## _cr15118 (IMF Detailed Assessment Report — Executive Summary and Selected Chapters) ## Source details **Canonical URL:** [_cr15118 (IMF Detailed Assessment Report — Executive Summary and Selected Chapters)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15118.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15118.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15118.pdf.json) --- ### Overview of the Irish insurance sector - Sector composition: - Comprises both the domestic industry and a large international market; majority of Irish (re)insurers are part of large international groups/conglomerates. - Number of insurers: - Declined from 307 in 2009 to 234 at end-June 2014. - Total assets: - Increased from €139.5 billion in 2008 to €210.7 billion at end-2013. - Market concentration: - Top five life insurers accounted for 91 percent of Irish risks (2013). - Top six non-life insurers had a 93 percent share of the Irish market in 2013. - One non-life insurer accounted for 57 percent of gross written premiums in 2013. - Top ten reinsurers accounted for 75 percent of premiums written in Ireland in 2012. - Cross-border framework: - Insurers authorized in the EU can write business in Ireland on a freedom of establishment (FOE) or freedom of services (FOS) basis. - Product mix: - International life market: mainly variable annuities (VA) and Italian-focused unit-linked policies (ULPs). - Domestic life insurers: dominant line is ULPs. - Significant presence of captive (re)insurers and reinsurers; meaningful share of non-life sector is foreign-risk focused. - Employment and market metrics: - Sector employs 14,000 people directly and some 13,000 in third party service providers; total employment 27,000 in 2013. - Swiss Re Sigma 2013 metrics: - Life (Penetration As % of GDP) — Ireland: 6.18 - Non-life (Penetration As % of GDP) — Ireland: 1.80 - Total (Penetration As % of GDP) — Ireland: 7.98 - Life (Density US$ per capita) — Ireland: 2,931 - Non-life (Density US$ per capita) — Ireland: 856 - Total (Density US$ per capita) — Ireland: 3,787 ### Key risks and sector implications - Low interest rate environment: - Significant risk for international insurers writing VA business because of built-in guarantees. - Life policyholder assets: approximately 88 percent invested in unit-linked assets at end-2013; 7 percent in government securities. - Life insurers’ shareholders assets: cash and bank balances 30 percent; government securities 18 percent; unitized investments 9 percent; equities 3 percent. - Non-life profitability and reliance on investment returns: - From 2010 to 2013, 72 percent of profits before tax of Irish non-life insurance sector accounted for by investment income and gains; 28 percent from underwriting income. - Investment income averaged 4.27 percent of insurers’ investment portfolios in 2005 and fell to 2.56 percent by 2013. - Severe weather losses: late 2013/early 2014 estimated cost to insurers: €130 million. - Reinsurance sector challenges: - Ireland has the second-highest number of reinsurers in Europe; asset size of Irish reinsurance industry represented over 30 percent of GDP. - In 2013, Irish reinsurers accounted for 4.6 percent of global market share. - Reinsurers face low interest rates, price/rate reductions, excess capacity and greater retention by primary insurers; market tiering pressures noted. - Solvency indicators (Solvency I): - Life (end-June 2014): Available Assets €6,390; Required Solvency €2,263; Overall Solvency Ratio 282% (end-2013: 281%; change +1%). - Non-life (end-June 2014): Available Assets €6,660; Required Solvency €2,034; Overall Solvency Ratio 327% (end-2013: 310%; change +17%). - Reinsurer (end-June 2014): Available Assets €8,941; Required Solvency €2,547; Overall Solvency Ratio 351% (end-2013: 354%; change -3%). - EIOPA Insurance Stress Test 2014: average pre-stress SCR ratio for participating Irish insurers ~100 percent (no buffer for stress). ### Supervisory framework, institutional setting and PRISM - Regulator and governance: - Central Bank of Ireland (CBI) is the integrated financial supervisor; re-structured under the Central Bank Reform Act of 2010 (CBRA). - CBI accountable to the Minister; Minister appoints majority of Commission members and may request Governor to consult on CBI functions; CBI must consult Minister before making regulations prescribing industry levy though final decision remains with CBI. - Concerns identified: potential political considerations via appointment/removal and Ministerial powers; recommendations to reconsider Commission composition and Minister’s role in approving Deputy Governors; require public disclosure of reasons for removal