Blog: Financial Services Regulation and Compliance – Insurance October 2022 – Lexology

Domestic

Intermediary Times – October 2022

On 24 October 2022, the CBI published its second edition of the 2022 Intermediary Times newsletter. This edition covers a range of topics including (among other matters):

  • the discussion paper on the review of the CPC
  • the risk of under-insurance in the home insurance market and the role insurance intermediaries play in ensuring risks to their customers are mitigated
  • the obligations on all retail intermediaries regarding changes to qualifying shareholdings
  • the impact of Covid-19 on the operational resilience of firms

The European Union (Insurance and Reinsurance) (Amendment) Regulations 2022

The European Union (Insurance and Reinsurance) (Amendment) Regulations 2022 (the 2022 Regulations) were published on 14 October 2022. The Regulations make a number of amendments to the European Union (Insurance and Reinsurance) Regulations 2015 (the 2015 Regulations) and are applicable from 19 October 2022.

The amendments introduced by the Regulations are as follows:

  • The balance-sheet total and net turnover limits to be met in order for risks classified under classes 3, 8, 9, 10, 13 and 16 in the 2015 Regulations to be considered ‘large risks’ have been increased slightly from €6.2m to €6.6m in assets and from a turnover of €12.8m to €13.6m.
  • The criteria to be met by an undertaking in order to avail of the exclusion for “small undertakings” under the 2015 Regulations have been amended to increase the financial amounts applicable.
  • The absolute floor for the minimum capital requirement specified under the 2015 Regulations has been amended to:
    • €2.7m for a non-life insurance undertaking, including a captive insurance undertaking, except in the case where all or some of the risks included in one of classes 10 to 15 in Part 1 of Schedule 1 are covered, in which case the absolute floor shall be €4m.
    • €4m for a life insurance undertaking, including a captive insurance undertaking.
    • €3.9m for a reinsurance undertaking, except a captive reinsurance undertaking, in which case the absolute floor shall be €1.3m.

Insurance supervision in an uncertain environment – remarks by Domhnall Cullinan, Director of Insurance Supervision, at Financial Services Ireland

On 6 October 2022, Domhnall Cullinan, CBI Director of Insurance Supervision, addressed Financial Services Ireland, covering a wide range of insurance-specific topics. These included uncertainties facing the insurance sector as a result of as inflation, energy and market volatility, and the authorisation process for prospective insurers. Mr. Cullinan outlined the three key aspects of a successful authorisation application as being:

  • open and early engagement with the CBI at the pre-application stage
  • an appreciation of the CBI’s expectations, specifically in relation to internal controls, governance and ‘substance’
  • providing the necessary resources and sufficient time to complete a comprehensive application and to respond to queries

Other areas of CBI focus within the insurance sector noted by Mr Cullinan included product oversight and governance of unit linked products, and digitisation of the insurance sector (including IT outsource-related risks).

Finally, on climate, Mr Cullinan remarked that that insurers could be more ambitious in their approach to climate change risks. Specific examples of good practices observed by the CBI in ORSA reports include:

  • considering first and secondary risks posed by climate change
  • assessment of climate change impacts over different time periods (i.e. beyond the ordinary planning timeframe)
  • conducting appropriate situational and severe stress tests

European

EIOPA publishes monthly technical information for Solvency II risk-free interest rate term structures and the equity capital charge

On 6 October 2022, EIOPA published monthly technical information on the relevant risk free interest rate (RFR) term structures with reference to the end of September 2022. This technical information is used for the calculation of technical provisions for (re)insurance obligations. Upcoming publication dates in 2022 are set as: 7 November and 5 December.

EIOPA also published the technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of September 2022.

EIOPA issues warning to banks and insurers regarding credit protection insurance products

On 4 October 2022, EIOPA issued a warning to insurers and banks (acting as insurance distributors) to ensure that credit protection insurance (CPI) products offer fair value to consumers. The warning follows the conclusion of EIOPA’s thematic review (also published on 4 October 2022) on the functioning of the EU market for CPI products.

The thematic review identified the following key issues that could cause detriment to consumers:

  • limited choice and barriers to shopping around
  • high product diversity and price dispersion
  • issues with cancellation and switching providers
  • high remuneration and conflicts of interest

EIOPA expects all insurers and banks (acting as insurance distributors) to fully comply with the Insurance Distribution Directive and to take action to address issues with high remuneration and prevent detrimental conflicts of interest.

EIOPA and National Competent Authorities (NCAs) will prioritise monitoring of the European CPI market and exercise supervisory powers when needed.

EIOPA evaluates supervision the propriety of (re)insurers’ administrative, management and supervisory body members and qualifying shareholders

On 12 October 2022, EIOPA published a follow-up report to its 2019 peer review relating to the propriety assessment of the administrative, management or supervisory body (AMSB) members and qualifying shareholders across the European Economic Area.

The follow-up report sets out that while the development of supervisory practices is still in progress in a number of countries, the supervision of AMSB members’ and qualifying shareholders’ propriety assessment has improved during the last two years.

The follow-up report also notes that most of the best practices laid out in the 2019 peer review have already been adopted by NCAs.

EIOPA has encouraged NCAs which have not yet fully implemented the recommend actions to use the identified best practices as inspiration for the development of their national supervisory practices.

EIOPA issues its methodology for assessing value for money in the unit-linked market

On 31 October 2022, EIOPA published its methodology for assessing value for money in the unit-linked market.

The publication of the methodology follows EIOPA’s supervisory statement on value for money in November 2021, and is intended to ensure a consistent and convergent approach to its implementation.

The methodology sets out a procedure that will allow poor or no-value unit-linked products to be identified so that they can be monitored more closely by NCAs.

While the methodology is intended to primarily support NCAs, it also provides clarity to insurance distributors / manufacturers on the supervisory approach to addressing value for money risks.

The approach in the published methodology is divided into three layers:

  • Layer I – Market wide assessment
  • Layer II – Enhanced supervision
  • Layer III – Assessment of Product Oversight and Governance documents

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