its Solvency II industry working group. Questions have also been received directly from firms via a dedicated mailbox. To help insurance firms and other organisations working on Solvency II with questions they may have on the submission of information, both in the preparatory phase and at implementation, questions have been answered and a selection have been published in the three questions and answer (Q&A) documents below, which are published on the detailed technical information webpage in the regulatory reporting part of the "Preparing for Solvency II" section of the PRA website: • the answers to the first set of questions, numbers 1 – 11, were published in February 2014 with information available at the time; • the answers to a second set of questions, numbers 12 – 25, were published in August 2014 with information available at the time; • the answers to a third set of questions, numbers 26 - 43, were published on 17 September 2015 with information available at the time. The PRA says that to raise further questions firms should address them to an appropriate industry representative of the regulatory reporting industry working group. If firms are not represented at the - 9 - Hogan Lovells working group by a member organisation then they should submit their question to [email protected] PRA publishes directors' update September 2015 On 16 September 2015, the PRA published a Solvency II directors' update from Andrew Bulley, PRA Director of Life Insurance, and Chris Moulder, PRA Director of General Insurance. The letter includes the following information: • with only 3 months to go before the implementation of Solvency II, the PRA’s priority is to review applications for Solvency II approvals and inform firms of the outcome of these decisions. Firms are reminded that they should have developed a contingency plan in case any of their applications are rejected and this should include planning for any interdependencies between approvals; • transitional deduction to technical provision (TDTP): the PRA has previously communicated its support for firms’ use of transitional measures set out in the Solvency II Directive, including TDTP. The annex to the letter provides further details of the PRA’s expectations of firms with regard to their management of TDTP, including clarification of the scope of liabilities eligible for TDTP relief and the circumstances under which firms might seek PRA approval to recalculate the TDTP relief; • standard formula: the letter gives further details of the PRA's expectation with regard to the standard formula appropriateness assessment; • the PRA’s timetable of activity from July 2015 to the third quarter of 2015: the PRA will publish four supervisory statements in October 2015, plus a consultation paper on external audit in November 2015; • details of PRA Solvency II web updates since the last directors’ update. PRA publishes letter on related approvals for day 1 of the new regime On 24 September 2015, the PRA published a letter from Sam Woods, its Executive Director of Insurance Supervision, giving information for firms on regulatory approvals related to the first day of the new regime under the Solvency II Directive, that is, 1 January 2016. In the letter, Mr Woods says that in the final months before implementation of the Solvency II regime, the PRA will be reviewing around 300 applications from firms for Solvency II-related approvals and communicating decisions ahead of 1 January 2016. The letter summarises the PRA's plans and approach to a number of key approvals following communications issued over the past year, and is relevant to all firms affected by Solvency II. Mr Woods encourages firms to continue to liaise with their usual supervisory contact if they have any questions about any of the issues covered in the letter. The letter covers the following topics: • applications to use the matching adjustment (MA): the PRA has received a number of applications from firms seeking supervisory approval to use the MA from 1 January 2016 and will be reaching decisions on applications at a formal panel of PRA senior management. It is intending to issue "approve" or "reject" decisions to each individual firm simultaneously around early November 2015. A brief Solvency II update confirming that letters outlining these decisions have been sent will included on the Solvency II news section of the Bank of England website; • applications to use an internal model: the PRA has received around 20 applications from firms seeking approval to use an internal model from day 1. It expects to communicate an "approve" or "reject" decision simultaneously to each individual firm in early December 2015. It will confirm which firms have gained model approval on the Solvency II section of the Bank of England website in an update in early December 2015; • capital add-ons: the PRA is putting in place a process to consider, quantify and apply capital add-ons. There will be at least two formal communication points in setting a capital add-on: - 10 - Hogan Lovells the firm will receive a letter informing them that the PRA is considering applying a capital-add on and seeking comments from the firm; and where this is applicable, and further to the consideration of the firm's comments, the PRA will tell firms that it will apply an add-on. The quantum and method for calculating the add-on may be proposed by the firm, however the PRA will ultimately determine the nature of the add-on. When the PRA is satisfied that the firm has completed any remedial action to which the add-on relates, it will be removed at the earliest opportunity; • regulatory reporting - preparing for Pillar 3: annex 1 to the letter provides generic feedback on the preparatory phase submissions, which required a significant proportion of the UK market to submit a subset of the full Solvency II regulatory reporting package in July 2015. This feedback is also applicable to those firms who were not part of the preparatory phase, and therefore the PRA will now broaden its industry engagement to those firms who are due to submit regulatory reporting returns for the first time in 2016. The PRA