Corporate insurance newsletter - July 2015

Hogan Lovells Corporate Insurance Newsletter July 2015 UK • Lloyd's publishes market bulletin on sanctions clauses • LMA publishes consumer wordings guidance for managing agents • PRA update on general insurance stress test 2015 • Lloyd's updates code for underwriting agents: UK pension lines claims and complaints handling • LMA publishes guidance for managing agents on the senior insurance managers regime INTERNATIONAL • Insurance Distribution Directive: final compromise text approved • IADI publishes guidance papers for effective deposit insurance systems • EIOPA publishes final report and technical advice on product intervention powers for PRIIPs • IAIS publishes draft issues paper on conduct of business risk and its management • IAIS publishes draft application paper on supervision and regulation of captive insurers • IAIS consult on HLA requirements for G-SIIs SOLVENCY II • PRA publishes update on recognition of deferred tax • PRA publishes update on matching adjustment applications • EIOPA publishes user manual for risk free interest rate coding • PRA publishes SS30/15 - treatment of sovereign risk in the internal model • PRA publishes SS22/15 updated - applying EIOPA's Set 1 guidelines to PRAauthorised firms • Solvency II Delegated Regulation: ECON and European Commission correspondence • PRA directors' update July 2015 • Council of the European Union decides not to object to delegated acts relating to Solvency II • EIOPA note calls for high quality public disclosure • EIOPA seeks input on risk free interest rate coding • Adapting to Solvency II: speech by Sam Woods • EIOPA publishes second set of draft implementing technical standards and guidelines • Lloyd's updates guidance on technical provisions - 2 - Hogan Lovells Lloyd's publishes market bulletin on sanctions clauses On 27 July 2015, the Society of Lloyd's published a market bulletin which sets out its general position regarding the use and function of sanctions clauses on insurance and reinsurance contracts. The bulletin replaces previously issued guidance regarding sanctions clauses issued in October 2014. The scope of the guidance relates primarily to the EU and UK sanctions regimes but many of the principles may apply to US sanctions. It also provides guidance with regard to the use of sanctions clauses on German policies by foreign insurers. Where appropriate legal advice should be sought both on the drafting of appropriate clauses and their interpretation Lloyd's considers the appropriate and risk-based use of sanctions exclusions clauses to be a matter of good underwriting practice and a means of achieving contract certainty in highlighting to insureds the sanctions obligations with which insurers must comply. As sanctions clauses are being deployed in policy wordings across the Lloyd's market with greater frequency, the guidance has been drafted to assist the market. However, Lloyd's says that it should be kept in mind that the principles covered are general in nature and the precise effect of a sanctions clause will depend on its terms. This guidance focuses on sanctions clauses only. The use of such clauses does not remove the requirement to maintain appropriate systems and controls, including appropriate and proportionate due diligence, to mitigate the risk of a breach of sanctions. This guidance should be read in conjunction with the February 2012 market bulletin on sanctions due diligence guidance for the Lloyd’s market. Appendix 1 to the bulletin sets out an abridged version of the guidance. The purpose of the abridged version is for brokers and managing agents to inform clients and counterparties of Lloyd’s general position regarding the use and function of sanctions clauses on insurance contracts, should their clients seek this assurance. LMA publishes consumer wordings guidance for managing agents On 27 July 2015, the Lloyd's Market Association (LMA) published consumer wordings guidance, which revises an initial version, published in April 2015. The guidance is intended to assist managing agents, with the practicalities of drafting new consumer products and/or adaption of existing commercial wordings to produce "consumer" versions. Whilst not an exhaustive list of all the issues to consider, the guidance identifies the key features of, and salient clauses within, a policy document/wording that need to be addressed for a consumer policy to meet current regulatory requirements and identifies, where appropriate, the applicable underlying regulation. The guidance gives some examples of clauses but not in the context of specific wordings for a particular product. Managing agents should obtain their own professional advice on specific products and wordings, where appropriate. PRA update on general insurance stress test 2015 On 1 July 2015, the PRA updated its supervisory activities - stress testing webpage to give the information that that it has sent a request to the UK's largest general insurers to participate in a stress test exercise. The PRA says that these stress tests have been designed to complement its