On 23 June, the United Kingdom voted to leave the European Union by 51.9% to 48.1%. The vote in favour of Brexit does not automatically trigger an exit by the UK from the EU. Instead, it has commenced a long and complex exit process and it will be some time before it becomes clear what form Brexit will take and when it will occur. However, Brexit does not create a legal vacuum and until the UK formally leaves the EU, EU law will continue to apply to and within the UK. The first step for withdrawal will be for David Cameron or his successor to serve notice on the European Council of the UK's decision to withdraw from the EU under Article 50 of the Treaty of the European Union. It is not yet clear when this will happen but it will trigger the start of a two year negotiation period. When the UK and EU agree the formal Brexit, that agreement will need the support of a qualified majority of EU Member States in the European Counsel and the consent of the European Parliament. As is clear from the large volume of publications on the subject in the last number of weeks, there are five possible Brexit models which have been the focus of discussion: the Norwegian model; Swiss model; Turkish model; Canadian model or World Trade Organisation (WTO) model. It is also possible that the UK and EU will negotiate a bespoke Brexit model, similar, but not identical to, any of the above. If agreement is not reached in the two year period, and the time period for negotiation is not extended, the WTO model will apply by default.

Notwithstanding that the long term consequences are uncertain, the immediate consequence of the Leave vote has been evidenced in market disruption and significant depression of Sterling which has had a knock-on effect on many (re)insurers' investments, capital positions and liquidity. Continued market volatility will challenge (re)insurers across Europe in these ways. For UK based insurers, this challenge is likely to be compounded by a withdrawal of investment capacity, which insurers may struggle with, when attempting to respond to volatile market conditions as foreign investment is likely to reduce pending clarity of the position of the UK outside of the EU.

The exact impact of Brexit on the insurance industry is very much dependent on the nature of the agreement reached on Brexit. However, key concerns for the insurance industry in this context are: (i) the nature of future legal and regulatory changes in the UK effecting how EEA insurers write risks in the UK and, to a lesser extent, access reinsurance capacity from the UK markets; (ii) how existing UK insurers and intermediaries will access the EEA markets - whether that will be achieved by the agreed Brexit model or whether those entities will have to relocate elsewhere in the EU by setting up as a third country branch or a subsidiary in the EU to write EEA risks. The legal, regulatory and practical steps involved and implications of such a relocation would need to be carefully assessed; (iii) the consequences of Brexit for insurance groups headquartered outside the EU that currently have an EU group headquartered in the UK or access the EEA exclusively or to a significant extent through a UK underwriting platform; (iv) the many other ancillary issues which arise for insurers such as the effect of Brexit on data protection, current M&A deals, distribution networks, key outsourcing arrangements and product design.


On 27 June, Insurance Ireland called for a Brexit Stakeholder Consultative Forum on Finance and Insurance, highlighting the importance to the insurance sector of the strong trading relationship between Ireland and the United Kingdom. The aim of this forum is to inform the Government’s approach to the UK’s recent decision to exit the European Union. It is deemed vital that a productive position on Finance and Insurance is reached through this forum in order to ensure that our national interests in this sector are protected. 

A link to the article can be found here.


On 3 June, the Central Bank of Ireland (Central Bank) published a consultation paper entitled "External Audit of Solvency II Regulatory Returns / Public Disclosures". The Central Bank proposes to impose a requirement on all Solvency II firms to have elements of their regulatory returns/public disclosures under Solvency II subject to external audit. This will apply to financial years ending on or after 31 December 2016. The external audit will cover elements of the quantitative information submitted by Solvency II firms and include a reasonable assurance opinion on the elements of the Solvency and Financial Condition Report relevant to the balance sheet, own funds and capital requirements. The paper sets out the process for submitting comments on the proposal, the background to the proposal and a detailed analysis of the proposal, together with its costs and benefits. The Central Bank intends to finalise the policy position by the end of September 2016, to facilitate (re)insurers in planning their audit work associated with 31 December year end. Therefore, comments from stakeholders are invited in an abridged 8 week period, between 1 June to 29 July 2016.

