## _cr15117

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---

### Executive summary — sector overview and risks
- Irish insurance sector comprises both the domestic industry and a large international market and is highly concentrated; the majority of Irish (re)insurers are part of large international groups/conglomerates.
- Total number of insurers declined from 307 in 2009 to 234 at end-June 2014.
- Total assets held by Irish (re)insurers increased from €139.5 billion in 2008 to €210.7 billion at end-2013.
- Market concentration:
  - The top five life insurers accounted for 91 percent of Irish risks.
  - The largest non-life insurers had a market share of 57 percent in terms of gross written premiums.
  - The top ten reinsurers accounted for 75 percent of premiums written in Ireland in 2012.
- Product and market composition:
  - Life insurers in the Irish international market mainly offer variable annuities (VA) and Italian focused unit-linked policies (ULPs).
  - Captive reinsurers and reinsurers have a significant presence.
  - A significant proportion of the non-life sector is foreign-risk focused.
- Key risk drivers:
  - The prolonged low interest rate environment is a significant risk for international insurers writing VA business due to built-in guarantees.
  - Domestic life insurers are relatively insulated from interest rate/market risks because ULPs shift investment risk to policyholders.
  - Intense market competition in non-life has led to reliance on investment returns, which have been under pressure.
  - Irish reinsurers pose limited domestic financial stability impact but must manage potential global systemic implications and global operating challenges.

### Institutional framework and supervisory setting
- Central Bank of Ireland (CBI) is the integrated financial supervisor, established under the Central Bank Act of 1942 and re-structured under the Central Bank Reform Act of 2010 (CBRA).
- CBI responsibilities:
  - Overall supervision of insurers and insurance intermediaries authorized in Ireland.
  - Oversight of conduct of business (CoB) of insurers authorized in other EU member states providing services in Ireland on a FOS or FOE basis.
- CBI governance and accountability:
  - CBI is accountable to the Minister of Finance; the Minister is the sole subscriber to and holder of CBI’s capital and appoints the majority of CBI Commission members.
  - The Minister may request the Governor to consult on CBI functions (except ESCB functions) and CBI must consult the Minister before making regulations, including those prescribing the levy to be paid by RFSPs.
  - The Governor or Deputy Governors must appear before Joint Committees of the Oireachtas, upon request, subject to Maastricht Treaty and confidentiality provisions.

### Supervisory capacity, independence issues and recommendations
- Observed constraints:
  - High turnover rates for insurance supervisors in CBI, largely due to remuneration unattractive compared with the market and constraints under the Financial Emergency Measures in the Public Interest Acts of 2009 and 2013 (FEMPI Acts), which are expected to end in 2016.
  - No evidence of political and commercial interference over CBI’s operational autonomy, but governance arrangements may introduce political considerations that could affect independence.
- Suggested statutory independence enhancements:
  - Reconsider the composition of the Commission.
  - Reconsider the role of the Minister in approving the appointment of the Deputy Governors.
  - Remove or provide more clarity on the general ground for the dismissal of a Commissioner.
  - Introduce a legal obligation on public disclosure of the reasons for removal of a Governor or Commissioners.
  - Review the Minister’s statutory power relating to CBI’s regulatory functions, including the extent of consultation for rule-making and approval for industry levy structure.
- Resource and capacity emphasis:
  - Effective supervision depends on adequate supervisory resources of the right caliber; critical that CBI builds on current technical capacity and continues the enhanced supervisory approach introduced in 2011.

### PRISM and supervisory approach — observations and recommendations
- PRISM (Probability Risk and Impact Supervisory System) introduced in 2011 has significantly improved supervision of insurers with High/Medium High impact ratings.
- PRISM features:
  - Systematic and structured supervisory process with minimum supervisory engagements driven by insurer impact ratings.
  - Ultra-High/High-rated insurers receive the highest level of supervision under structured engagement plans.
  - Low-rated insurers are supervised reactively; targeted enforcement action is taken across all impact categories where material breaches or significant concerns are found.
- Recommendations regarding PRISM and supervisory risk appetite:
  - Review the supervisory risk appetite underpinning PRISM, including potential reputational risks.
  - Ensure PRISM’s objectives sufficiently protect policyholders and beneficiaries.
  - Consider more proportionate and timely risk assessment of insurers according to their risk profiles to enhance incentives for improving governance and risk management.
  - Introduce proportionate independent supervisory verification of regulatory returns for Low-rated insurers/intermediaries to improve reliance on those returns.
  - Update PRISM to incorporate appropriate risk-based supervision for insurance groups.
  - Review adequacy of supervisory resources to support a more proportionate supervisory program and effective supervision of insurance groups.

### Solvency II implementation, regulatory gaps and expected impacts
- CBI progress:
  - CBI has made significant progress in updating the regulatory regime; the Central Bank Supervision and Enforcement Act of 2013 (CBSEA) enhanced supervision and enforcement powers.
  - CBI’s preparations for Solvency II (SII) are well advanced; a dedicated SII project has been in place since 2010.
- Recent regulatory developments in place:
  - Fitness and propriety regime.
  - Corporate governance (CG) codes.
  - Consumer Protection Code (CP Code).
  - Minimum Competency Code (MC Code).
  - Guidelines on Preparing for Solvency II – System of Governance.
  - Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers (effective for financial years ending on or after December 31, 2014).
  - Guidelines on the Reinsurance Cover of Primary Insurers and the Security of their Reinsurers.
- Expected SII impacts:
  - Address most regulatory gaps noted in the assessment in the areas of risk management and enterprise risk management (ERM), valuation, capital adequacy and group supervision.
  - Significantly enhance regulatory reporting at both entity and group levels.
- Remaining enhancements needed (selected):
  - Prudential requirements: notification of material changes in suitability of PCFs and Significant Owners; directors’ duty to act in best interests of insurer and policyholders; cedant liquidity control; reinsurance contract certainty; policy for complex/less transparent investments.
  - Conduct of Business: consider interests of different customer types in product development/marketing; requirements on policy replacement; insurers to communicate claim procedures; group-level market conduct requirements.
  - AML-CFT regime: CBI to issue enforceable rules consistent with the FATF Recommendations; establish guidelines and risk-based AML-CFT inspections.
  - Macro-prudential surveillance: contingency plans for going- and gone-concern situations; review practical barriers to efficient and internationally coordinated resolutions and collaboration with relevant supervisors.
- Going forward, effective implementation of SII and group-wide supervision, supported by a more proportionate supervisory approach under PRISM, hinges on the adequacy and quality of CBI supervisory resources.

