01/05/2014

Irish Insurance Law Update 1 May 2014 - BILA – London

John Larkin Partner William Fry

Agenda 1. A profile of the market 2. A profile of the Regulator/ Regulatory Approach 3. Some topical developments relevant to the Insurance Industry 4. The Central Bank Reform Act 2010 5. The Central Bank (Supervision & Enforcement) Act 2013 6. Solvency II Developments

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A profile of the market

Some Insurance Statistics • Life Gross Premium Income

€8,150m

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• Non-Life Gross Premium Income

€2,433m

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• Total Value of Life and Non-Life Assets

€85bn 1

• Premium Income as a % of GDP

6.5%

• Employment in Both Life and Non-Life Insurance Sector Totalled

14,000

• Number of Regulated Insurance and Reinsurance Companies

284

1 Source: 2 Source:

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2

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CBI Insurance Statistics 2012 and Insurance Ireland Fact File 2012: all figures as at 31 December 2012 Insurance Ireland / PWC Report: Creating the future for Insurance in Ireland (published April 2014)

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Domestic Market (Illustrative) Life

Non-Life

Aviva Life & Pensions (branch)

AIG (branch)

Equitable (branch)

Allianz (head office)

Friends First (head office)

Aviva (branch)

Irish Life (head office)

AXA (head office)

New Ireland (BoI) (head office)

FBD (head office)

Standard Life (branch)

Liberty (head office)

Zurich (head office)

RSA (head office) Zurich (head office)

International Market (including Reinsurance) (Illustrative) Life

Non-Life

Allianz Global Life (head office)

ACE Bermuda International (head office)

Aegon Ireland (head office)

Allied World (head office)

AXA Life Europe (head office)

AXIS Speciality Europe (head office)

Legal & General International (head office)

Ironshore Europe (head office)

MetLife (head office)

Markel International (head office)

Prudential International (head office)

Partner Re (head office)

Santander Insurance Life (head office)

Renaissance Re (head office)

SEB Life (head office)

XL Insurance (branch) Zurich Insurance Plc (head office)

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Captive Market  Ireland is a major centre for captives - 140+ (re)insurance captives in Dublin  Proportionate regulatory regime for captives  Authorisation process takes between 4 to 6 months  Tailored corporate governance code for captives  Solvency Margin 125% for captives writing classes 8, 9 and 16 150% for all other classes

A profile of the Regulator/ Regulatory Approach

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Overview  The Central Bank of Ireland (CBI) is the single regulatory authority for financial services in Ireland  Has undergone a major overhaul since the financial crisis  Greater powers of supervision, intervention and enforcement; also consumer protection  Matthew Elderfield resigned in late 2013 and was succeeded by Cyril Roux (recruited from the ACP in France)  Head of Insurance?  CBI is broadly in alignment with EIOPA on matters of policy  Also similarity in approach to PRA/ FCA

Organisation of the Central Bank

Central Bank Commission

Governor Patrick Honohan

Deputy Governor Central Banking Stefan Gerlach

Credit Institutions Sharon Donnery

Chief Operations Officer Gerry Quinn

Insurance Supervision Patrick Brady (interim)

Deputy Governor Financial Regulation Cyril Roux

Markets Gareth Murphy

Policy & Risk Patrick Brady

Consumer Protection Bernard Sheridan

Enforcement Derville Rowland

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Central Bank’s Regulatory Approach

Cyril Roux speech of 4 December 2013: “our mandate is to protect the interests of your customers by ensuring…..that firms are run in a responsible manner by competent people who are fit and proper…..do not take undue risks with their customers funds….know, mitigate and reserve appropriately for ….. risks that they do take…..have sufficient capital and appropriate funding structure…..not least, appropriate governance structure”

PRISM  The Probability Risk and Impact SysteMTM (PRISMTM) is the CBI’s risk-based framework for the supervision of regulated firms  Under PRISMTM, the most significant firms - those with the ability to have the greatest impact on financial stability and the consumer receive the highest level of supervision  Five categories – Ultra-high, High, Medium-high, Medium-low or Low  Firms which have the lowest potential adverse impact are supervised reactively or through thematic assessments

 Supplemented by increased use of enforcement action, particularly for companies with a low impact PRISM rating

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Irish Regulatory Regime Insurance Act 1909 Insurance Act 1936 Central Bank Acts 1942 to 2013

Companies Acts 1963-2012

Insurance Act 1989 Insurance Act 2000

Non-Life EC (Non-Life Insurance) Framework Regulations 1994

Non Life EC (Insurance Undertakings) Accounts Regulations 1994

Life EC (Life Insurance) Framework Regulations 1994

Reinsurance EC (Reinsurance) Regulations 2006

Some topical developments relevant to the Insurance Industry

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Some topical developments relevant to the Insurance Industry  Insurance Ireland Report  Collapse of Setanta Insurance  CP73 (Reserving and Pricing for Non-Life Carriers)  Revised Corporate Governance Code  CBI’s Enforcement Priorities for 2014  NAIC Qualified Jurisdictions  CP79 Handling of Protected Disclosures