A link to the paper is here.


On 13 June, the Central Bank published an update to its guidance note on the completion of an application form for authorization or registration as a retail intermediary. The guidance has been updated to clarify the stages of the application process around the notification of the assessment and the circumstances that apply when the assessment is not initially favourable. The guidance sets out: the criteria for assessing applications; the documentation required in making an application; a detailed section-by-section walk-through of the form; the processing procedure, including timeframe for assessments; and the responsibility of firms post authorisation. Guidance on the context of the Business Plan and Programme of Operations is also provided in Appendix I.

A link to the guidance paper is here.



On 2 June, EIOPA published its Preparatory Guidelines on Product Oversight and Governance arrangements (POG) for manufacturers and distributors of insurance products. The Guidelines provide support to National Competent Authorities (NCAs) and others in preparation for the application of POG requirements under the Insurance Distribution Directive, which must be implemented by all EU Member States by 23 February 2018. The European Markets Supervisory Authority and the European Banking Authority have already issued guidance on product oversight and governance arrangements. These Guidelines sit side by side with those, so as to ensure a level playing field in financial markets and prevent regulatory arbitrage. The Guidelines are non-binding but they aim to create a common, uniform and consistent application of EU law across all Member States. Within 2 months, NCAs must communicate to EIOPA whether or not they intend to comply with these Guidelines.

A link to the Guidelines can be found here.


On 7 June, Insurance Europe published a position paper on the European Commission's proposal to introduce country-by-country reporting of tax disclosures by certain multi-national undertakings and branches. Insurance Europe indicates that it supports the proposed amendment to the Administrative Cooperative Directive (2011/16/EU) to allow for reports to be exchanged automatically between tax authorities. However, concerns are raised in relation to the proposed amendment to the Accountancy Directive (2013/34/ EU) which seeks to make the publication of country-by-country reports obligatory. Concerns are raised as to the efficacy of the proposal to combat aggressive tax planning, harmful tax regimes and fraud. Issues are also highlighted surrounding specific provisions of the Commission's proposal including: unsuitable additional disclosure requirements; materiality thresholds; protecting commercially sensitive information; and the need for flexibility to ensure that companies do not have to create completely new reporting structures from scratch. Insurance Europe suggests that working towards harmonization of tax regimes and offering clear guidance as to the implementation of international standards may be a better way to ensure the competitiveness of the European Market.

A link to the position paper is here.


On 6 June, the Monetary Authority of Singapore (MAS) published a consultation paper on its Financial Technology (Fintech) Regulatory Sandbox Guidelines. The "regulatory sandbox" is a programme in which participants are encouraged to experiment with Fintech solutions in an environment where the risk to consumers and financial stability is limited. Acceptance to the programme will be based on: how innovative the product is for participants; whether the business has the ability to launch extensively in Singapore after exiting the programme; and whether the innovation would deliver benefits to consumers. Standards for customers' data protection and anti-money laundering provisions will continue to apply to participants but those for credit rating, financial soundness, liquidity and management experience will be dropped. The announcement from MAS comes a month after the Financial Conduct Authority announced a similar project in the UK.

A link to the consultation paper is here.


On 15 June, EIOPA and the China Insurance Regulatory Commission (CIRC) entered into a Memorandum of Understanding which establishes a basis for cooperation between the two organisations. The Memorandum records that EIOPA and CIRC have agreed to focus on three key areas: creating a framework for the exchange of supervisory information; the exchange of updates on relevant developments; and increasing mutual understanding of the respective supervisory regimes for insurance. In a joint press release, EIOPA and CIRC noted the importance of the Memorandum to ensure good communication and cooperation in the interests of protecting consumers and promoting effective supervision.

A link to the Memorandum of Understanding is here.

A link to the press release is here.