is to hold a regulatory reporting seminar for such firms on 22 October 2015. EIOPA updates draft ITS on supervisory approval processes On 8 September 2015, EIOPA updated its webpage on draft implementing technical standards (ITS) on the supervisory approval processes under the Solvency II Directive to give the information that the following revised documents have been published: • draft ITS on templates for the submission of information to the supervisory authorities, plus technical annexes (zip file); • technical annexes to the draft ITS on procedures, formats and templates of the solvency and financial condition report (zip file). The original versions of these documents were published in July 2015, as part of the second set of ITS and guidelines required under Solvency II and EIOPA published revised versions in August 2015. EIOPA progress report on the equivalence assessment of the Bermudian supervisory system in relations to articles 172, 227 and 260 On 11 March 2015, EIOPA published a final report, dated 30 January 2015, containing its advice to the European Commission regarding the full equivalence assessments of Bermuda under Articles 172,227 and 260 of the Solvency II Directive. Since that advice, Bermuda has made substantial amendments to the regulations applicable to (re)insurers, and consequently the Commission considered that a further progress report was necessary for it to take fully informed equivalence decisions later this year. On 4 September 2015, EIOPA published a progress report, dated 31 July 2015, on these latest developments in the supervisory regime of Bermuda. The progress report describes the latest developments on the basis of material provided by the Bermuda Monetary Authority. Commission Delegated Decision on equivalence of Switzerland published in the Official Journal On 5 June 2015, the European Commission announced that it had adopted its first package of third country equivalence decisions under Solvency II in the form of delegated acts relating to Switzerland, Australia, Bermuda, Brazil, Canada, Mexico and the USA. Switzerland was granted full equivalence in all three areas of Solvency II: solvency calculation, group supervision and reinsurance. Equivalence is granted for an indefinite period from 1 January 2016. On 14 July 2015, the Council of the European Union announced that it would not object to the Commission's decision. - 11 - Hogan Lovells On 12 September 2015, the European Parliament updated its Legislative Observatory procedure file on the third-country equivalence of Switzerland to give the information that it has decided not to object to the Commission's decision. This means the delegated act can now be published in the Official Journal of the European Union. On 24 September 2015, the text of the Commission Delegated Decision ((EU) 2015/1602) on the equivalence of the solvency and prudential regime for insurance and reinsurance undertakings in force in Switzerland under Articles 172(2), 227(4) and 260(3) of the Solvency II Directive was published in the Official Journal of the European Union. The Delegated Decision states that the Swiss regime will be considered equivalent to Solvency II from 1 January 2016. The Delegated Decision will enter into force on the twentieth day following that of its publication in the Official Journal. Second set of EIOPA guidelines issued in the official EU languages On 14 September 2015, EIOPA announced that its second set of its Solvency II guidelines has been issued in the official languages of the EU. The guidelines, which are addressed to national competent authorities (NCAs) or financial institutions, cover the following: • financial stability reporting; • the extension of the recovery period; • the exchange of information within colleges; • the implementation of the long-term guarantee measures; • the methods for determining the market shares for reporting; • reporting and public disclosure; • recognition and valuation of assets and liabilities other than technical provisions; • system of governance; • own risk and solvency assessment. In accordance with Article 16 (3) of the EIOPA Regulation, NCAs have to confirm whether they comply or intend to comply with the guidelines within two months of the issuance date. European Commission adopts Delegated Regulation amending Delegated Regulation on treatment of infrastructure and ELTIF investments On 30 September 2015, the European Commission adopted a Delegated Regulation amending the Solvency II Delegated Regulation concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings, together with annexes to the Amending Regulation and a set of frequently asked questions. By making a number of amendments to the Solvency II Delegated Regulation, the Commission is primarily changing the way the rules apply to insurers' investments in infrastructure: • the amending Regulation introduces a new concept of "qualifying infrastructure investments": these are investments that present better risk characteristics than other infrastructure investments. Insurers will need to hold a lower level of capital against their investment in these infrastructure projects. "Qualifying infrastructure investments" will form a distinct asset category under Solvency II and will benefit from an appropriate risk calibration, lower than that which would otherwise apply (for example the calibration of the stress factor for such an investment in equity is lowered from 49% to 30%). This will ultimately lead to a lower capital charge; • it allows investments in European Long-Term Investment Funds to benefit from lower capital charges under Solvency II. This brings them in line with investments in European Venture Capital Funds and European Social Entrepreneurship Funds, which benefit from the same - 12 - Hogan Lovells equity capital charge as equities traded on regulated markets, lower than that for other equities; • it grants equities traded on multilateral trading facilities the same capital charge as equities traded on regulated markets. This ensures coherence with the new legislative framework applicable to these structures; • it extends the application of a