of Governor/Commissioners. - Human resources and remuneration: - Number of supervisors (FTE) in prudential supervision increased from 42 in 2009 to 104 at end-August 2014. - Staff turnover for insurance supervisors: 20.2 percent in 2012 and 10.5 percent in 2013. - FEMPI Act constraints affected remuneration; cuts applied to staff earning more than €65,000 in 2013. - Recommendation: improve remuneration competitiveness and consider exempting CBI from FEMPI Acts. - PRISM risk-based supervision: - Introduced in 2011; aligns with SII Supervisory Review Process. - Impact categories: Ultra-High/High, Medium-High, Medium-Low, Low. - Engagement levels: - Ultra-High/High: highest level of supervision under structured engagement plans; FRRs and governance reviews; High impact firms subject to four reviews a year. - Medium-High: Full Risk Assessment every two to four years. - Medium-Low: proportionate FRA sampling (≈10 percent per year; 74 firms implies ~10-year cycle). - Low: supervised reactively; 126 (re)insurers rated Low as at June 2014. - Observed PRISM gaps and recommendations: - PRISM’s impact assessment is largely quantitative; Low-rated insurers receive no probability risk assessment. - Recommend introduce qualitative elements into PRISM for Low impact firms; consider proportionate independent verification of regulatory returns for Low-rated firms. - Embed insurance group supervision into PRISM and clarify group-level supervisory outcomes. - Review adequacy of supervisory resources to support proportionate supervision including insurance groups. ### Solvency II preparation and related guidance - SII transposition: - SII requirements will come into force on January 1, 2016; Directive 2009/138/EC and Omnibus II amendments noted. - CBI has a dedicated SII project since 2010; issued Guidelines on Preparing for Solvency II generally applicable from January 1, 2014. - CBI guidance covers systems of governance, FLAOR, pre-application for internal models and submission of information. - Expected impact: - SII expected to address regulatory gaps in risk management/ERM, valuation, capital adequacy and group supervision; significantly enhance regulatory reporting at entity and group levels. - Effective implementation depends on adequacy and quality of CBI supervisory resources. - Specific transposition actions: - CBI issued Fitness & Propriety regime, 2013 Corporate Governance Code, Consumer Protection Code, Minimum Competency Codes, Guidelines on Preparing for Solvency II – System of Governance, Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers, and Guidelines on Reinsurance Cover of Primary Insurers. ### Identified regulatory gaps and supervisory shortfalls (selected) - Suitability and governance: - F&P regime covers PCFs/CFs but Significant Owners not explicitly covered; no ongoing suitability requirement for Significant Owners. - Recommendation: extend F&P regime to include Significant Owners and require insurers to notify CBI of material adverse changes affecting suitability of PCFs and Significant Owners. - Directors: CBI framework not explicit on directors’ duty to act in the best interests of the insurer and policyholders (ICP 7.4); recommendation to clarify and strengthen. - Group supervision and related-party transactions: - Gaps in group identification, lack of explicit group-level solvency rules, and lack of routine regulatory group returns. - Inter-company loans are inadmissible for solvency purposes; common related-party transactions observed (inter-company loans, service fees, intra-group reinsurance, investments in related companies). - Recommendation: establish enforceable group supervisory framework, consistent reporting requirements and coordination agreements in colleges. - Reinsurance: - Reinsurance Guidelines not fully enforceable in wording; no explicit requirement to finalise reinsurance contracts in timely fashion; cedants not required to control liquidity arising from reinsurance structures. - Recommendation: establish enforceable reinsurance rules, require cedants to control liquidity and timely documentation, and extend reinsurance supervision to Low impact (re)insurers proportionately. - Valuation and capital adequacy: - Valuation (ICP 14) and capital adequacy (ICP 17) found Partly Observed/Largely Observed due to reliance on Irish GAAP/IFRS and Solvency I limitations: - Non-life reserving includes MOCE with broad management judgement; discounting allowed only in restricted circumstances. - Life valuation capped discount rate maximum of 7.5 percent. - No explicit regulatory requirement for a PCR; group solvency not explicitly regulated; internal models not currently permitted under Solvency