### Market structure and selected statistics
- Number of insurers as at end-June 2014:
  - Life: 53
  - Non-life: 104
  - Reinsurance: 77
  - Total: 234
  - Foreign branches: 36
  - Irish branches abroad: 82
- Captives:
  - Non-life captives: 55
  - Reinsurance captives: 30
  - Total captives: 85
- Number of employees as at end-2013:
  - Life: 3,252
  - Non-life: 5,267
  - Reinsurance: 368
  - Total: 8,887
- Total assets end-2013 (€ bn):
  - Life: 178.9
  - Non-life: 32.2
  - Reinsurance: 41.2
  - Total: 252.4
- Additional notes:
  - Ireland has the second-highest number of reinsurers in Europe and the asset size of the Irish reinsurance industry represents over 30 percent of GDP.
  - The insurance sector is served by 2,979 insurance and reinsurance intermediaries as of September 8, 2014; in aggregate CBI supervises 3,238 retail intermediaries (this excludes certain RFSPs). Total retail intermediaries number 3,552.

### Domestic market developments, product risks and non-life sector performance
- Life market:
  - Major life products: term and mortgage protection products, pension products, and ULPs.
  - Only one insurer has a legacy participating policy portfolio.
  - Premium income increased by 7 percent in 2013, although this was 45 percent below its peak value in 2007.
  - Growth in 2013 was driven by the changing pension landscape; defined benefit schemes engaged in derisking through purchase of bulk annuities.
  - Lapse rates spiked during the downturn, then fell and stabilized, albeit at a level higher than seen pre-crisis.
- Risks from low interest rates and product concentration:
  - Prolonged low interest rates are significant for international VA business with built-in guarantees.
  - International life market concentrated in VA products, Italian-focused ULPs, captive and reinsurance businesses.
  - VA portfolio (primarily foreign-risk business) exposed to interest rate risk; insurers typically use reinsurance or hedging.
  - Domestic life insurers relatively insulated due to unit-linked product prominence.
- Non-life sector:
  - Non-life insurers particularly reliant on investment returns due to intense market competition; investment returns under pressure.
  - Non-life premiums from foreign risk business increased since 2008; premiums from Irish risks declined for six consecutive years.
  - In 2013, gross written premiums by line:
    - Property insurance: €4,446 million (30 percent of the total €14,899 million)
    - Motor insurance: 25 percent
    - Liability insurance: 21 percent
  - From 2010 to 2013, 72 percent of profits before tax of the Irish non-life insurance sector have been accounted for by investment income and gains and only 28 percent from underwriting income.
  - Market remains very competitive despite some increases in premium pricing.

### Reinsurance, global implications and macroprudential observations
- Irish reinsurers:
  - Pose limited risks to domestic financial stability but have implications for global markets.
  - Bulk of business relates to foreign risk; some Irish reinsurers are part of groups identified as Globally Systemically Important Insurers (G-SIIs).
  - International operations face global challenges: low interest rates, price/rate reductions, excess capacity and greater retention rates by primary insurers.
- Macroprudential surveillance:
  - Not all sources of risk information available to CBI were shown to feed into an integrated CBI ERM process to support coordinated prudential and market conduct strategies.

### ICP-based supervisory findings (selected gaps and recommendations)
- ICP 1: Consider establishing explicit objectives for supervision of insurance groups in primary legislation.
- ICP 2: Enhance CBI’s statutory independence; address staff attraction/retention and remuneration; exempt CBI from FEMPI Acts; enhance data protection governance.
- ICP 5: Extend the F&P regime to include Significant Owners; require notification to CBI of circumstances materially affecting suitability of PCFs and Significant Owners.
- ICP 7: Secure powers to supervise corporate governance at group level; review checklist approach for Low impact (re)insurers; explicitly state directors’ duty to act in best interests of insurer and policyholders; define CBI’s role regarding with-profits customers.
- ICP 8: Establish supervisory expectations for PCFs at group level; clarify actuarial function expectations.
- ICP 9: Review PRISM’s one-size-fits-all reactive approach for Low impact (re)insurers; update PRISM for group supervision; require reporting of off-balance sheet exposures, material outsourcing, and material incidents; regularly review supervisory resource adequacy.
- ICP 10: Seek legislative amendments to enhance sanctions for unauthorized insurance activities.
- ICP 11: Regularly review enforcement resources to support credible enforcement threat.
- ICP 13: Establish enforceable reinsurance requirements; require cedant liquidity control and timely reinsurance documentation; extend reinsurance requirements to group level.
- ICP 14: Valuation shortcomings expected to be addressed by SII from January 1, 2016.
- ICP 15: Develop explicit investment requirements at insurer and group level.
- ICP 16: Establish ERM requirements at group level; enhance CG Code to reflect SII CG Guidelines and introduce risk tolerance limits.
- ICP 17: In preparation for SII, develop capital adequacy processes/tools, establish group-level capital adequacy requirements, and build expertise to approve/monitor internal models.
- ICP 19: Establish group-wide market conduct requirements; require insurers to consider interests of different customer types in product development; provide guidance on policy replacement and claims procedures; refine CoB regulatory returns and data protection guidance.
- ICP 20: Engage with insurers and audit firms to improve public disclosures to be more meaningful and useful.
- ICP 22: Empower CBI to issue enforceable AML/CFT rules consistent with FATF Recommendations; review AML-CFT inspection approach for retail intermediaries; periodically analyze ML/TF risks of non-life sector and reconsider applicability of AML-CFT regime to non-life.
- ICP 23–26: SII will strengthen group supervision; establish contingency plan/testing requirements for High/Ultra-High (re)insurers/groups and review barriers to coordinated resolution.