ongoing work in assessing the resilience of UK insurers and in monitoring how insurers are developing their own risk and solvency assessment. This work ensures that insurers consider the impact that an adverse stress event could have on the safety and soundness of their business and the implications for policyholder protection. In addition, they provide an overview of the UK industry’s reliance on specific counterparties and jurisdictions under stressed conditions. The stress tests cover a wide range of - 3 - Hogan Lovells events from natural catastrophes in Europe and North America, through to potential adverse claims relating to cyber and supply chain disturbances. The PRA has also published the spreadsheet for the stress scenarios and accompanying notes. Participating firms are required to respond by 1 October 2015. Lloyd's updates code for underwriting agents: UK pension lines claims and complaints handling On 1 July 2015, the Society of Lloyd's published a market bulletin containing an updated version of its code for underwriting agents: UK personal lines clams and complaints handling. The changes take effect from 9 July 2015. Lloyd's is amending the code as a result of the changes made by the Financial Conduct Authority and the Financial Ombudsman Service (FOS) to the complaint handling rules to implement the Alternative Dispute Resolution Directive. In summary, the main changes are: • managing agents are now required to provide information, in a clear, comprehensible and easily accessible way about the FOS. This information must be included both on a managing agent’s websites and in contractual documentation with the policyholder. Lloyd's has suggested a wording in the amended UK complaints code that can be used in policy documentation and managing agents will need to take steps to update their wordings. Lloyd's will also make available model wording that can be used on websites. This requirement applies where the business in question may result in complaints that would be eligible for determination by the FOS; • the Dispute Resolution: Complaints sourcebook (DISP) presently includes time limits for the referral of complaints to FOS by complainants. When complainants are informed that they have the right to refer their complaint to the FOS, it is now also a requirement that respondents indicate whether they consent to waive any of those time limits. The form of wording to be used is prescribed by DISP. For stage 2 responses, Lloyd’s will consult with managing agents before indicating to complainants whether or not consent is given to waive the time limits; • in updating the UK complaints code, Lloyd's has taken the opportunity to remove various references to international complaints presently found in the code. It is currently piloting new arrangements for international complaints, as explained in market bulletin Y4896. LMA publishes guidance for managing agents on the senior insurance managers regime On 1 July 2015, the Lloyd's Market Association (LMA) announced the publication of guidance for managing agents on the proposed senior insurance managers regime (SIMR) which comes into force on 1 January 2016, replacing the current approved persons regime. The LMA says that the three joint Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) consultation papers propose a complex framework which is markedly different to the current regime. This new framework will affect all board members, senior managers and other employees in certain "key" functions. The LMA has reviewed the current consultations and this initial guidance is designed to provide a simplified explanation of the rules and also practical tips for implementation. The new rules will not be finalised until the PRA and the FCA publish their final joint policy statement which is expected to be in late July/early August 2015, following which this guidance will be updated. - 4 - Hogan Lovells The guidance paper is intended to provide a summary of the possible implications to managing agencies' governance structures and required regulatory approvals. Part 7 of the guidance paper contains a list of actions which managing agents should consider: • review governance arrangements (including group arrangements, where relevant); • assign PRA senior insurance manager functions (SIMFs) and FCA CIFs accordingly; • assign prescribed responsibilities to PRA SIMFs; • identify current approved persons who can be grandfathered and notify the PRA (using the form to be provided); • review relevant job descriptions/terms of reference, including: job title, regulatory approvals (if any), prescribed responsibilities (if any), applicable conduct rules, reporting lines; • create a governance map; • review governance processes, including: processes for reviewing and updating the governance map, process for reviewing role profiles, annual appraisal process; • raise awareness of the reasonable expectations of regulators and the importance of consistent and accurate record keeping. INTERNATIONAL Insurance Distribution Directive: final compromise text approved On 22 July 2015, the Council of the European