EIOPA issues Brexit advice – some good news for UK insurers and intermediaries?

Recommendations issued on Tuesday by EIOPA emphasise the importance of safeguarding policyholders in the event of a “no deal” Brexit.  Encouragement given to EEA states to help UK insurers meet their obligations to EEA policyholders is particularly welcome.

In some areas, EIOPA has provided explicit guidance on the approach it expects individual states to take.  For example, it is clear (and unsurprising) that UK insurers should not be allowed to write new contracts in the EEA without authorisation. In other areas, EIOPA has taken a “softer” approach.  Examples include that regulators:

  • should apply “a legal framework or mechanism to facilitate the orderly run-off” of business which becomes unauthorised as a consequence of Brexit; and
  • should not prejudice policyholders who have “an option or right in an existing insurance contract to realise their pension benefits“.

Overall, EIOPA’s announcement attempts to strike an appropriate balance, reflecting the considerable lobbying efforts by UK and EU27 trade bodies.  Its acknowledgement of individual state discretion in a number of key areas does, however, still leave uncertainty for UK firms planning for 29 March 2019.  There is also nothing in EIOPA’s recommendations that could not have been said many months (or even years) ago.  It is a pity that politics have prevented earlier publication of these recommendations, leaving industry to spend many millions on unnecessary legal advice and other contingency planning.

EIOPA has given national regulators 2 months to say if they comply with each recommendation, or explain non-compliance.

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Further PRA reform of Solvency II implementation – internal models and reporting

This article was first published on Thomson Reuters Regulatory Intelligence on 17th January 2018.

On 12 December 2017, the PRA published the second in a series of three consultation papers on reforms to the Solvency II regime (CP27/17).  The PRA’s proposals are intended to reduce how often an insurer must apply for approval of changes to its internal model, specifically where approval is needed for an accumulation of minor changes. A process for quarterly model change reporting is also proposed.

The third, and final, consultation paper in the series (CP2/18) was published on 12 January 2018 and proposed some changes to reporting requirements.

CP21/17, the PRA’s first consultation paper in this series, concerns the matching adjustment and is open for comments until 31 January 2018 (see our blog entry of 17 November 2017).

Other aspects of Solvency II that the PRA has confirmed it is looking at are:

  • recalculation of the Transitional Measure on Technical Provisions – the PRA is looking at further simplification of the recalculation process; and
  • external audit of Solvency and Financial Condition Report – the PRA is gathering evidence on whether its approach remains proportionate, particularly for smaller firms.

Responses to CP27/17 and CP2/18 are required by 20 March 2018 and 13 April 2018 respectively. This article looks, in particular, at changes proposed by CP27/17[1].

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PRA proposes reforms to Solvency II regime

This article was first published on Thomson Reuters Regulatory Intelligence.

The PRA has published the first of three consultation papers (CP21/17) on reforming the Solvency II regime.

The consultation reflects PRA experience of working with Solvency II since its introduction in January 2016, while covering some of the improvements proposed by the ABI and discussed earlier this year with the House of Commons Treasury Committee.

This first consultation paper contains some new guidance from the PRA on firms’ use of the matching adjustment. It also consolidates earlier guidance, allowing firms to comment on the PRA’s approach for the first time. The PRA’s aim is not to change its existing guidance but to improve a firm’s chance of making a successful MA application. Continue reading

EXTENDING THE SENIOR MANAGERS AND CERTIFICATION REGIME TO INSURERS

The UK Senior Managers and Certification Regime (SMCR) is being extended to all financial services firms during 2018. PRA and FCA proposals applying to insurers build on the Senior Insurance Managers Regime (SIMR) although the transition to the SMCR is complicated by overlapping Solvency II requirements.

We have prepared a guide for insurers to the proposals set out in PRA CP14/7 and FCA CP17/26 (please click here for a copy).

Our experience of working with clients on the SMCR and the SIMR suggests that implementation projects should begin now rather than waiting for the outcome of the consultations.

PRA adopts questionable approach to regulatory compliance

Recent comments made by Sam Woods, CEO of the PRA, about the PRA’s approach to supervision are worrying.  A speech prepared for this year’s Building Societies Annual Conference (but not actually delivered) is relevant to all authorised firms, not just building societies.  Parts of the speech, which relate to Solvency II rules on contract boundaries, are specifically directed at insurers.

In summary:

  • The PRA argues that is not enough for firms to meet the requirements of the regulatory regime; they must also comply with the “spirit” of the rules.
  • The PRA will form its own judgement about what this means for firms, despite the UK’s obligations under EU law.
  • Mr Woods’ failure to acknowledge EU constraints on the content of the applicable rules, and therefore the PRA’s use of its supervisory powers, appears to confirm that the PRA is willing to “gold-plate” EU legislation despite saying on many occasions that it would not.

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PRA consults on amendments to the Senior Insurance Managers Regime (SIMR)

The PRA has published a consultation paper (CP8/17), which includes proposed amendments and optimisations to the Senior Insurance Managers Regime (SIMR).  It also includes a proposal to strengthen governance through requiring insurers to take steps to encourage board diversity.  This CP is relevant to all Solvency II insurance firms (i.e. UK Solvency II firms, the Society of Lloyd’s and Lloyd’s managing agents, and third country (re)insurance branches), and to large non-Directive firms (large NDFs).

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Treasury Committee inquiry into Solvency II – the case for change

The House of Commons Treasury Committee (“TC”) is looking at the case for changing, or even replacing, Solvency II in a post-Brexit world.  Its inquiry provides firms and industry bodies with perhaps their best opportunity to influence the future content of UK insurance regulation. The possible endorsement by the TC of views expressed by industry is likely to be particularly persuasive in future deliberations by the PRA.

This “at a glance” guide looks at demands for reform put by industry to the TC and at the PRA’s response to some of the questions being asked of it.

A guide to the Solvency II remuneration rules and final PRA guidelines

The PRA has issued its final supervisory statement(SS10/16) on the remuneration rules under Solvency II.

Because the Solvency II regime came into force on 1 January 2016, the PRA is clear that it expects firms to comply with the remuneration requirements in respect of the current financial year.  What is required of firms to ensure compliance will vary according to their PRA categorisation and specific circumstances.

This guide addresses the rules in detail.  Headline points include a requirement to implement a formal remuneration policy that is compliant with Solvency II. The policy must ensure that appropriate internal governance processes are in place and identify the senior staff and other risk takers who will constitute “Solvency II Staff”.  The rules which are potentially most onerous are the “Pay Out Process Rules”, requiring the deferral of variable remuneration (at a minimum of 40% for larger and more complex firms) and the operation of “malus” provisions.