I. - Recommendation: develop total balance sheet approach, PCR framework, group capital requirements and build capacity for internal model approval (preparation for SII). - Investment and ALM: - ICP 15 assessment: Largely Observed but gaps in asset security/diversification guidance, cash flow matching and guidance on complex/less transparent assets. - Aggregate asset allocation at end-2013 (Table 3): - Total assets reported in Table 3: Total €97,293 (figures in € millions and percent) — Life total €24,779 (100%); Non-life total €31,342 (100%); Reinsurance total €41,172 (100%); Total €97,293 (100%). - Government bonds (Total): €29,086 29.9% - Corporate bonds (Total): €20,270 20.8% - Bank deposits (Total): €10,317 10.6% - Shares (Total): €4,746 4.9% - Other loans/funds withheld (Total): €15,546 16.0% - Recommendation: implement explicit investment requirements at entity and group level. - AML-CFT (ICP 22): - Legal framework updated in 2013; life insurers and intermediaries designated, non-life and captives generally not covered. - No Minister-approved enforceable rules issued at time of assessment; CBI will have regard to DoF Core Guidelines. - Recommendation: empower CBI to issue enforceable AML-CFT rules consistent with FATF Recommendations; establish guidelines and review inspection cycles for intermediaries and non-life firms. ### ICP observance summary and priority recommendations - Summary of observance levels (Table 6): - Observed (O): 11 - Largely observed (LO): 10 - Partly observed (PO): 5 - Not observed (NO): _ - Total ICPs assessed: 26 - Selected priority recommendations (excerpts): - ICP 2 — Supervisor: - Enhance CBI’s statutory independence (reconsider DoF involvement, Minister’s approval role, grounds for dismissal, public disclosure of removal reasons). - Improve remuneration competitiveness and consider exemption from FEMPI Act. - Enhance data protection governance. - ICP 7 — Corporate Governance: - Secure powers to supervise CG at group level (including non-regulated holding companies); enhance explicitness of directors’ duties per ICP 7.4; define CBI role on with-profits customer fairness. - ICP 9 — Supervisory Review and Reporting: - Review PRISM to introduce proportionate assessment for Low impact (re)insurers; require reporting of off-balance-sheet exposures, material outsourcing and material incidents; embed group supervision in PRISM. - ICP 13 — Reinsurance: - Establish enforceable reinsurance requirements; require cedants to manage reinsurance-related liquidity; require timely contract documentation. - ICP 14/15/16/17: - Move valuation and capital adequacy frameworks toward market-consistent approaches and SII alignment; establish group ERM and group capital adequacy processes; prepare tools for internal model approval and stress testing. ### Crisis management, colleges and cross-border cooperation - Supervisory colleges and group supervision: - 2.2 and SII Directive article 248 require supervisory colleges to be set up to facilitate group supervision; colleges should meet at least annually. - SI 366/2007 provides legal basis for supplementary group supervision and cooperation. - CBI leads/hosts colleges for key groups and participates in EIOPA and international arrangements; internal procedures exist for information sharing and crisis cooperation. - ICP 26 — Cross-border crisis management: Largely Observed with recommended actions: - Develop CBI-specific plans and protocols for insurer cross-border crises. - Develop mock scenarios to test resilience of plans and protocols. - Require top cross-border (re)insurers to complete detailed internal crisis management and recovery plans. - Contingency planning and business continuity: - CBI requested CEOs of high-impact firms (October 5, 2012) to assess and address business continuity gaps. - Guideline 10 (SII System of Governance) requires undertakings to identify risks and regularly test contingency plans. ### Supervisory resources, enforcement and transparency - Enforcement and sanctions: - CBSEA 2013 enhanced CBI powers; Administrative Sanctions Procedure (ASP) preferred over summary prosecution. - ASP monetary penalty caps: for a body corporate — the greater of €10,000,000 or 10 percent of turnover; for a natural person — €1,000,000. - Enforcement outcomes 2011–mid-2014: - settled 50 cases with RFSPs/PCM and imposed fines of €21,706,755 (27 cases related to insurers totalling €10,237,815 in fines); - issued 48 supervisory warnings (12 related to insurers); - revoked six authorizations for cause (three related to insurers). - Authorization process and service standards: - “Authorization in principle” requires compliance within 21 days and