Union announced that its Permanent Representatives Committee had approved, on behalf of the Council, the proposal for a Directive on insurance mediation (recast) to amend and replace the Insurance Mediation Directive (the Insurance Distribution Directive. The Council had published the final compromise text on 17 July 2015. The Directive will now be submitted to the European Parliament for a vote at first reading and to the Council for final adoption. Member States would have two years to transpose the Directive into national laws and regulations. IADI publishes guidance papers for effective deposit insurance systems On 13 July 2015, the International Association of Deposit Insurers (IADI) published two guidance papers in relation to its core principles for effective deposit insurance systems, which were first published in 2009 and revised in 2014: • Enhanced guidance for effective deposit insurance systems: ex ante funding: this identifies nine guidance points aimed at updating and enhancing the IADI's guidance related to funding, for the effective implementation of the core principles. The aim of the paper is to update the guidance on funding issued in 2009 and is based on the results of the Financial Stability Board's (FSB) February 2012 thematic review on deposit insurance systems, lessons learned from the recent international financial crisis, and the results of IADI surveys; • Enhanced guidance for effective deposit insurance systems: multiple deposit insurance organisations: the IADI says that the purpose of this paper is not to promote one type of deposit insurance system (unitary or multiple systems) over another but to survey different types of multiple deposit insurance organizations around the world and to provide practical guidance for jurisdictions where multiple deposit insurance organizations currently exist. This guidance supplements the IADI's core principles and addresses specific recommendations arising from the FSB's thematic review. EIOPA publishes final report and technical advice on product intervention powers for PRIIPs On 3 July 2015, the European Insurance and Occupational Pensions Authority (EIOPA) published its final report and technical advice to the European Commission on product intervention powers under - 5 - Hogan Lovells the Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs). The PRIIPs Regulation foresees that in the case of a significant investor protection concern or a threat to the orderly functioning of financial markets, national supervisors and, in some cases, EIOPA, have the power to prohibit or restrict the marketing or distribution of certain insurance-based investment products or a type of financial activity or practice of a (re)insurer. In its technical advice, EIOPA specifies the criteria and factors that should be taken into account in order to determine the situations in which supervisory intervention is required. These relate to: • the orderly functioning and integrity of financial markets; • the stability of the whole or part of the financial system of the EU; • the stability of the financial system within at least one Member State. EIOPA consulted on its technical advice in November 2014 and the final report analyses the feedback received and explains EIOPA's position. The report includes a summary of the main conclusions from the consultation and the possible costs and benefits of the technical advice measures. IAIS publishes draft issues paper on conduct of business risk and its management On 1 July 2015, the International Association of Insurance Supervisors (IAIS) published a draft issues paper on conduct of business risk and its management. The paper seeks to contribute to a comprehensive understanding and assessment of a sound risk culture and raise awareness of conduct of business risk, with a primary focus on retail customers. It reflects and highlights ideas on the scope of, and approaches to, conduct of business risk management that IAIS members may wish to consider when implementing Insurance Core Principle (ICP) 19 on conduct of business, ICP 18 on intermediaries and ICP 9 on supervisory review and reporting. More particularly, the paper considers the sources and impact of conduct of business risk and its place within risk management frameworks. It also considers the mitigation of conduct of business risk in terms of both the management of conduct of business risk by the regulated entities themselves and the role that the supervisor can play. In doing so, the paper discusses some of the broader consequences that can come from inadequate management of conduct of business issues, such as harm not only to policyholders but to insurers, intermediaries and the insurance sector as a whole. In this regard, the linkages between conduct of business risk and risks to financial soundness (prudential risk) are considered. Comments are requested by 14 August 2015. A public discussion of the comments and proposed resolutions will be organised in early October 2015. The IAIS plans to publish the final paper later in 2015 taking into account the comments received during the public