transitional measure for equity investments to unlisted equities, so that insurers will not suddenly withdraw from equity investments. It also clarifies how insurers should apply the transitional measure to equities held in managed funds. The European Parliament and the Council of the European Union have up to three months to exercise their right of objection to the Amending Regulation, with the possibility to extend this period for another period of three months at their initiative. Either institution also has the right to reject the amendment. Following the expiry of this objection period, the Amending Regulation will be published in the Official Journal of the European Union and will enter into force on the day following the date of its publication. EIOPA opinion on group solvency calculation in the context of equivalence On 25 September 2015, EIOPA published an opinion addressed to national competent authorities (NCAs) on the group solvency calculation in the context of equivalence under the Solvency II Directive. The opinion is of relevance to insurance groups that operate outside the European Economic Area in third countries whose solvency regimes are considered equivalent. The aim of the opinion is to provide consistency on the group supervisors approach towards third countries' capital requirements to be used for the calculation of the solvency position of such groups and to ensure that the supervisory assessment of the availability of third-country undertakings' eligible own funds is carried out in a convergent manner. In the opinion, EIOPA recommends NCAs to apply the highest level of capital requirement in the third country for calculating the group solvency position. Own funds should be deemed unavailable in case they are below the threshold triggering intervention by the third country supervisory authority. Furthermore, groups should form an economic view of the risks inherent in the business conducted in the third country. This economic view and intra-group transactions should be monitored by the group supervisor, for instance as part of the own risk and solvency assessment of insurance groups. An annex to the opinion contains examples relating to the capital requirements in the US and Brazil. EIOPA will monitor the development of the issues addressed in the opinion. EIOPA publishes XBRL taxonomy release 2.0.1CR On 29 September 2015, EIOPA announced that it has updated its taxonomy webpage to include revised materials (taxonomy release 2.0.1candidate recommendation or CR) on Solvency II validations, data point model (DPM) and XBRL taxonomy. This version is distributed to stakeholders for review before the publication of the official 2.0.1 release, which will be used for data submission under Solvency II. The publication of the official version 2.0.1 is currently scheduled for 21 October 2015. The revised materials are: • release notes for the 2.0.1 candidate recommendation release of the EIOPA Solvency II DPM and XBRL taxonomy; • DPM dictionary and annotated templates highlighting the modifications made to the 2.0.0 version of these documents; • the detailed log change between 2.0.0 and 2.0.1CR; • EIOPA DPM documentation; - 13 - Hogan Lovells • a list of validations: additional validations incorporated in relation to the 2.0.0 version are included for consultation, but have not yet been formally approved by EIOPA. This procedure will happen before the publication of the official 2.0.1 release; • XBRL Taxonomy version 2.0.1CR (as taxonomy package) (zip file); • XBRL Taxonomy documentation; • filing rules for Solvency II reporting; • XBRL Test Instance documents (zip file); • DPM database 2.0.1CR (zip file). Comments are requested by 12 October 2015. In particular, EIOPA is seeking feedback on the implementation of the new validations, both from a business and IT perspective. EIOPA advice on the identification and calibration of infrastructure risk categories On 29 September 2015, EIOPA published a final report on the European Commission's February 2015 call for advice on the identification and calibration of infrastructure investment risk categories in the Commission Delegated Regulation ((EU) 2015/35) supplementing the Solvency II Directive. In a covering letter from Gabriel Bernardino, the EIOPA's Chairman, to Olivier Guersent, DirectorGeneral, DG FISMA, EIOPA says that it believes that the proposals provide a prudentially justified means of supporting the aim of creating a high-quality, long-term asset class for infrastructure investment. In addition to the areas listed in the call for advice, the covering letter says that EIOPA considers it of utmost importance to analyse whether the system of governance under Solvency II is sufficient to ensure that the risks of this complex heterogeneous and, for some insurers, relatively new asset class, are properly managed. EIOPA recommends that the report be read in conjunction with its July 2015 consultation paper, which provides further details on the rationale for its final advice. The report sets out the main feedback provided by stakeholders to the consultation paper, the results of some further analysis by EIOPA, and the conclusions EIOPA has reached (see chapter 2). It then presents the text of EIOPA’s final advice (see chapter 3). ww.hoganlovells.com Hogan Lovells has offices in: - 14 - Hogan Lovells Alicante Amsterdam Baltimore Beijing Brussels Budapest* Caracas Colorado Springs Denver Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Houston Jakarta* Jeddah* Johannesburg London Los Angeles Luxembourg Madrid Mexico City Miami Milan Moscow Munich New York Northern Virginia Paris Perth Philadelphia Prague Rio de Janeiro Riyadh* Rome San Francisco São Paulo Shanghai Silicon Valley Singapore Sydney Tokyo Ulaanbaatar Warsaw Washington DC Zagreb* "Hogan Lovells" or the "firm" is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. The word "partner" is used to describe a partner or member of Hogan Lovells International LLP, Hogan Lovells US LLP or any of their affiliated entities or any employee or consultant with equivalent standing. 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