*Source: IMF assessment based on laws, regulations and supervisory practices in place at the time of the assessment (visit November 18 to December 5, 2014).*

### EXECUTIVE SUMMARY ___________________________________________________________________________  5

### _cr15117 - EXECUTIVE SUMMARY

### Executive summary — sector overview and risks
- The Irish insurance sector comprises both the domestic industry and a large international market and is highly concentrated; the majority of Irish (re)insurers are part of large international groups/conglomerates.
- Total number of insurers declined from 307 in 2009 to 234 at end-June 2014.
- Total assets held by Irish (re)insurers increased from €139.5 billion in 2008 to €210.7 billion at end-2013.
- Market concentration:
  - The top five life insurers accounted for 91 percent of Irish risks.
  - The largest non-life insurers had a market share of 57 percent in terms of gross written premiums.
  - The top ten reinsurers accounted for 75 percent of premiums written in Ireland in 2012.
- Product and market composition:
  - Life insurers in the Irish international market mainly offer variable annuities (VA) and Italian focused unit-linked policies (ULPs).
  - Captive reinsurers and reinsurers have a significant presence.
  - A significant proportion of the non-life sector is foreign-risk focused.
- Key risk drivers:
  - The prolonged low interest rate environment is a significant risk for international insurers writing VA business due to built-in guarantees.
  - Domestic life insurers are relatively insulated from interest rate/market risks because ULPs shift investment risk to policyholders.
  - Intense market competition in non-life has led to reliance on investment returns, which have been under pressure.
  - Irish reinsurers pose limited domestic financial stability impact but must manage potential global systemic implications and global operating challenges.

### Institutional framework and supervisory setting
- Central Bank of Ireland (CBI) is the integrated financial supervisor, established under the Central Bank Act of 1942 and re-structured under the Central Bank Reform Act of 2010 (CBRA).
- CBI responsibilities:
  - Overall supervision of insurers and insurance intermediaries authorized in Ireland.
  - Oversight of conduct of business (CoB) of insurers authorized in other EU member states providing services in Ireland on a FOS or FOE basis.
- CBI governance and accountability:
  - CBI is accountable to the Minister of Finance; the Minister is the sole subscriber to and holder of CBI’s capital and appoints the majority of CBI Commission members.
  - The Minister may request the Governor to consult on CBI functions (except ESCB functions) and CBI must consult the Minister before making regulations, including those prescribing the levy to be paid by RFSPs.
  - The Governor or Deputy Governors must appear before Joint Committees of the Oireachtas, upon request, subject to Maastricht Treaty and confidentiality provisions.

### Supervisory capacity and independence issues
- High turnover rates for insurance supervisors in CBI, largely due to remuneration that is unattractive compared with the market and constraints imposed under the Financial Emergency Measures in the Public Interest Acts of 2009 and 2013 (FEMPI Acts), which are expected to end in 2016.
- No evidence of political and commercial interference over CBI’s operational autonomy, but governance arrangements may introduce political considerations that could affect independence.
- Suggested enhancements to CBI’s statutory independence:
  - Reconsider the composition of the Commission.
  - Reconsider the role of the Minister in approving the appointment of the Deputy Governors.
  - Remove or provide more clarity on the general ground for the dismissal of a Commissioner.
  - Introduce a legal obligation on public disclosure of the reasons for removal of a Governor or Commissioners.
  - Review the Minister’s statutory power relating to CBI’s regulatory functions, including the extent of consultation for rule-making and approval for industry levy structure.
- Effective supervision depends on adequate supervisory resources of the right caliber; critical that CBI builds on current technical capacity and continues the enhanced supervisory approach introduced in 2011.

### PRISM and supervisory approach
- The Probability Risk and Impact Supervisory System (PRISM) introduced in 2011 has significantly improved supervision of insurers with High/Medium High impact ratings.
- PRISM features:
  - Systematic and structured supervisory process with minimum supervisory engagements driven by insurer impact ratings.
  - Ultra-High/High-rated insurers receive the highest level of supervision under structured engagement plans.
  - Low-rated insurers are supervised reactively; targeted enforcement action is taken across all impact categories where material breaches or significant concerns are found.
- Recommendations regarding PRISM and supervisory risk appetite:
  - Review the supervisory risk appetite underpinning PRISM, including potential reputational risks.
  - Ensure PRISM’s objectives sufficiently protect policyholders and beneficiaries.
  - Consider more proportionate and timely risk assessment of insurers according to their risk profiles to enhance incentives for improving governance and risk management.
  - Introduce proportionate independent supervisory verification of regulatory returns for Low-rated insurers/intermediaries to improve reliance on those returns.
  - Update PRISM to incorporate appropriate risk-based supervision for insurance groups.
  - Review adequacy of supervisory resources to support a more proportionate supervisory program and effective supervision of insurance groups.

### Regulatory regime, Solvency II implementation, and gaps
- CBI has made significant progress in updating the regulatory regime; the Central Bank Supervision and Enforcement Act of 2013 (CBSEA) enhanced supervision and enforcement powers.
- CBI’s preparations for Solvency II (SII) are well advanced; a dedicated SII project has been in place since 2010.
- Recent regulatory developments in place:
  - Fitness and propriety regime.
  - Corporate governance (CG) codes.
  - Consumer Protection Code (CP Code).
  - Minimum Competency Code (MC Code).
  - Guidelines on Preparing for Solvency II – System of Governance.
  - Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers (effective for financial years ending on or after December 31, 2014).
  - Guidelines on the Reinsurance Cover of Primary Insurers and the Security of their Reinsurers.
- Expected SII impacts:
  - Address most regulatory gaps noted in the assessment in the areas of risk management and enterprise risk management (ERM), valuation, capital adequacy and group supervision.
  - Significantly enhance regulatory reporting at both entity and group levels.
- Noted remaining enhancements needed in regulatory and supervisory practice:
  - Prudential requirements:
    - Insurers to notify CBI of material changes in the suitability of persons appointed to pre-approval control functions (PCFs) and Significant Owners.
    - Directors to act in the best interests of the insurer and policyholders.
    - Cedants to control their liquidity position arising from reinsurance.
    - Reinsurance contract certainty.
    - Policy for more complex and less transparent classes of investments.
  - Conduct of Business (CoB) requirements:
    - Insurers to take into account the interests of different types of customers in developing and marketing insurance products.
    - Requirements on policy replacement.
    - Insurers to communicate claim procedures to policyholders/claimants.
    - Market conduct requirements at the group level.
  - AML-CFT regime:
    - CBI to issue enforceable rules on AML/CFT obligations consistent with the FATF Recommendations.
    - Establish guidelines to facilitate compliance by insurers and intermediaries, supported by appropriate risk-based AML-CFT inspections.
  - Macro-prudential surveillance framework:
    - Requirements for insurers/groups to maintain and test contingency plans and procedures for use in going- and gone-concern situations.
    - Regular reviews of practical barriers to efficient and internationally coordinated resolutions and collaboration with relevant supervisors to resolve these issues.
- Going forward, effective implementation of SII and group-wide supervision, supported by a more proportionate supervisory approach under PRISM, hinges on the adequacy and quality of CBI supervisory resources.