consultation. IAIS publishes draft application paper on supervision and regulation of captive insurers On 1 July 2015, the IAIS published for consultation a draft application paper on the regulation and supervision of captive insurers. The paper is intended to provide guidance to insurance supervisors on the application of aspects of regulation and supervision that are specifically relevant to captive insurers or reinsurers. In the paper the IAIS defines a captive insurer as “an insurance or reinsurance entity created and owned, directly or indirectly, by one or more industrial, commercial or financial entities, the purpose of which is to provide insurance or reinsurance cover for risks of the entity or entities to which it belongs, or for entities connected to those entities and only a small part if any of its risk exposure is related to providing insurance or reinsurance to other parties". - 6 - Hogan Lovells The paper considers the application of the IAIS' Insurance Core Principles (ICPs) and IAIS standards to captives and where appropriate provides additional guidance and elaboration. The ICPs and the associated standards apply equally to captives and commercial insurers subject to the nature, scale and complexity of the insurer. There are separate sections on issues relating to cell company structures and insurance managers. Comments are requested by 3 August 2015. The IAIS is to hold a public discussion of the responses received and proposed resolutions in early October 2015. IAIS consult on HLA requirements for G-SIIs On 25 June 2015, the IAIS published a consultation paper on the higher loss absorbency (HLA) requirement for global systemically important insurers (G-SIIs). The IAIS is seeking feedback on several options relating to the design, development and calibration of the HLA. The HLA requirement will be a globally comparable group capital requirement that applies to all GSIIs. The primary purpose of the HLA is to assist to reduce the probability and impact on the financial system of the distress or failure of a G-SII. When the HLA is implemented, G-SIIs will be expected to hold regulatory capital that is not less than the sum of the required capital amounts from the basic capital requirements, which was published in October 2014, and the HLA. The HLA is expected to be endorsed by the G20 at their leaders' summit in November 2015 and will apply to G-SIIs from 2019. Comments are requested by 21 August 2015. The IAIS has also released additional information on the common framework section of its website regarding the development of its risk-based, global insurance capital standard, which will apply to internationally active insurance groups (IAIGs) as part of the IAIS' common framework for the supervision of IAIGs. SOLVENCY II PRA publishes update on recognition of deferred tax On 30 July 2015, the PRA updated its Solvency II news webpage to announce it has been in discussions with industry to consider whether the risk margin represented a source of difference between the balance sheet and tax base which was capable of creating a deferred tax asset that could be recognised on the Solvency II balance sheet. As a result of those discussions, the PRA confirms that its policy expectations in relation to deferred tax remain those as set out in supervisory statement SS2/14 (last revised in February 2015). More specifically, the PRA confirms that a deferred tax asset might be recognised in the Solvency II balance sheet, subject to the satisfactory demonstration of likely utilisation required by International Accounting Standard 12 and the provisions of the Solvency II regulations. PRA supervisors will discuss with individual firms the treatment of deferred tax where it is a sufficiently material component of that firm’s regulatory balance sheet. In the PRA's discussions, an argument was put forward that the costs to be incurred in settling liabilities would be greater than those captured in the best estimate liabilities, regardless of adverse experience, and that those additional costs were captured in the risk margin. The PRA did not find this argument persuasive because Solvency II requires that the best estimate liability takes account of all cash flows required to settle (re)insurance liabilities over their lifetime. For the risk margin to be regarded as something which is used to settle those (re)insurance liabilities would appear to suggest that the best estimate itself had been understated. - 7 - Hogan Lovells PRA publishes update on matching adjustment applications On 24 July 2015, the PRA updated its Solvency II news webpage to announce that in line with the approach to internal model approvals, it considers it vital that the approval process for the matching adjustment (MA) under the Solvency II Directive is entirely uniform across firms, and that the timing and communication of the decisions is consistent with orderly markets. As a result, following a thorough review of firms’ MA applications, the PRA will make final decisions on all formal MA applications received prior to 1 July 2015 in late October 2015, and