Irish Region

On 27 September 2019, the Central Bank of Ireland (the CBI) published its Insurance Quarterly Newsletter (the Newsletter) for Q3 2019.

Conditions of Authorisation

The Newsletter's lead article focuses on the revised Conditions of Authorisation under Solvency II and in particular the condition that requires (re)insurance undertakings to:

‘notify the Central Bank of Ireland, in advance, of any material change in the Firm’s business (including but not limited to, the introduction of a new product, transacting business in a new territory and changes to reinsurance and/or retrocession arrangements).’

The CBI states that it has become aware of an unspecified number of failures to comply with the terms of this condition, and goes on to clarify some of its expectations in this regard.

In particular, the CBI:

• considers that any material change in the nature of a product range, such as the introduction of a guarantee, is within the scope of the notification requirement;
• expects (re)insurance undertakings to have a formal process in their governance framework, whereby the board of directors would consider the obligation to notify the CBI in advance of any alteration to the business plan of the undertaking; and;
• expects that any new product must be subject to the undertaking's product approval process prior to launch, which should include an assessment as to whether an ad hoc ORSA submission is required.

Insurance and reinsurance undertakings will need to carefully note these expectations from the Central Bank and consider whether their existing governance frameworks should be updated to fully reflect them.

Insurance and climate change

Triggered in part by the Irish Government's declaration of a ‘climate emergency’ in May of this year, the Newsletter includes an article highlighting the material exposure of the insurance industry to climate risks. The CBI comments on the role that the industry may play in shaping the wider response to climate change risks, including the risks that might arise from a disorderly transition to a low carbon economy.

The key message of the CBI is that it intends in the coming months to engage more intensively in relation to climate change and emerging risks more broadly. This engagement is to include listening to the views of the insurance industry, and potentially seeking further information to ‘bridge gaps in critical data’. The CBI's increased expectations in the area of climate change are clearly flagged in the following extract from the Newsletter:

‘Where an undertaking has a material exposure to climate related risks, we will expect to see evidence of robust analysis and discussion within the ORSA report. The ultimate aim should be to enable discussion, challenge, and decision making in relation to climate related risks, at board level’.

The boards of directors and the risk management functions of (re)insurance undertakings will need to take the CBI's views fully into account in preparing and executing their next ORSA process and report, not least in ensuring that a material discussion of climate-related risks takes place at board level.

New reporting requirement for direct non-life insurance business

The Newsletter confirms the introduction of the new NST.14 reporting template, the purpose of which is to allow the CBI to more effectively direct its supervisory efforts to markets and products which merit their attention, particularly for undertakings operating in the cross-border insurance market. This reporting will involve data related to the number of contracts written, for each type of policy, for the main countries in which an undertaking writes direct non-life business. Business written on a reinsurance basis does not need to be reported in NST.14. The first submission of NST.14 will take place as at 30 September 2019 (for undertakings with a 31 December financial year-end), and will subsequently be required twice yearly, as part of the Q2 and Q4 NST submissions.

Brexit

This Newsletter article recaps on the arrangements that have been put in place to manage the situation both in Ireland and in the UK in the event of a ‘no-deal’ Brexit, including the Irish temporary run-off regime (read here for further details), the UK's Temporary Permissions Regime and the UK's Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019.

The CBI also advises that it has placed increased focus on monitoring financial and operational resilience at a sector and firm level, and that final arrangements are also being made to govern supervisory cooperation post Brexit, though it does not go into any detail on this latter point. The CBI further stresses its expectation that firms should be in ‘final preparation mode’, and that firms should have considered all the impacts that Brexit could have on their businesses and have developed and fully tested their contingency plans.

Other updates

The Newsletter highlights the recently published ‘Anti Money Laundering and Countering the Financing of Terrorism Guidelines for the Financial Sector’ (read here for further details), the ‘Q2 2019 Insurance Corporations Statistics’ and the appointment of Domhnall Cullinan as Director of Insurance Supervision with effect from 1 September 2019, as well as providing updates on a number of developments at EIOPA level, including:

• 2020 Review of Solvency II
• Sustainable finance activities
• Regulation for a pan-European Personal Pension Product
• Report on ‘Cyber Risk for Insurers – Challenges and Opportunities’
• Establishment of the Consultative Expert Group on Digital Ethics