### Market structure and statistics (selected)
- Number of insurers as at end-June 2014:
  - Life: 53
  - Non-life: 104
  - Reinsurance: 77
  - Total: 234
  - Foreign branches: 36
  - Irish branches abroad: 82
- Captives:
  - Non-life captives: 55
  - Reinsurance captives: 30
  - Total captives: 85
- Number of employees as at end-2013:
  - Life: 3,252
  - Non-life: 5,267
  - Reinsurance: 368
  - Total: 8,887
- Total assets end-2013 (€ bn):
  - Life: 178.9
  - Non-life: 32.2
  - Reinsurance: 41.2
  - Total: 252.4
- Additional statistics and notes:
  - Ireland has the second-highest number of reinsurers in Europe and the asset size of the Irish reinsurance industry represents over 30 percent of GDP.
  - The insurance sector is served by 2,979 insurance and reinsurance intermediaries as of September 8, 2014; in aggregate CBI supervises 3,238 retail intermediaries (this excludes certain RFSPs). Total retail intermediaries number 3,552.

*Source: IMF assessment based on laws, regulations and supervisory practices in place at the time of the assessment (visit November 18 to December 5, 2014).*

### 7. While the domestic life market stabilized in 2013, weak economic conditions

### 7. While the domestic life market stabilized in 2013, weak economic conditions

### Market structure and recent developments
- Major life products: term and mortgage protection products, pension products, and ULPs.
- Only one insurer has a legacy participating policy portfolio.
- Premium income increased by 7 percent in 2013, although this was 45 percent below its peak value in 2007.
- Growth in 2013 was driven by the changing pension landscape.
- Defined benefit schemes engaged in derisking through the purchase of bulk annuities from insurers due to challenges in meeting future funding commitments.
- Lapse rates of life policies spiked during the downturn, then fell and stabilized, albeit at a level higher than seen pre-crisis.
- Footnote definition: "A policy lapses when the premiums are not paid within the required period of grace and the policy has no cash value. The early surrender of policies impacts negatively on profitability and detrimental to policyholders’ interests as the bulk of their first years premiums would have been allocated to policy commissions."

### Risks from low interest rates and product concentration
- The prolonged low interest rate environment is a significant risk for international insurers writing VA business.
- The international market is concentrated in VA products, Italian focused ULPs, captive and reinsurance businesses.
- The majority of international life insurance business is investment driven with relatively limited mortality cover.
- VA portfolio (primarily foreign-risk business) is exposed to interest rate risk as the products are designed with built-in guarantees.
- Insurers typically use reinsurance or hedge their risk exposure from VA policies.
- Domestic life insurers are somewhat insulated from interest rate/market risks because their dominant line of business is unit-linked products, where policyholders assume the investment risks.

### Non-life sector performance and drivers
- Non-life insurers have been particularly reliant on investment returns due to intense market competition; investment returns have been under pressure.
- Non-life premiums from foreign risk business have increased significantly since 2008, while premiums from Irish risks have been declining for six consecutive years.
- In 2013, gross written premiums by line:
  - Property insurance: €4,446 million (30 percent of the total €14,899 million)
  - Motor insurance: 25 percent
  - Liability insurance: 21 percent
- From 2010 to 2013, 72 percent of profits before tax of the Irish non-life insurance sector have been accounted for by investment income and gains and only 28 percent from underwriting income.
- The market remains very competitive despite some increases in premium pricing.
- Non-life insurers continue to confront a weak economic climate and low interest rates.

### Irish reinsurers and global implications
- Irish reinsurers pose limited risks to domestic financial stability but have implications for global markets.
- The bulk of Irish reinsurers’ business relates to foreign risk and some Irish reinsurers are part of groups identified as Globally Systemically Important Insurers (G-SIIs).
- International operations face global challenges: low interest rates, price/rate reductions, excess capacity and greater retention rates by primary insurers to contain costs.

### Supervisory capacity and regulatory initiatives
- Preconditions for effective supervision are favorable: well-developed legal and institutional framework, availability of information, highly skilled labor force, and alignment of accounting and auditing standards with international standards.
- The Society of Actuaries in Ireland develops, maintains and enforces actuarial standards in Ireland.
- Ireland’s corporate governance system aligns with OECD Principles of Corporate Governance, supplemented by CBI’s governance requirements for the insurance sector.
- The Financial Services Ombudsman mediates and adjudicates unresolved individual complaints between consumers and RFSPs (except certain pension matters).
- Insurers have access to a broad range of financial instruments in the EU, facilitating asset liability management.

### Solvency II and supervisory framework
- SII requirements will come into force on January 1, 2016.
- Under SII, EU member states shall ensure that the supervisory authorities are provided with the necessary means, and have the relevant expertise, capacity, and mandate to achieve "the main objective of supervision, namely the protection of policy holders and beneficiaries."
- CBI shall duly consider the potential impact of its supervisory decisions on the stability of the financial systems in the EU, without prejudice to the main objective of supervision.
- The Omnibus II Directive, which substantially amends SII, was formally adopted by the European Parliament in March 2014.
- CBI’s preparation for SII is well advanced and a dedicated SII project has been in place since 2010.
- The supervisory framework has been significantly enhanced through the introduction of PRISM in 2011.
  - PRISM is closely aligned to the SII Supervisory Review Process and is designed to facilitate a systematic and structured supervisory process that enhances quality/consistency of supervisory assessment and judgment.
  - PRISM sets out minimum supervisory engagements driven by the impact ratings of insurers:
    - Insurers rated Ultra-High/High receive the highest level of supervision under structured engagement plans.
    - Insurers rated Low are supervised reactively.
  - CBI would take targeted enforcement action against insurers across all impact categories where material breaches or significant concerns are found.
  - CBI’s strategic supervisory approach aims to deliver an assertive risk-based supervision system underpinned by a credible enforcement deterrent.