communicate those decisions to firms simultaneously shortly after that point. The PRA will communicate the precise timings of the decision communication closer to the time. The PRA says that if firms have any questions about the approval process for the MA, they should speak to their usual PRA supervisory contact. EIOPA publishes user manual for risk free interest rate coding On 15 July 2015, EIOPA announced the launch of an exercise to challenge the “beta”-version of its risk free interest rate (RFR) coding used in the current preparatory phase for implementation of the Solvency II Directive. The aim of the exercise, which will close on 31 August 2015, is to collect input from stakeholders and, in particular, the MatLab community in order to help further improve the coding and spot possible errors. On 24 July 2015, EIOPA published a user manual for the exercise which contains the steps on how to carry out the calculations through the published RFR coding and, therefore, can be useful to those stakeholders that are going to conduct the exercise in order to help EIOPA further improve the coding and spot possible errors. The materials necessary to carry out the exercise can be found on this EIOPA webpage. PRA publishes SS30/15 - treatment of sovereign risk in the internal model On 23 July 2015, the PRA published a supervisory statement (SS), SS30/15, which is of interest to UK insurance firms within the scope of Solvency II and to Lloyd’s. The PRA expects firms to read this statement alongside all relevant European legislation and the Solvency Capital Requirement Parts of the PRA Rulebook. This statement expands on the PRA’s general approach as set out in its insurance approach document by setting out its expectations of firms in relation to the treatment of sovereign debt in internal models. For the purpose of this statement, sovereign debt refers to exposures in the form of bonds and loans issued or guaranteed by counterparties including but not limited to: • central banks; • central governments; and • supranational organisations. PRA publishes SS22/15 updated - applying EIOPA's Set 1 guidelines to PRAauthorised firms On 19 February 2015, the PRA published a consultation paper, CP5/15, which consulted on a draft supervisory statement (SS) setting out its expectations of firms in relation to EIOPA's first set of guidelines (set 1 guidelines) under Solvency II, which were published in the official languages of the EU on 2 February 2015. On 22 April 2015, the PRA published SS22/15, which reflected the feedback received to the consultation paper and set out the PRA’s expectation that all firms comply with the set 1 guidelines. It also provided further commentary on certain guidelines where additional considerations, largely set out in previous PRA supervisory statements, should be taken into account by firms. - 8 - Hogan Lovells On 23 July 2015, the PRA published an updated version of SS22/15.The SS has been amended to reflect, where relevant, that it applies to Lloyd’s, including Lloyd’s managing agents, rather than just the Society of Lloyd’s. This update does not change the PRA’s expectation of firms set out in the original statement. Solvency II Delegated Regulation: ECON and European Commission correspondence On 20 July 2015, the European Parliament published the following: • a letter, dated 1 April 2015, from Roberto Gualtieri, Chair of its Committee on Economic and Monetary Affairs (ECON), to Jonathan Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, on the proposed Delegated Regulation supplementing the Solvency II Directive and Lord Hill's response to this letter, which is dated 11 May 2015. Among other things, Lord Hill states that due to the importance of the issue relating to the classification of own funds items into sub-tiers, the approach will be reviewed on the basis of an impact assessment at the same time as the standard formula is reviewed, which means within three years; and • a letter, dated 16 July 2015, from Mr Gualtieri to Lord Hill concerning the delegated acts relating to the third country equivalence decisions for Australia, Bermuda, Brazil, Canada, Mexico and the US, which gives the information that the deadline for raising objections to the delegated acts has been extended by three months, that is until 7 December 2015. PRA directors' update July 2015 On 14 July 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 information on the following: • EIOPA's second set of draft implementing technical standards and guidelines for Solvency II which were published on 6 July 2015; • the outcome of the PRA's general insurance technical workshop; • segmentation of UK motor insurance policies; • regulation of outwards reinsurance; • allocation of employers liability insurance policies; • pension scheme risk; • the senior insurance managers regime; • Solvency II and groups; • the PRA’s timetable of activity from July 2015 to the second quarter of 2015; • PRA Solvency II web updates since the last directors’ update. Council of the European Union decides not to object to delegated acts relating to Solvency II On 16 July 