The Central Bank of Ireland has published a consultation on a new levy calculation methodology for insurers. If adopted, the new methodology will eliminate the threshold effects that currently apply when insurers move between supervisory categories.

The Central Bank currently determines insurance levies with reference to an insurer's impact categorisation under PRISM. An insurer may fall within one of five PRISM categories, with the amount of levy imposed varying significantly between categories. This means that an insurer can experience significant “threshold effects” if it moves between categories. By way of example, currently an insurer with a “high” impact categorisation under PRISM is subject to a levy rate of €1,510,922, while an insurer with a “medium high” impact categorisation is subject to a levy rate of €345,472.

The Central Bank’s proposed new levy calculation methodology is designed to eliminate the threshold effect inherent in the existing approach while maintaining the principle that larger or riskier firms should pay higher levies. In this respect, the new methodology places greater emphasis on the individual or firm-specific characteristics and impact scores, rather than relying solely on an individual firm’s rating category.

As is currently the case, the Central Bank is proposing to distinguish for levy purposes between; a) insurers with a head office in Ireland, and b) EEA insurers passporting into Ireland on either a branch or a freedom of services basis.

Insurers with a Head Office in Ireland

The proposed levy for insurers with a head office in Ireland comprises a minimum fee component and a variable fee component. The minimum fee component is equal to 45% of the Central Bank's aggregate annual levy requirement for the insurance sector, while the variable fee component is equal to the remaining 55% of that requirement.

The minimum fee component will be apportioned between insurers according to their impact categorisation as follows:

  • High impact firms - 75%, split 80:20 between non-life and life firms;
  • Medium high impact firms - 12%, split equally among them;
  • Medium low impact firms - 8%, split equally among them;
  • Low impact (non-captive) firms - 5%, split equally among them; and
  • Low impact (captives) will pay a separately determined fixed charge set by the Central Bank.

The variable fee component will be distributed among firms in proportion to the aggregate sum of Gross Written Premium and Gross Technical Provisions: each firm's own metrics will be used to determine the proportion of the variable fee component to be paid by that firm.

The proposed levy methodology also provides for a number of adjustments including for captive insurers, unit-linked business and reinsurers.

EEA Insurers

The Central Bank is proposing to retain the existing categories 1, 2 and 3 for EEA insurers and to calculate the levy as follows:

  • Category 1 branches will pay a levy amount equivalent to the “average” levy paid by all medium-high firms;
  • Category 2 branches will pay a levy amount equivalent to the “average” levy paid by all medium-low firms; and
  • Category 3 branches will pay a levy amount that will be determined annually and will be lower relative to Category 2.

In addition, the Central Bank will develop a scale of levies for Third Country Branches.

Next Steps

The Consultation (here) closes on 29 March 2019 and submissions may be emailed to levyconsultation@centralbank.ie