*Source: _cr15117 - 7. While the domestic life market stabilized in 2013, weak economic conditions*

### 14. The rest of this report summarizes the key observations made with respect to each

### 14. The rest of this report summarizes the key observations made with respect to each

### ICP 1 — Objectives, Powers and Responsibilities of the Supervisor
- The CBRA provides clear power and mandate to CBI as the primary regulator of the insurance industry in Ireland.
- Objectives for insurance supervision are stated in the primary legislation.
- Passage of the CBSEA in 2013 has enhanced the supervisory and enforcement authority of CBI, including the power to issue regulations in specified areas.
- CBI opines that the current supervisory objectives apply similarly to group supervision.
- CBI has sought legislative changes when it identified a regulatory weakness or where a conflict is identified between legislation and supervisory objectives.

### ICP 2 — Supervisor (Governance, Autonomy, Resources)
- Governance structure of CBI is clearly defined with accountability mechanisms; appeals may be made to IFSAT or the High Court.
- CBI empowered to issue regulations, in consultation with the Minister; financial autonomy in allocating resources, although Minister approval is needed for industry levy regulations.
- CBI issues transparent regulatory requirements and supervisory guidance; material changes are subject to public consultations.
- Legal protection exists for CBI and employees except for acts/omissions in bad faith.
- Supervisory resources increased significantly since 2008, but attracting/retaining experienced supervisors (e.g., actuaries) is a significant challenge.
- Remuneration package is uncompetitive versus the market; constraints under the FEMPI Acts expected to end in 2016.
- Potential threats to independence:
  - Minister appoints all non-executive Commissioners and sets remuneration/allowances; Secretary General of Department of Finance is one Commissioner.
  - Governor may be requested to consult the Minister regarding performance (except ESCB functions).
  - CBA removal grounds include where “...in the Minister’s opinion it is necessary or desirable to do so to enable the Commission to function effectively.” No legal obligation to publicly disclose reasons for removal.
  - Commission needs Minister consent to appoint deputy governors.
- CBI and employees legally obliged to safeguard confidential information; scope exists to enhance data protection governance including staff training.

### ICP 3 — Information Exchange and Confidentiality Requirements
- CBI’s legal powers to exchange information are specified in the CBA and aligned with relevant EU Directives and protocols.
- Information exchange permitted with relevant financial supervisors/authorities subject to confidentiality, purpose and use requirements.
- Existence of agreement/understanding or strict reciprocity is generally not required for information exchange, including with non-EEA supervisors.
- CBI has exchanged information for supervisory purposes and executed several MoUs domestically and internationally; signatory to the IAIS Multilateral MoU.
- CBI participates actively in supervisory colleges as both group and host supervisor.

### ICP 4 — Licensing
- CBI is the sole authority for authorizing (re)insurers in Ireland.
- Clear and objective criteria/process for authorization publicly available on CBI’s website; supervisory guidance issued on licensing criteria.
- Authorization process is well structured, decisions are consistent, made in line with service standards, and reasons are provided for refusals.

### ICP 5 — Suitability of Persons (Fitness & Probity)
- The Fitness and Probity (F&P) regime (introduced in 2010) covers Board Members, Senior Management and Key Persons in Control Functions (PCFs).
- CBI approves appointments to PCFs; insurers must ensure CFs comply with F&P Standards and maintain records of CF/PCFs and due diligence.
- Ongoing obligation: PCF appointees must promptly notify CBI of any changes materially affecting suitability.
- CBI has statutory powers to remove individuals from PCF/CF roles via prohibition or suspension notices; may exchange suitability information with other supervisors.
- Significant Owners are not explicitly covered by the F&P regime.
- CBI requires Significant Owners to provide information on financial soundness and probity at authorization or for acquisition/change in qualifying shareholdings, but there is no ongoing suitability requirement for Significant Owners.

### ICP 6 — Changes in Control and Portfolio Transfers
- Notification required for acquisitions/increases of qualifying holdings reaching/exceeding prescribed levels: 20 percent, 33 percent, or 50 percent; notification also required for reductions below prescribed levels.
- (Re)insurers must submit names of qualifying shareholders and shareholdings to CBI at least annually.
- Assessment criteria for acquisitions are the same as for initial authorization.
- If notification requirements are not met or control is prejudicial to prudent management, CBI may apply to the Court for orders to rectify.
- Portfolio transfers require Court approval; CBI may object if detrimental to policyholders of transferor/transferee.
- CBI reserves right to approve conversion between mutual and stock company via authorization conditions.

### ICP 7 — Corporate Governance
- The Corporate Governance (CG) Code establishes robust CG requirements largely in observance with ICP 7; all (re)insurers must submit an annual compliance statement.
- Specific shortfalls:
  - Certain aspects of the revised 2013 CG Code applicable only from January 1, 2015 (e.g., CRO role).
  - CBI Guidelines on Preparing for Solvency II – System of Governance (CG SII Guidelines) effective (but not legally binding) from January 1, 2014 for High impact, Medium-High impact and groups; Low impact and Medium Low impact (re)insurers expected to apply from January 1, 2015.
  - CBI’s CG framework regulation not as explicit as ICP 7.4 in stating individual directors’ responsibility to act in the best interests of both insurer and policyholders.
  - For insurance groups, expected outcomes at group level are unclear; PRISM lacks clarity of supervisory outcome at group level.
  - Actual CBI supervisory practice includes some group-level CG assessment for some Irish-based cross-border groups.
  - No supervisory assessment of CG practices for Low Impact (re)insurers beyond checklist review of Annual Compliance statements.
  - Despite approximately €6.3 billion of with-profits funds in Ireland, PRISM and CBI generally assume no role in assessing customer fairness for these customers.