2015, the Council of the European Union, in its configuration as the European Economic and Financial Affairs Council, published a provisional version of a press release reporting on the outcome of its 3403rd meeting on 14 July 2015. Items that were approved include an item on insurance and reinsurance: third country equivalence (see page 9). The Council decided not to object to the adoption by the Commission of two decisions: judging the solvency and prudential regime for insurance and reinsurance undertakings in force in Switzerland to be equivalent to the requirements of articles 172(2), 227(4) and 260(3) of the Solvency II Directive, and solvency regimes in force in Australia, Bermuda, Brazil, Canada, Mexico and the United States and applicable to insurance and reinsurance undertakings with head offices in those countries to be equivalent to the requirements of article 227(4) of Solvency II. The decisions are - 9 - Hogan Lovells delegated acts pursuant to article 290 of the TFEU, so can now enter into force, unless the European Parliament objects. EIOPA note calls for high quality public disclosure On 10 July 2015, EIOPA announced the publication of a note which stresses the importance of high quality public information and the relevant use of external audit services in relation to Solvency II public disclosures. The note says that one of the cornerstones of the Solvency II regime is transparency. In order to guarantee transparency, the Solvency II Directive requires insurance and reinsurance undertakings to publically disclose essential information on their solvency and financial condition. EIOPA considers public disclosure under Solvency II can be considered as a paradigm shift in communication between (re)insurance companies and their stakeholders and is a unique opportunity for insurance and reinsurance undertakings to address stakeholders' perception on perceived opaqueness and inadequacy of publically disclosed information. EIOPA says that it is convinced that only high quality disclosed figures and good public reports can fulfil the goals set out by Solvency II. Therefore, EIOPA and its members will be very attentive to the actual application of the Solvency II public disclosure by insurance and reinsurance undertakings and potentially divergent levels of quality in different Member States and may consider taking further regulatory actions. Some Member States currently require an external audit of supervisory reporting and regulatory public disclosures. EIOPA believes that to ensure high quality public disclosure for Solvency II purposes, external audit of that information can certainly be a powerful tool. In order to make best use of external audit in the context of the solvency and financial condition report, EIOPA is of the view that at individual and group level main elements of the solvency and financial condition report (SFCR) (balance sheet, own funds and capital requirements) of all insurance and reinsurance undertakings could fall within the scope of an external audit. EIOPA believes that statutory auditors are qualified to carry out an external audit of the main elements of the SFCR and is convinced it is of paramount importance for auditors to issue a public opinion and an audit report on whether the disclosed elements have been properly prepared, in all material respects, in accordance with the Solvency II regulatory framework. When carrying out an external audit, auditors should take into account the rigorous system of authorisations, supervisory approvals and internal validations carried out in accordance with the Solvency II Directive, for example, in relation to internal models approved to be used for the determination of capital requirements. EIOPA seeks input on risk free interest rate coding On 15 July 2015, EIOPA announced the launch of an exercise to challenge the “beta”-version of its risk free interest rate (RFR) coding used in the current preparatory phase for implementation of the Solvency II Directive. The aim of the exercise is to collect input from stakeholders and, in particular, the MatLab community in order to help further improve the coding and spot possible errors. The materials necessary to carry out the exercise can be found on this EIOPA webpage. The RFR coding has already been reviewed by national supervisory authorities but EIOPA believes that such a highly complex product would benefit from input and proposals from all the interested parties in the course of the exercise. It will also enhance understanding of the RFR calculations and will contribute to the preparatory efforts for Solvency II. - 10 - Hogan Lovells EIOPA will revise the RFR coding based upon the results of the exercise and will publish the final RFR coding and methodology before 1 January 2016. Comments are requested by 31 August 2015. Adapting to Solvency II: speech by Sam Woods On 9 July 2015, Sam Woods, the Bank of England's Executive Director of Insurance Supervision, spoke at the Association of British Insurers. In his speech, Mr Woods spoke about adapting to the new regime under the Solvency II Directive, saying that