The European Insurance and Occupational Pensions Authority (EIOPA) has published an opinion on supervisory convergence in light of the UK withdrawing from the EU.

The opinion aims to give guidance to Member States on the approach they should take to the authorisation and on-going supervision of insurers falling under the Solvency II framework.  EIOPA recognises that UK-established insurers who currently rely on the insurance passport to carry on business in other EEA states may seek to relocate to, or set up a new business in, the EEA in order to maintain access to the EU single market post-Brexit.  In doing so, the concern is that they will seek to obtain authorisation for a minimal presence in the relevant EEA jurisdiction, while outsourcing the vast majority of the business back to a UK-authorised vehicle.  EIOPA is trying to safeguard against this by advising Member States about their obligations as home state supervisor of an EEA insurance company.

The opinion discusses the following principles:

Authorisations and approvals

EIOPA calls upon supervisors to ensure a sound authorisation process, supported by adequate resources in order to deal with the increased amount of requests for authorisation within a short period of time. The supervisors should apply a prospective and risk-based assessment of the authorisation taking into account the undertaking’s business model.

Governance and risk management

The supervisor should scrutinise whether governance arrangements in the undertaking seeking authorisation ensure effective decision-taking and risk management in the Member State of authorisation and allow for proper supervision. EIOPA expects undertakings to show an appropriate level of corporate substance and not display characteristics of an empty shell. The supervisors should carefully scrutinise any transfer of risks and require a minimum retention of risks from the authorised undertaking.

Outsourcing of critical and important activities

EIOPA states that outsourcing of critical and important functions or activities is permitted for EU undertakings or branches provided that the administrative, management or supervisory body remains fully responsible for the outsourced activity.  The outsourcing must not impair the quality of governance, unduly increase operational risk, impair the ability of supervisors to monitor compliance or undermine continuous and satisfactory service to policyholders.

On-going supervision

Supervisors should have in place the appropriate monitoring tools to assess existing and arising risks and have access to the relevant information, also in the case of activities outsourced by the undertaking. EIOPA focuses on supervisory authorities ensuring that initial conditions are set, and that these conditions are met on a continuous basis.

Monitoring by EIOPA

EIOPA advises supervisors to install appropriate monitoring tools to assess existing and arising risks and to conduct specific supervisory review in the course of the first years following authorisation to ensure the consistency with the initial business model.

The full opinion can be found here.