### ICP 8 — Risk Management and Internal Controls
- CG Codes and F&P regime provide comprehensive framework for risk management and internal controls, including risk management, compliance, actuarial, and internal audit functions.
- Observed weaknesses:
  - F&P regime does not cover risk management, compliance, actuarial and internal audit functions at the group level, particularly for groups headed by non-regulated companies.
  - Supervisory teams assess risk management/internal control practices for High, Medium-high and Medium-low insurers; for Low impact insurers reliance is placed on the annual compliance statement.

### ICP 9 — Supervisory Review and Reporting
- CBI’s strategic supervisory approach aims for assertive risk-based supervision underpinned by credible enforcement deterrent.
- PRISM introduced in 2011; enables structured process for supervisors to communicate findings and follow up until satisfactory conclusion; quality assurance mechanisms exist; CBI leverages external auditors’ work.
- PRISM sets minimum supervisory engagements driven by impact ratings:
  - Ultra-High/High receive highest supervision via structured engagement plans.
  - 126 (re)insurers rated Low are supervised reactively; CBI does not assess probability risk ratings for Low-rated insurers.
- CBI would take targeted enforcement across all impact categories when material breaches or significant concerns are found.
- Thematic visits are a principal tool for supervising insurers’ CoB.
- Assessors’ observations and recommendations:
  a) PRISM impact assessment is purely quantitative; no supervisory assessment of potential risks from 126 Low-rated (re)insurers that could have prudential and consumer protection implications. Qualitative probability assessment should be included proportionately.
  b) Regulatory returns and Compliance Statements may trigger concerns but rely on completeness/accuracy; proportionate independent supervisory verification of Low-rated (re)insurers’ returns is recommended.
  c) Summary risk assessment coverage of 74 (re)insurers with Medium-Low impact ratings may take about 10 years for one cycle; regular meetings on a cycle of seven meetings over an 18 month period provide continuous supervisory attention.
  d) Insurance group supervision is not embedded in PRISM.
  e) No thematic CoB inspections conducted on Low impact (re)insurers (mainly captive), as CBI’s market intelligence did not trigger concerns. Of 85 captive (re)insurers, 54 transacted business that reinsured group exposure to claims from third parties who could be considered beneficiaries.
- CBI has wide powers to obtain information at solo level, but there are no explicit reporting requirements for: off-balance sheet exposures; material outsourcing functions/activities; and material changes or incidents affecting condition or customers.

### ICP 10 — Preventive and Corrective Measures
- No explicit provision and related penalties for unauthorized insurance activities; CBI considers such activities a general offence under the insurance Regulations subject to summary legal action in the District Court.
- Maximum penalty under summary action is too low to be an effective deterrent.
- CBI has investigated suspected cases but considered none merited enforcement actions.
- PRISM facilitates timely supervisory interventions for High/Medium-high impact insurers.
- CBI empowered to take broad range of preventive and corrective measures allowing progressive escalation commensurate with misconduct severity.

### ICP 11 — Enforcement
- Assertive risk-based supervision intended to be underpinned by credible enforcement threat; reactive approach for Low impact (re)insurers may increase risk that serious concerns are not detected early.
- Effectiveness of enforcement hinges on adequate enforcement resources.
- CBI enforcement options: actions under F&P regime; Administrative Sanctions Procedure (ASP); referrals to other enforcement agencies; summary criminal prosecutions.
- CBI policy prefers ASP for prescribed contraventions rather than summary prosecution due to low penalties in summary proceedings and higher resource requirements for criminal standard proof.
- CBI has wide powers to impose sanctions; ASP supported by a structure for proportionate and consistent sanction decisions; CBI enforces sanctions and maintains comprehensive enforcement records.

### ICP 12 — Winding-up and Exit from the Market
- Company Acts and Insurance Act provide options for exit, define insolvency and procedures for (re)insurer insolvency.
- Policyholders of direct insurers have priority of claims in respect of assets representing technical reserves; insurers must maintain a register of such assets.
- The Insurance Compensation Fund provides for payment of non-life claims arising from eligible Irish risks in the event of insolvency.

### ICP 13 — Reinsurance and Other Forms of Risk Transfer
- CBI uses authorization conditions to impose the Reinsurance Guidelines.
- (Re)insurers “shall adopt all of the obligations of the CG Code for Captive Insurance and Reinsurance Undertakings.”
- For other Guidelines, authorization conditions require a reinsurer’s “compliance strategy will make provision for adherence to, in addition to all primary and secondary legislation, any and all guidance issued by the CBI and its predecessors to date and any future guidance issued by the CBI.”
- Reinsurance Guidelines do not explicitly address liquidity implications from reinsurance arrangements and the need for binding documentation in a timely manner.
- CBI’s assessment of (re)insurers’ reinsurance strategy is limited to those rated Medium Low and above.

### ICP 14 — Valuation
- Valuation of assets and liabilities for solvency purposes is based on Irish GAAP or IFRS.
- Accounting practice allows amortized cost for some fixed income investments held to maturity.
- Life Technical Provision (TP) valuation is more market consistent compared to non-life TP because discounting for non-life TP is only allowed under certain conditions.
- Non-life reserving requires provisioning for a current estimate and a margin over current estimate (MOCE); MOCE determination permits broad means on advice of the Signing Actuary, subject to management judgement — differing from life insurance valuation and from guidance in ICP 14.9.
- While component valuation methods can be described as economic, the overall methods do not enhance a consistent economic view of solvency position; expected rectification as IFRS 4 and IFRS 9 develop and with advent of SII.

### ICP 15 — Investment
- CBI largely in compliance with ICP 15, with observed weaknesses:
  - Wording in CBI’s conditions of authorization regarding CBI Guidelines is not uniform across guideline types (e.g., CG versus Asset Management Guidelines).
  - Certain areas of Asset Management Guidelines lack sufficient direction relative to ICP 15: standard 15.3 on asset security and diversification; standard 15.4 on cash flow matching; and standard 15.6 on more complex/less transparent asset classes.
  - No explicit investment requirements at the group level.

### ICP 16 — Enterprise Risk Management for Solvency Purposes
- CBI’s compliance depends on the passage of time until provisions of FLAOR, 2013 CG Code and the SII CG Guidelines become effective.
- Additional weaknesses:
  - ERM requirements not yet defined at the group level.
  - Standard 16.4 only partly observed due to complexity in fully exploring referenced relationships; reference to risk tolerance limits not covered by the 2013 CG Code but briefly mentioned in Guideline 13 of the SII CG Guidelines.