he wanted to make sure that investors and insurance firms understand the approach the Bank of England will take to capital under Solvency II. He went on to bust two myths: • the idea that there is some kind of plan within the Bank to use Solvency II to increase required capital across the insurance sector; and • a suspicion that the Bank will somehow keep the current Individual Capital Adequacy Standards regime alive after 1 January 2016, rather than embracing the new regime. He also said that he wanted to make it absolutely clear that the bank will give firms plenty of time to adjust to the new regime, and that those firms who wish to make use of transitional measures will be given the freedom to do so. After detailed discussion of the above, Mr Woods concluded by saying that the Bank will faithfully implement Solvency II in the UK and will be proportionate and robust in the pursuit of its objectives. EIOPA publishes second set of draft implementing technical standards and guidelines On 6 July 2015, EIOPA announced the publication of the second set of draft implementing technical standards (ITS) and guidelines for Solvency II. The set covers different areas from all three Solvency II pillars (quantitative basis, qualitative requirements, reporting and disclosure). The ITS and guidelines were finalised following consultations on which EIOPA has also published final reports. The draft ITS, which can be found on this EIOPA webpage, relate to the following topics: • regional governments and local authorities treated as exposures; • index for the equity dampener; • currency shock for currencies pegged to the euro; • standard deviations for health insurance obligation subject to health risk equalisation systems; • supervisory transparency and accountability; • capital add-ons. • templates for the submission of information to the supervisory authorities, plus related annexes; • procedures, formats and templates of the solvency and financial condition report, plus related annexes; • exchange of information on a systematic basis with colleges. EIOPA has submitted the ITS to the European Commission, together with a covering letter. This says that the remaining two ITS on the mapping of the external credit assessment institutions and the application of the equity transitional will be finalised shortly. The Commission has three months from the submission of the ITS to decide whether or not to endorse them. Following endorsement, the ITS will be translated into all official EU languages and will become legally binding. - 11 - Hogan Lovells The press release says that EIOPA will release the XBRL taxonomy based on the ITS on supervisory reporting later in July 2015. This will allow undertakings to finalise their preparations for reporting under Solvency II. Lloyd's updates guidance on technical provisions On 6 July 2015, the Society of Lloyd's published an updated version of its detailed guidance on technical provisions under the Solvency II valuation of liabilities, together with a market bulletin on the updated guidance. The guidance is an update of the version published in March 2011. It is intended to assist managing agents in valuing technical provisions on a Solvency II basis. The guidance offers practical solutions in places but the guidance states that these should not be taken as Lloyd’s “rules” or as the only solutions and in many cases alternative approaches, with justification, are equally valid. The guidance says that the main update to the 2011 guidance relates to the contract boundaries to be considered for outwards reinsurance. It has been clarified that for existing or legally obliged reinsurance contracts any contractually obliged premiums arising from current business should be included in full (to the extent to which it is contractually obliged), with no consideration to the future inwards business. For future reinsurance contracts the expected proportion of the premium that applies to existing inwards contracts should be included, this proportion will need to be clearly justified. The four other areas that have seen either changes or clarifications since 2011, all of which are discussed in more detail in the guidance, are: • confirmation of the treatment of contract boundaries on binders business as a “look through” basis. This is unchanged from Lloyd’s original proposed approach; • the recommendation that a “proportionate” run off simplification for the calculation of the risk margin is not appropriate without justification. This is a change from the original guidance; • the introduction of matching and volatility adjustments to risk free rates and a description of why these are generally not significant for Lloyd’s entities; relabelling “binary events” as “events not in data” or ENIDs, although their treatment is essentially unchanged from the original guidance. ww.hoganlovells.com Hogan Lovells has offices in: 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* - 12 - Hogan Lovells "Hogan Lovells" or the "firm" is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. 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