does not permit writing business. - Certificate of authorization granted after capital introduced and pre-licensing requirements met; certificate granted for unlimited period. - CBI service standards: authorisation for 75 percent of complete applications within three months; 100 percent within six months. - Reporting and auditors: - Annual returns: online forms — 17 for non-life and 30 for life insurers; signed Directors Compliance Statement; Auditor’s Report on Statutory Insurance Returns; full audited financial statements. - External audits per International Standards on Auditing (UK & Ireland); auditor protocol for information exchange with CBI; legal immunity for auditors complying with whistleblower obligations. - Onsite supervision and thematic reviews: - Thematic reviews in 2013 included pricing/claims/reserving for non-life insurers; asset quality of reinsurers; use of derivatives by High/Medium-High firms. - CPD conducted thematic inspections on sales incentives, household property claims handling, PII for intermediaries and pension sales processes. ### Selected technical developments and requirements - Reserving and actuarial oversight (2014 Requirements): - Signing Actuary prescribed as a PCF; SAO enhancements: SAO within four months and SAO report within six months of year end for non-life insurers; enhanced governance and Reserving Committee for High Impact companies. - Boards must ensure reconciliation of claims data and that external auditors have sufficient expertise. - FLAOR / ORSA: - FLAOR introduced in 2014 as precursor to ORSA; CBI requires FLAOR/ORSA submission at least annually beginning with 2014; first FLAOR reports under review by CBI supervision staff. - Intermediaries and conduct: - CBI supervises 2,979 insurance/reinsurance intermediaries as of September 8, 2014; intermediaries subject to MC Code, CP Code and F&P standards. - Consumer protection: CP Code prescribes disclosure, suitability, claims handling timelines (e.g., insurers must notify claim decision within 10 business days and pay accepted claims within ten business days); complaints acknowledged within five business days and target resolution within 40 business days. ### ICP assessment snapshot (selected) - ICPs scored: - Observed (O): 11 ICPs. - Largely observed (LO): 10 ICPs. - Partly observed (PO): 5 ICPs. - Not observed (NO): none. - ICPs rated Partly Observed include ICP 2 (Supervisor), ICP 9 (Supervisory Review and Reporting) and ICP 23 (Group-wide Supervision); recommended priority actions referenced above. *Source: IMF Detailed Assessment Report — EXECUTIVE SUMMARY and selected chapters (assessment conducted November 18–December 5, 2014).* ### EXECUTIVE SUMMARY ___________________________________________________________________________ 6 ### EXECUTIVE SUMMARY ### Overview of the Irish insurance sector - Sector composition: comprises both the domestic industry and a large international market; majority of Irish (re)insurers are part of large international groups/conglomerates. - Number of insurers: declined from 307 in 2009 to 234 at end-June 2014. - Total assets: increased from €139.5 billion in 2008 to €210.7 billion at end-2013. - Market concentration: - Top five life insurers accounted for 91 percent of Irish risks. - Largest non-life insurers had a market share of 57 percent in terms of gross written premiums. - Top ten reinsurers accounted for 75 percent of premiums written in Ireland in 2012. - Cross-border activity: insurers authorized in the EU can write business in Ireland on a freedom of establishment (FOE) or freedom of services (FOS) basis. - Product and market characteristics: - International life market: mainly variable annuities (VA) and Italian-focused unit-linked policies (ULPs). - Domestic life insurers: dominant line is ULPs. - Captive (re)insurers and reinsurers: significant presence. - Significant share of non-life sector is foreign-risk focused. ### Key risks and sector implications - Low interest rate environment: - Identified as a significant risk for international insurers writing VA business because of built-in guarantees. - Domestic life insurers are somewhat insulated where policyholders assume investment risks (ULPs). - Non-life insurers have been reliant on investment returns, which have been under pressure. - Reinsurers: - Limited domestic financial stability impact but operations have global systemic implications. - Face global challenges: low interest rates, price/rate reductions, excess capacity, greater retention rates by primary insurers. ### Supervisory framework and institutional setting - Regulator: Central Bank of Ireland (CBI) is the integrated financial supervisor; re-structured