### ICP 17 — Capital Adequacy
- Noted gaps:
  - Lack of explicit regulatory framework references to the use of a total balance sheet approach.
  - Lack of a regulatory requirement for a prescribed capital requirement.
  - Lack of specific regulations pertaining to solvency levels of groups.
  - Lack of sufficient regulatory criteria for assessment of capital resources.

### ICP 18 — Intermediaries
- CBI regulates a large number of intermediaries across diverse scale/complexity.
- F&P regime requires intermediaries to have appropriate professional knowledge, experience, integrity and competence.
- Complemented by the MC Code with minimum competency standards and recognized qualifications.
- CP Code prescriptive on consumer information disclosure including remuneration arrangements.
- Intermediaries required to implement conflicts of interest policies and there are legislative safeguards for safeguarding client monies.
- Intermediaries typically rated Low-Impact under PRISM; CBI adopts reactive supervision and uses thematic inspection as principal supervisory tool.
- CBI has taken enforcement actions on intermediaries.

### ICP 19 — Conduct of Business
- CoB regime under CP Code, MC Code and insurance regulations is comprehensive, requiring insurers/intermediaries to:
  a) act honestly, fairly and professionally in customers’ best interests and market integrity;
  b) act with due skill, care and diligence; and
  c) ensure fair treatment of customers in promotion/marketing, information disclosure, knowing the customer and suitability, policy servicing, claims and complaints.
- No explicit requirements for group-wide market conduct, product development, or communication of claims procedures.
- Data protection compliance is under the Office of the Data Protection Commissioner, supported by an industry code on best practices.

### ICP 20 — Public Disclosure
- No explicit public disclosure requirements specific to the ICP; (re)insurers must disclose in accordance with IFRS or Irish GAAP.
- IFRS disclosures are not fully aligned with the requirements of this ICP.

### ICP 21 — Countering Fraud in Insurance
- No specific legislation on insurance fraud; a broad range of statutory and common law offences address fraudulent conduct and are subject to criminal proceedings.
- Supervisory assessment of insurers’ operational controls and CBI’s CBSEA powers facilitate fraud detection and countermeasures.
- CBI supervisors demonstrate good understanding of insurance fraud risk; assessed at various supervisory stages.
- Active industry collaboration exists to raise awareness and report fraud, including use of an industry database.
- CBI may cooperate, coordinate and exchange information relating to insurance fraud with other competent authorities, including foreign authorities.

### ICP 22 — Anti-Money Laundering and Combating the Financing of Terrorism (AML-CFT)
- The legal framework for the AML-CFT regime in Ireland was last updated in

*Source: _cr15117 - 14. The rest of this report summarizes the key observations made with respect to each*

### 2013. Life insurers and intermediaries are covered under the AML-CFT

### 2013. Life insurers and intermediaries are covered under the AML-CFT regime as designated persons

### AML-CFT coverage and supervisory status
- Life insurers and intermediaries are covered under the AML-CFT regime as designated persons.
- Both the Minister of Justice, Equality and Law reform and the CBI have not approved/issued enforceable rules on AML/CFT.
- Various sectors of the financial services industry have drafted Core Guidelines on the application of the Criminal Justice (Money Laundering and Terrorist Financing) Acts (CJA), which were published by the Department of Finance.
- CBI has confirmed that it will have regard to these Core Guidelines in assessing compliance by designated persons with CJA.
- CBI has effective mechanisms to cooperate, coordinate and exchange information with both domestic and foreign supervisors and financial intelligence units.

### CBI supervisory approach for AML-CFT
- CBI takes a risk-based approach to AML-CFT supervision.
- Life insurers rated High impact are subject to annual AML-CFT risk assessment.
- There are four life insurers with a Low impact rating, all of which are in run-off.
- A reactive approach is adopted for intermediaries (all are rated Low impact).
- There is scope for reviewing the AML/CFT inspection cycle, particularly with respect to intermediaries with Low impact under PRISM.

### Group-wide supervision: findings and weaknesses
- CBI’s approach to supervising groups is in line with supplementary supervision under the EU Directives.
- In practice, there are gaps in the identification of groups, and the extension of legal entity requirements at the group level including group solvency assessment; and there is a lack of an effective group supervision framework.
- Key weaknesses of CBI’s group supervisory framework:
  - limited references within PRISM to the supervisory outcomes expected at the group level;
  - lack of market conduct supervision at the group level;
  - limited focus of PRISM on Medium high (or below) rated groups;
  - inconsistent supervision of non-regulated heads (holding companies) of insurance groups.

### Macroprudential surveillance and insurance supervision
- It was not self-evident that all the sources of risk information available to CBI fed into an integrated CBI ERM process from which risk strategies could be decided upon and activated both at an overall CBI level as well as prudential and market conduct supervision strategies, both at the insurer level and across the industry.

### Supervisory cooperation and coordination
- CBI has taken appropriate steps to put in place adequate coordination arrangements, which involve supervisors on cross-border issues on a legal entity and a group-wide basis.
- CBI has implemented written internal procedures for information sharing, including information exchange and cooperation with other regulators, on a routine basis and in crisis management.
- There are internal procedures related to communication and sharing of information with other supervisory authorities.

### Cross-border cooperation and coordination on crisis management — findings and development scope
- Through a combination of CBI and European Insurance and Occupational Pension Authority Guidelines, CBI is prepared for various elements of ICP 26 relating to cross-border cooperation and crisis management.
- Through its participation in various supervisory colleges, especially those it leads as group-wide supervisor, CBI has demonstrated its attention to the standards of ICP 26.
- There is scope for further development in the following:
  - Development within CBI of its own plans and protocols for dealing with an insurer cross-border crisis;
  - Development within CBI of a mock scenario of an insurer in difficulty to test the resilience of the above mentioned plans and protocols;
  - Request that the top cross-border (re)insurers complete their own detailed study of their firm and group crisis management and recovery plans.

