Central Bank feedback on ORSA

On 1 August 2012, the Central Bank of Ireland published a presentation on the ORSA (own risk and solvency assessment) Reporting Framework for Medium-Low and Low Impact Undertakings, given in the Alexander Hotel in Dublin during July. Through its presentation, the Central Bank reiterated its commitment to the principle of proportionality for ORSA, pointing out that 88% of Irish (re)insurance undertakings are medium-low or low impact. It also indicated that feedback from informal engagement with the (re)insurance industry on its draft ORSA reporting tool had been positive, and provided an overview of the draft ORSA reporting tool itself.

Notably, the role of the Board under the ORSA process is described, including that the Board should take an active part in it by steering the assessment (and challenging its results) and approving both the ORSA policy and its results. The Central Bank expects to receive the first ORSA reports in 2012 and to involve the industry in testing its ORSA reporting tool during 2012.

Insurance Compensation Fund levy here to stay

On 7 & 8 August 2012, it was reported in the Irish media that the Insurance Compensation Fund levy is likely to remain in place for years to come. According to articles in the Irish Times and the Irish Examiner, revised estimates of future claims on the fund of up to €1.65 billion have been proposed. This means that the current 2% levy, at its present collection rate, could continue for 25 years or more.

European and International

UK Government response to consultation on Test-Achats

The UK Government has recently issued a response to its December 2011 consultation paper on its proposals to deal with the ruling in the Test-Achats case (C-236/09). The Government will repeal an exemption in the Equality Act 2010 permitting insurers to quote different premiums/benefits based on gender where this is supported by appropriate actuarial/statistical data. However, it will not repeal a similar exemption in the Act for insurance arrangements made by employers (for their employees, and other persons, as a consequence of their employment). The Government’s reasoning is that the Gender Directive and the ruling does not apply to such policies. The Government confirmed that it will not be giving any further guidance on the effect of the ruling and that it is for the Courts to interpret it.

FSA consults on tracing liability insurers of former employers

The Financial Services Authority published a consultation paper at the end of July 2012 aimed at aiding individuals in tracing their former employers’ liability insurers. This follows an earlier (June 2010) FSA consultation paper on connected issues. The FSA has now identified that former employees spend considerable time and money trying to identify the insurers of their former employees, often failing to attain any/sufficient compensation. FSA proposals include that former employers must conduct reasonable searches of their employer’s liability insurance records when approached, respond to queries within one month and create a tracing policy. Comments are invited until 17 October 2012, and the FSA expects to release final rules (which firms will be provided with six months to implement) in January 2013.

Criticism of IAIS ‘systemically important insurers’ proposals

Insurance Europe and the Geneva Association have criticised the proposed approach (published in late 2011) of the International Association of Insurance Supervisors (IAIS) to identifying international systemically important insurers. While recognising that the motivation underpinning the approach is sound, a key criticism made is that the approach does not recognise the differences between the insurance and banking industries and business models.

(Re)insurance clause website launched

The International Underwriters Association has launched a new online database of insurance and reinsurance clauses and wordings (focused on the London market). The model clauses available on the website have been divided into three categories: (a) aviation, (b) marine and (c) property and casualty, and may be downloaded free of charge. The Association also intends to update the database with details of legal developments and their potential impact on the clause wordings.

Dissent from European Commission’s approach to cancellation of dividends under Solvency II

Insurance Europe, in a letter to the European Commission, has strongly disagreed with the Commission’s proposal to provide for automatic cancellation of payments of certain dividends in cases where insurers have breached solvency capital requirements under Solvency II. While recognising that insurers should have internal dividend policies to cater for such eventualities, Insurance Europe maintains that the proposal is not consistent with the two-tier system under Solvency II (including a minimum, as well as a solvency, capital requirement). Instead, Insurance Europe's view is that a potential cancellation/reduction of dividend should be a matter for discussion between the insurer in question and its supervisor.

EIOPA publishes summary of Annual Report 2011

On 21 August 2012, the European Insurance and Occupational Pensions Authority (EIOPA) published a summary of its annual report for 2011. This highlighted EIOPA’s key areas of focus during 2011 and outlined EIOPA’s strategic goals for the future, including providing advice on the development of an EU framework for crisis prevention, management and resolution. It also confirmed that EIOPA intends to develop minimum standards for staff training for financial institutions, particularly for those who are in contact with consumers.

FSA consults on a review of client money rules for insurance intermediaries

The FSA has published a consultation paper on a review of the client money rules for insurance intermediaries. Key proposals include (a) improving the effectiveness of segregation of, and use of risk transfer in relation to, client money, (b) simplifying the distribution and transfer of client money and (c) enhancing record keeping and reconciliations. Comments are invited until 30 November 2012.

FSA updates and information regarding Solvency II

On 2 August 2012, the FSA issued a data request to entities involved in the internal model approval process approval process for the purpose of Solvency II. The data was sought in order to determine areas for further consideration and action in advance of the commencement the Solvency II regime. The following day, the FSA updated the Solvency II pages of its website, to take account of the new timetable involved, i.e. envisaging transposition by 30 June 2013 and requirements being applied from 1 January 2014. The FSA has also recently published helpful information regarding ORSA on its website, including a questions and answers document and information on preparation for ORSA.

Calls for (re)insurance to be placed on transatlantic political agenda

The American Council of Life Insurers (ACLI) and Insurance Europe recently called upon the European Commission and the U.S. Government to include (re)insurance on the agenda of the Transatlantic Economic Council (a high-level working group for job creation and growth). ACLI and Insurance Europe view the working group as an opportunity to foster regulatory understanding and reduce trade barriers between the USA and Europe. Areas suggested for progression include regulatory understanding in areas in which structures/approaches differ but achieve similar results and support of international supervisory colleges.

IAIS concerns regarding policyholder protection trends

In a recent address to a meeting of the National Association of Insurance Commissioners (NAIC) in the USA, the IAIS stated that protecting policyholders is becoming increasingly difficult. The IAIS stressed that, due to the trend for insurance providers to become larger and more complex, insurance supervisors must supervise insurance companies at group level (including engaging with supervisors in other countries) in order to preserve market stability. The IAIS also encouraged USA states to sign up to the IAIS Multilateral Memorandum of Understanding – noting that only one such state had signed up to this, to date.

Novel Court decisions in Germany on unit-linked life policies

In five test cases which have come before it, the German Federal Court has deemed that unit-linked life assurance policies may constitute “investment products” in certain circumstances (and, therefore, may be subject to more stringent German case law rules). This has been reported as an unprecedented departure by the German Courts. The cases have been remitted to the lower German courts to determine the issue and the amount of any compensation payable to the customers involved. Despite previous German contract and case law being clear that an insurer does not have information/advice duties to policyholders where an independent financial adviser (chosen by and obligated to act in the interests of the policyholder) mediates the product, it is anticipated that the insurer involved may be liable for significant compensation in these cases.

Further delay for Omnibus II

On 30 August 2012, the European Parliament updated its online procedure file regarding the draft Omnibus II Directive. This now indicates that the Parliament's consideration of the draft Directive (which had been most recently scheduled for October 2012) will not take place until November 2012. This followed the publication on 29 August of a revised draft text of the Directive. This latest delay is set to place more pressure on the tight timing for finalisation of the Directive.