As reported in last month's edition of the Arthur Cox Insurance Regulatory Update, EIOPA has launched an EU wide insurance stress test for 2016 which aims to obtain a clear assessment of the vulnerabilities of the European insurance sector. Tobias Buecheler, head of regulatory strategy at Allianz, has concerns regarding the scenarios used in the stress test, stating that they will not produce a meaningful result. One scenario in the test involves a prolonged period of low rates and assumes that the ultimate forward rate (an interest rate which measures the value of longterm liabilities) will fall from 4.2% to 2%. He describes this severe of a drop as extremely unlikely and a "freak stress situation". EIOPA has defended the tests, describing the scenario as having a low probability but stating that the possibility of such a situation arising could not be ruled out. Mr Buecheler is worried the results of the test would lead the European Systemic Risk Board to require insurers to hold additional capital.


The UK's Insurance Act 2015 (the Act) comes into effect on 12 August 2016. All new (re)insurance contracts or variations to (re)insurance contracts made after this date will be governed by the Act.

The Act sets out specific rules for consumer and non-consumer insurance contracts. The Act creates a higher standard for the duty of disclosure in nonconsumer contracts than existed before through the new "duty of fair presentation". The Act aims to encourage a greater level of engagement between insureds and insurers in the disclosure process and includes a range of remedies for breaches of pre-contractual disclosure.

The Act has banned "basis of contract" clauses from non-consumer contracts. Previously, these clauses could convert all representations made in the course of a non-consumer insurance contract into contractual warranties. The Act allows for the suspension of insurance cover for the duration of the breach of warranty only.

In both consumer and non-consumer contracts, the remedies for fraudulent claims by policyholders under the Act are that: the insurer is not liable to pay the claim; the insurer may recover any sum paid out on the claim; and the insurer may treat the contract as having been terminated with effect from the time of the fraudulent act.

For consumer contracts, an insurer cannot agree terms which put the insured in a worse position than allowed for under the Act. For non-consumer contracts, other than the ban on "basis of contract" clauses, less favourable terms can be agreed but only if sufficient steps are taken to draw the disadvantageous terms to the insured's attention before the contract is entered into.

A link to the Act is here.


On 8 June, the European Commission published an Inception Impact Assessment which sets out the various options to deal with the potential implications of the decision of the Court of Justice of the European Union in Vnuk v Zavarovalnica Triglav (Case C-162/13) on the Motor Insurance Directive 2009/103/EC (the Directive).

Prior to the Vnuk judgment, the scope of the Directive had been interpreted differently in different countries. In several countries, including Ireland, the Directive was interpreted as only requiring third party motor insurance cover for vehicles "in traffic". As such, accidents that did not take place "in traffic" were not covered by the Directive, e.g. accidents related to agriculture or motor sports. Other countries interpreted the Directive more broadly as applying to all vehicles "in use" rather than "in traffic", which was endorsed by the Vnuk decision.

As a result, by October 2016, all Member States must ensure that the victims of vehicle accidents, regardless of whether the accident happens in traffic, are covered by third party motor insurance. The practical effect in Ireland would be that the Motor Insurers Bureau of Ireland (MIBI) would be obliged to pay compensation to a much wider category of claims. As the MIBI is funded through a levy on insurance premiums, this change could cause an increase in the cost of motor insurance premiums.

The Inception Impact Assessment triggers a process for assessing the impact of the different options available for addressing the consequences of the Vnuk judgement. The document sets out a description of the issues raised by the Vnuk decision, explains why Commission action is needed, covers issues related to subsidiarity and sets out the policy objectives and options available as well as the likely impacts of each option. It states that the likely type of initiative to be taken will be a proposal for a new directive to amend the Directive to allow Member States to decide at a national level whether or not victims of traffic accidents should be pooled together with victims of activities unrelated to traffic through guarantee funds such as the MIBI.

A link to the Inception Impact Assessment is here.


In June, EIOPA updated its Q&A Tool on regulation providing responses to questions raised on EIOPA's Guidelines on: reporting and public disclosure (1 new question); its final report on the ITS templates for the submission of information to the supervisory authorities (1 new question); and its final report on the ITS on procedures, formats and templates of the Solvency and Financial Condition report (1 new question).

Links to the relevant documents are here, here and here.