under the Central Bank Reform Act of 2010 (CBRA) as a single fully integrated supervisor. - CBI responsibilities: - Overall responsibility for the 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. - Human resources and governance challenges: - High turnover rates for insurance supervisors at CBI, due largely to an unattractive remuneration package compounded by constraints under the Financial Emergency Measures in the Public Interest Acts of 2009 and 2013 (expected to end in 2016). - Potential legal governance arrangements that could introduce political considerations affecting CBI independence. - Suggested enhancements to CBI statutory independence (areas identified for reconsideration): - Composition of the Commission. - Role of the Minister of Finance in approving appointment of the Deputy Governors. - Clarity on grounds for dismissal of a Commissioner. - Legal obligation for public disclosure of reasons for removal of a Governor or Commissioners. - Review of Minister’s statutory powers relating to CBI regulatory functions, including consultation for rule-making and approval for industry levy structure. ### Supervisory approach: PRISM and proportionality - PRISM introduction: introduced in 2011; improved supervision of insurers with High/Medium High impact ratings. - PRISM features: - Promotes a culture of more challenging supervisory assessments. - Sets minimum supervisory engagements driven by impact ratings. - Insurers rated Ultra-High/High receive highest level of supervision under structured engagement plans. - Low-rated insurers are supervised reactively; targeted enforcement action taken where material breaches or significant concerns are found. - Observations and recommendations on PRISM: - Review supervisory risk appetite underpinning PRISM, including potential reputational risks. - Regular review to ensure protection of policyholders and beneficiaries is adequately addressed. - Adopt more proportionate and timely risk assessment of insurers according to risk profiles to enhance regulatory incentives for governance and risk management improvements. - Increase proportionate coverage of Low-rated insurers/intermediaries in terms of independent supervisory verification of regulatory returns to enable reasonable supervisory reliance. - 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 developments and Solvency II - Legal and supervisory enhancements: - Central Bank Supervision and Enforcement Act of 2013 (CBSEA) enhanced CBI’s supervision and enforcement powers. - CBI preparation for Solvency II (SII) is well advanced; dedicated SII project in place since 2010. - New requirements and guidance introduced by CBI: - Fitness and propriety regime. - Corporate governance (CG) codes. - Consumer Protection Code (CP Code). - Minimum Competency Codes. - Guidelines on Preparing for Solvency II – System of Governance. - Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers. - Guidelines on the Reinsurance Cover of Primary Insurers and the Security of their Reinsurers. - Expected impact of SII implementation: - 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. - Caution: Effective implementation of SII and group-wide supervision, supported by a more proportionate supervisory approach under PRISM, depends on adequacy and quality of CBI supervisory resources. ### Identified regulatory gaps and enhancements needed - Prudential requirements: - Insurers to notify CBI of material changes in the suitability of persons appointed to pre-approval control functions (PCFs) and Significant Owners (note: currently only the PCF or significant owners are required to notify CBI of changes in the information provided in their applications). - Directors to act in the best interests of the insurer and policyholders. - Cedents 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 interests of different types of customers in developing and marketing insurance products. - Requirements for replacement of policies. - Insurers to communicate claim procedures to policyholders/claimants. - Market conduct requirements at the group level. - Anti-Money Laundering and Countering the Financing of Terrorism (AML-CFT) regime: - CBI to issue enforceable rules on AML/CFT obligations consistent with the Financial Action Task Force (FATF) Recommendations. - Establish guidelines to facilitate compliance by insurers and intermediaries. - Support with appropriate risk-based AML-CFT inspections. - Macro-prudential surveillance framework: - Requirements for insurers/groups to maintain and test contingency plans and procedures for 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. ### Assessment scope and methodology (high-level) - Assessment covers Ireland’s observance with the Insurance Core Principles (ICPs) issued by the International Association of Insurance Supervisors (IAIS). - Conducted by IMF-engaged external experts Stuart Wason and Su Hoong Chang from November 18 to December 5, 2014. - ICP revisions referenced: - IAIS enhanced ICPs in 2011; last revised in October 2013. - ICP 9 on Supervisory Review and Reporting revised in October 2012. - ICP 22 on AML-CFT updated in October 2013. - Levels of observance used: - Observed; Largely observed; Partly observed; Not observed (definitions provided in assessment). *Source: IMF Detailed Assessment Report — EXECUTIVE SUMMARY (assessment conducted November 18–December 5, 2014).