### Selected recommendations to improve observance of the ICPs (high-level synthesis from Table 3)
- 1 - Objectives, Powers and Responsibilities of the Supervisor
  - Consider establishing explicit objectives for the supervision of insurance groups in the primary legislation.
- 2 - Supervisor
  - Enhance CBI’s statutory independence by:
    - Reconsidering the Department of Finance’s involvement in the Commission and the role of the Minister in approving the Deputy Governors;
    - Removing or providing more clarity on the general ground for the removal of a Commissioner;
    - Establishing a legal provision on public disclosure of the reasons of the removal of a Governor or Commissioners in the CBA;
    - Reviewing the Minister’s statutory power relating to CBI’s regulatory functions, including the extent of consultation for rule-making and approval for industry levy structure.
  - Address significant challenges of CBI in attracting and retaining skilled; competent and experienced staff, including improving competitiveness of staff remuneration and exempting CBI from the FEMPI Acts.
  - Implement measures to enhance CBI’s data protection governance framework.
- 5 - Suitability of Persons
  - Extend the F&P regime to include Significant Owners.
  - Establish clear requirements for (re)insurers to notify CBI of any circumstances that may materially adversely affect the suitability of persons appointed to PCF and Significant Owners.
- 7 - Corporate Governance
  - Secure necessary powers to supervise CG at the group level, even for non-regulated holding companies.
  - Review checklist approach to reviewing CG of Low impact (re)insurers.
  - Enhance CG framework regulation in accordance with ICP 7.4 to explicitly state the responsibility of individual directors to act in the best interests of both the (re)insurer and policyholders.
  - Define CBI’s role in the assessment of the fair treatment of with-profits customers.
- 8 - Risk Management and Internal Controls
  - Establish clear supervisory expectations of PCFs at the group level.
  - Review checklist approach to reviewing risk management practices of Low impact insurers.
  - Clarify expectations for the actuarial function, taking into account the changing nature of the actuarial function (i.e., Appointed Actuary, Signing Actuary, Chief Actuary, SII actuarial function, etc.).
- 9 - Supervisory Review and Reporting
  - Review the PRISM framework, particularly the one-size-fits-all reactive approach for Low impact (re)insurers and consider more proportionate and timely risk assessment.
  - Update PRISM to incorporate appropriate risk-based supervision for insurance groups.
  - Strengthen regulatory reporting by establishing:
    - consistent and more comprehensive regulatory reporting by insurance groups;
    - explicit requirements for reporting off-balance sheet exposures, material outsourcing functions and activities; and material changes or incidents that could affect their condition or customers.
  - Regularly review adequacy of supervisory resources to support a more proportionate supervisory program for (re)insurers with Medium-Low/Low impact and effective supervision of insurance groups.
- 10 - Preventive and Corrective Measures
  - Seek legislative amendments to enhance the sanctions available for unauthorized insurance activities.
- 11 - Enforcement
  - Regularly review the adequacy of enforcement resources to support a strategy of credible threat of enforcement.
- 13 - Reinsurance and Other Forms of Risk Transfer
  - Establish enforceable regulatory requirements for reinsurance (whether in rules, regulations, etc.) and align wording in conditions of authorization with respect to Guidelines.
  - Establish clear regulatory requirements on cedants to control their liquidity positions and ensure timely documentation of reinsurance contracts at time of inception.
  - Formulate proportionate (not just reactive) risk-based supervision over Low impact (re)insurers regarding their use of reinsurance.
  - Establish clear regulatory requirements for reinsurance at the group level.
- 14 - Valuation
  - The current shortcomings in the valuation of TP are expected to be addressed by SII as from January 1, 2016.
- 15 - Investment
  - Develop and implement explicit investment requirements both at the insurer and group level.
- 16 - Enterprise Risk Management for Solvency Purposes
  - Establish ERM requirements at the group level.
  - Enhance the CG Code as necessary to reflect the new developments of the SII CG Guidelines and introduce the need for risk tolerance limits.
- 17 - Capital Adequacy
  - In preparation for SII (which will bring about a total balance sheet approach and a PCR):
    - Develop and implement necessary capital adequacy support processes/tools, including expectations for regular stress testing, capital target setting, definition of capital resources, etc.;
    - Establish capital adequacy requirements (both quantitative and qualitative) at the group level;
    - Build supervisory expertise and processes to adequately approve and monitor internal models.
- 19 - Conduct of Business
  - Establish clear requirements for:
    - group-wide market conduct;
    - insurers to take into account the interests of different types of customers in developing and marketing insurance products to the targeted customers;
    - insurers and intermediaries with respect to replacement of policies;
    - insurers to inform claimants about the claim procedures.
  - Fine-tune CoB regulatory returns (e.g., persistency rates) and provide guidance on obligations under the Data Protection Act.
- 20 - Public Disclosure
  - Engage with insurers and their audit firms on possible changes in disclosure to achieve more meaningful and useful public disclosures by insurers.
- 22 - Anti-Money Laundering and Combating the Financing of Terrorism
  - Empower CBI to issue enforceable rules on AML/CFT obligations consistent with the FATF Recommendations and establish guidelines to facilitate compliance by insurers/intermediaries.
  - Review the AML-CFT inspection approach for retail intermediaries.
  - Periodically analyze the ML/TF risks of the non-life insurance sector and reconsider whether the AML-CFT regime should apply to the non-life sector.
- 23 - Group-wide Supervision
  - SII will provide a structured group supervision regime including more comprehensive reporting requirements.
- 24 - Macroprudential Surveillance and Insurance Supervision
  - Better integrate internal ERM processes to improve focus on emerging prudential and market conduct issues, better manage CBI risks and improve CBI planning.
- 25 - Supervisory Cooperation and Coordination
  - Develop and implement a group supervisory framework identifying roles and interactions at the group level.
  - Agree on coordination agreements with the members of colleges led by CBI.
- 26 - Cross-border Cooperation and Coordination on Crisis Management
  - Establish clear requirements for High/Ultra-High (re)insurers/groups to maintain and test contingency plans and procedures for going- and gone-concern situations.
  - Regularly review practical barriers to efficient and internationally coordinated resolutions and collaborate with relevant supervisors to resolve these issues.

*Source: _cr15117 - 2013. Life insurers and intermediaries are covered under the AML-CFT regime as designated persons*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15117.pdf_