European Commission Adopts Legislative Proposals to Delay Application Date for Insurance Distribution Directive (IDD) and IDD Delegated Regulations to 1 October 2018
On 20 December 2017, the European Commission adopted a legislative proposal for a Directive (COM(2017) 792/2) amending the date of application of the IDD from 23 February to 1 October 2018. This is the date on which insurers would be required to comply with the IDD. However, the date that Member States will be required to implement the IDD into national law will remain 23 February 2018. The European Parliament and the European Council will need to agree on the new application date in an accelerated legislation procedure.
The European Commission’s legislative proposal is here.
EIOPA Publishes Opinion on Service Continuity in Light of Brexit
On 21 December, EIOPA issued an opinion on service continuity in light of the withdrawal of the UK from the EU. EIOPA underlines the importance of sufficient preparation so that undertakings can continue to service contracts following the UK’s withdrawal from the European Union and prevent insurance activities without authorisation. Steps that may have to be taken include, for example, the transfer of contracts of UK undertakings with policyholders in the EU27 to an insurance subsidiary established in an EU27 Member State; the transfer of insurance contracts of EU27 undertakings with UK policyholders to an insurance subsidiary established in the UK; the establishment of a third country branch in the UK or in the EU27 Member State of the policyholder; and, for UK undertakings in the legal form of a European company, the change of domicile of the company to an EU27 Member State. Firms are encouraged to have contingency plans in place, in particular, for the possibility that there will be no political agreement reached by the end of the withdrawal period.
EIOPA’s opinion is here.
Political Agreement Reached on Fifth Money Laundering Directive
On 15 December, the European Commission announced that the European Parliament and Council had reached a political agreement on the Commission's proposal for the Fifth Money Laundering Directive. The proposal will amend the Fourth Money Laundering Directive and aims to: increase transparency on who really owns companies and trusts by establishing beneficial ownership registers; prevent risks associated with the use of virtual currencies for terrorist financing and limit the use of pre-paid cards; improve the safeguards for financial transactions to and from high-risk third countries; and enhance the access of European Financial Intelligence Units to information, including centralised bank account registers.
The proposal must still be formally endorsed by the Parliament and Council. Member States will then have 18 months to transpose the Directive into national law after its publication in the Official Journal of the EU.
Two IDD Delegated Regulations Published
On 20 December, the two Commission Delegated Regulations, made under the Insurance Distribution Directive (IDD), were published in the Official Journal of the EU (OJEU). In September 2017, the EU Commission adopted the two Delegated Regulations. The EU Parliament and Council were given the opportunity to object prior to publication in the OJEU. The Delegated Regulations are:
Commission Delegated Regulation (EU) 2017/2358 with regard to product oversight and governance (POG) requirements for insurance undertakings and insurance distributors. This regulation sets out the conditions under which an insurance intermediary has to be considered as manufacturer, the core obligation for manufacturers to maintain, operate and review a product approval process for all newly developed insurance products and for significant adaptations of existing insurance products and POG requirements for insurance distributors that are selling insurance products that they do not manufacture.
Commission Delegated Regulation (EU) 2017/2359 with regard to information requirements and conduct of business rules applicable to the distribution of insurance-based investment products. This regulation sets out rules on conflicts of interest and inducements. It also sets out the conditions for the assessment of suitability that applies in the case of sales with advice and the assessment of appropriateness to be applied in sales where the customer requires no advice.
Both Delegated Regulation will come into force on 9 January 2018. The Delegated Regulations state that they are to come into effect on 23 February 2018. However, the Commission recently adopted a legislative proposal to delay the application date to 1 October 2018 (see above for further details).
EIOPA Releases Editable Template for the Insurance Product Information Document (IPID)
Under the Insurance Distribution Directive (IDD) a manufacturer of non-life insurance products is required to draw up an IPID, which will accompany all non-life insurance policies once the IDD comes into effect. Following consumer testing and collaboration with the European Commission, EIOPA has developed and published an electronic and editable template of the IPID in all official languages of the EU. The template IPID, which was published to EIOPA's website on 11 December, is intended to assist manufacturers of non-life insurance products in developing IPIDs and follows the layout of the IPID as set out in the Annex to Commission Implementing Regulation (EU) 2017/1469.
EIOPA’s template editable IPID is available here.
EIOPA Publishes Opinion on Consumer Protection in Unit-Linked Market
EIOPA has published an opinion based on the findings of its thematic review on potential risks for consumers due to monetary incentives and remuneration payments from asset managers to insurers in the unit-linked market. The review was published on 26 April 2017 and was covered in the April 2017 edition of the Arthur Cox Insurance Regulatory Update. In its review, EIOPA identified risks of consumer detriment relating to both unmitigated conflicts of interest and the manner in which assets of unit-linked policies are managed by insurers.