Insurance Ireland Report  “Creating the Future for Insurance in Ireland” launched on 9 April  A roadmap for development of the Irish insurance industry  Covers non-life, life, healthcare and pensions  In keeping with Government strategy to develop jobs in the financial services industry (target of 3,000 new jobs over 5 years)  “Top 10” List of Action Points proposed  Focus on collaboration with IT sector  Charter for Irish Consumers proposed

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Collapse of Setanta Insurance  Setanta Insurance is a Maltese insurance company regulated by the MFSA  It carried on business in Ireland writing mainly motor insurance  Setanta is in liquidation (creditors voluntary winding up) and may not be able to meet all policy claims  Existing policies will be cancelled and policyholders will have to arrange alternative cover  Irish Insurance Compensation Fund will pay claims, but:  only in respect of Irish risks  65% of the sum due or €825,000 whichever is lesser  commercial policyholders may not be paid unless the sum is due in respect of a liability to an individual

CP73: Consultation on Requirements for Reserving and Pricing for Non-Life Insurers and Reinsurers 

Consultation paper describing CBI’s proposals to “improve” the existing SAO regime and the governance around it - launched in September 2013

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Expected to also clarify the roles and responsibilities of the Board and the signing actuary (raises the bar for both)

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Signing actuary to become a “Pre-Approval Control Function”

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Peer Review proposed – high impact companies - every 2nd year; medium impact - every 3rd year and medium-low - every 5 years

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Internal audit to review process around the preparation and submission of data – internal audit assessment to be conducted at the same frequency as peer reviews

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Some concern expressed about introducing new requirements during the transition to SII [comply or explain?]

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Revised Corporate Governance Code  Existing Corporate Governance Code was introduced in 2010; the revised Code will come into effect from January 2015  Main changes are:  Companies must appoint a CRO; in some cases it may be a shared function  New rules govern the structure and operation of the risk and audit Committees; risk must now have a majority of non-executives; audit must have a majority of INEDs  More flexibility around number and frequency of board meetings  More flexibility for CEO’s of medium-low or low impact institutions to hold other positions  Chairman can also chair other companies within the group  Requirement for diversity policy for board membership

CBI’s Enforcement Priorities for 2014

 CBI has a dedicated Enforcement Directorate headed by Derville Rowland  In 2013, CBI entered into 16 enforcement settlements with fines totalling €6,348,215 being imposed  Enforcement priorities for 2014 relevant to the insurance industry are:  prudential requirements  systems & controls  fitness & probity compliance  AML & ATF compliance

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NAIC Qualified Jurisdictions

 2011 amendments to the NAIC: “Credit for reinsurance” model laws allowed for certain jurisdictions to be “qualified”  Currently reinsurers in the United Kingdom, Germany, Switzerland and Bermuda (Qualified Jurisdictions) have more favourable collateral requirements when writing business into the US  Ireland (and France) are in the next wave of qualified jurisdictions and are currently undergoing an evaluation  Once the evaluation is concluded, Irish reinsurers will also benefit from more favourable collateral rules

CP79: Handling of Protected Disclosures  Part 5 of the Central Bank (Supervision and Enforcement) Act 2013 introduces new whistleblowing rules  There is mandatory reporting by relevant directors and senior management in regulated financial service providers

 CBI is “seeking to create an environment and structure that encourages those persons with relevant information to come forward with information to the Central Bank”  Consultation process closed in mid-June  This will be a major cultural change for the financial services industry

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The Central Bank Reform Act 2010

Central Bank Reform Act 2010

 Abolished the Irish Financial Services Regulatory Authority (“IFSRA”) and merged it into the Central Bank of Ireland (“CBI”) to create a single fully integrated regulator

 Provided the legislative framework for the fitness and probity regime  Control functions  Pre-approval Control functions  Removal of role for promotion

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The Central Bank (Supervision & Enforcement) Act 2013

Central Bank (Supervision & Enforcement) Act 2013  Section 44 creates a statutory right for a customer to sue for losses caused by the failure of an entity to comply with its financial services obligations  Gives CBI broad powers to direct entities to take or refrain from taking certain actions  Gives CBI broad powers to make regulations  Increase of fines: • for corporates from €5 million to €10 million or 10% of turnover • for individuals from €500,000 to €1 million  Companies can be compelled to make restitution for overcharging etc.

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Central Bank (Supervision & Enforcement) Act 2013  Skilled Persons Report (Section 166 reports in the UK) seems to be more protection for the regulated entity under the Irish equivalent  Protection of Whistle-blowers: the 2013 Act provides for the making of “protected disclosures”. PCFs obliged to whistle-blow  Authorised Officers: consolidation of authorised officer regimes under one piece of legislation. Authorised officers have the ability to:  Seek warrants;  Request production of records;  Inspect records;  Require a person to provide requested information; and  Require a person to answer questions put to them.  Auditor Assurance: CBI may request an auditor to conduct an examination and provide a statement to the CBI on the entities’ compliance with financial services legislation

Solvency II Developments

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Solvency II – Specific Developments  Solvency II

Implementation date 1 January 2016

 EIOPA interim guidelines  CBI Response Produced Guidelines on Preparing for Solvency II:  System of Governance  Forward Looking Assessment of Own Risks  Submission of Information  Pre-application for Internal Models  Companies will be monitored on ongoing SII compliance (soft regulation)

Questions & Answers

John Larkin Partner D: + 353 1 498 6224 E: [email protected]

8396267-v2

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