Under existing and upcoming EU law, including Solvency II and the Insurance Distribution Directive, insurers are required to take all appropriate steps to prevent, identify, mitigate and manage conflicts of interest including those resulting from monetary incentives received from asset managers and resulting from the management of unit-linked products. The opinion states that national competent authorities, such as the Central Bank of Ireland, are expected to take the necessary supervisory actions to emphasise the importance of this to insurers and to provide guidance to insurers on how to apply these legal principles in relation to such conflicts of interest, as well as their practical application to the management of unit-linked products. The guidance should cover possible organisational or administrative arrangements aimed at preventing conflicts of interest from adversely affecting the interests of policyholders, measures to manage unit-linked products in the best interest of policyholders and ensure that customers are provided with appropriate information on the nature and criteria used by insurers for the selection of underlying funds on offer.
EIOPA’s opinion is here.
European Commission Published Report on Exercise of Power ao Adopt Delegated Acts Under Solvency Ii Directive
On 7 December, the European Commission published its report on the exercise of the power to adopt delegated acts conferred on the Commission pursuant to Solvency II. The report is required under Article 301a(2) of Solvency II. Pursuant to this provision, the delegation of power to adopt delegated acts referred to in certain Articles of Solvency II is conferred on the Commission for a period of four years from 23 May 2014. The report must be drawn up at the latest six months before the end of that four-year period.
The report details the exercise of the power under each article. It concludes that it has exercised its delegated powers in a timely and correct manner to ensure that the required Delegated Acts are in place for insurance and reinsurance undertakings and national supervisory authorities to apply the rules on the date the Solvency II Directive became fully applicable. It has since used the powers to ensure that the prudential framework is appropriately calibrated to allow insurers to contribute to the Capital Markets Union as long-term investors. The Commission considers that all delegations of power should be retained.
The European Commission’s report is here.
EIOPA Publishes Supervisory Statement on Solvency and Financial Condition Report
On 18 December, EIOPA published a supervisory statement on Solvency and Financial Condition Reports (SFCRs) that are required to be prepared annually and made publicly available under Solvency II. EIOPA's assessment is based on the observations from the analysis of a sample of published group SFCRs and observations regarding the 2016 group and solo SFCRs collected by the national competent authorities in the EEA. EIOPA highlights a number of important points and areas that need improvement, including:
The need for a more fit-for-purpose ‘Summary’ section of the SFCR that has improved content and clarity and encompasses relevant SFCR areas and briefly provides relevant information (given the importance of the summary section, EIOPA has clarified its expectations as the minimum content);
The placement of QRTs in an Annex to the SFCR, although a good practice, should not prevent undertakings/groups from providing quantitative and qualitative information in the body of the SFCR;
Undertakings/groups should disclose information about the management of own funds in the context of the undertaking’s/group’s strategy and business model, including information on the time horizon used for business planning and on any material changes over the reporting period; and
In next year’s SFCR undertakings/groups should also include comparative information in certain areas of the SFCR.
EIOPA’s statement is here.
EIOPA Publishes Q&A on the Comprehension Alert in the KID For IBIPs
On 19 December, EIOPA published a Q&A on the comprehension alert in the Key Information Document (KID) for Insurance-Based Investment Products (IBIPs). The question asks which conditions should be used to determine whether a comprehension alert needs to be included in the KID for an IBIP. The document clarifies that a comprehension alert would need to be included in the KID where an IBIP does not meet the requirements on non-complexity laid down in the Insurance Distribution Directive (as supplemented by the IDD Delegated Regulation and recent EIOPA Guidelines) and goes into further detail on this point. It also clarifies that the criteria for determining whether a comprehension alert is required apply from 1 January 2018.
EIOPA’s Q&A is here.
EIOPA Publishes December 2017 Financial Stability Report
EIOPA has published its December Financial Stability Report for 2017. It concludes that the global economic outlook continues to improve; however, a prolonged low yield environment and unprecedented low levels of market volatility coupled with high levels of economic and political uncertainty continue to represent major challenges for European (re)insurers. (Re)insurers have responded to these challenges by adapting their investment and business models. For example, life insurers have reduced and continue to reduce the guaranteed rates on new products in many countries, or do not offer guaranteed products at all anymore. However, the low yield environment persists and the search for yield continues. The trend identified in last year’s report of life insurers moving their business model towards unit-linked investments has continued and requires further scrutiny from supervisors as it shifts risk to policyholders. The European insurance sector is well capitalised with the median solo insurer having a Solvency Capital Requirement ratio above 200%, well above the 100% prudential requirement.
In 2017, the global reinsurance market continued to suffer from an oversupply of capacity owing to the absence of large losses in previous years and the continuing inflow of alternative capital into the reinsurance market. The 2017 hurricane season was expected to add to rising claims towards the end of the year leading to lower technical results for many reinsures at year end.
The report is divided into two parts, the first identifies key risks for the insurance and pension sector and wider industry, the second part contains a thematic article entitled “Macroeconomic fundamentals and latent factor of the European Union yield curve”.
EIOPA’s report is here.