* ### 4. The assessment is based solely on the laws, regulations and other supervisory ### _cr15118 - 4. The assessment is based solely on the laws, regulations and other supervisory ### Assessment scope, inputs, and cooperation - The assessment is based solely on the laws, regulations and other supervisory requirements and practices that are in place at the time of the assessment in November 2014. - While the assessment does not reflect ongoing regulatory initiatives such as the impending implementation of SII, the key proposals of these initiatives are noted by way of additional comments in this report. - The authorities provided: - a comprehensive self-assessment, - anonymous examples of actual supervisory practices and assessments, - technical discussions and briefings by officials from the CBI, - discussions with industry participants. - The assessors are grateful to the authorities for full cooperation and thoughtful logistical arrangements, including co‑ordination of meetings with industry participants, and benefitted from inputs from insurers and industry and professional organizations. ### Institutional framework and accountability - CBI is the integrated financial supervisor in Ireland. - CBI is a body corporate established under the Central Bank Act of 1942 (CBA) and re-structured under the CBRA as a single fully integrated supervisor. - The new supervisory structure replaced the Central Bank and the Financial Services Authority of Ireland and the Financial Regulator. - As the primary regulator of the Irish financial system, CBI has overall responsibility for the supervision of insurers and insurance intermediaries authorized in Ireland. - CBI is also responsible for the oversight of the CoB of insurers authorized in other EU member states, which are providing services in Ireland on a FOS or FOE basis. - Accountability and ministerial interactions: - CBI is accountable to the Minister in discharging its statutory functions. - The Minister is the sole subscriber to and holder of CBI’s capital and may request the Governor to consult with the Minister as regards the performance by CBI of any of its functions (except ESCB functions). - The Minister appoints the majority of the members of the CBI Commission. - CBI shall consult with the Minister before making regulations, including regulations prescribing the levy to be paid by regulated financial services providers (RFSPs), although final decision remains with CBI. - Subject to the requirements of the Maastricht Treaty and confidentiality provisions imposed by law, the Governor or the Deputy Governors must appear before Joint Committees of the Oireachtas, upon request. ### Ongoing regulatory initiatives: Solvency II (SII) and transposition - SII requirements will come into force on January 1, 2016. - Directive reference: Directive 2009/138/EC of the European parliament and of the Council of November 25, 2009, on the taking up and pursuit of the business of Insurance and Reinsurance. - Omnibus II Directive was formally adopted by the European Parliament in March 2014 and substantially amends SII. - CBI preparation for SII: - A dedicated SII project has been in place since 2010. - In September 2013, EIOPA published final guidelines on preparing for SII. - CBI issued guidelines on preparing for SII, generally applicable to insurers from January 1, 2014 with certain provisions applying from later dates. - The guidelines cover four key areas: - systems of governance, - forward looking assessment of own risks (FLAOR), - pre-application for internal models, - submission of information. - The SII project is led by a Program Board whose members include senior CBI management. - CBI engages with industry and monitors industry preparedness through open dialogue, industry surveys, industry seminars, and a quarterly newsletter. ### Supervisory framework and PRISM - CBI’s risk-based supervision framework PRISM is closely aligned to the SII Supervisory Review Process. - PRISM facilitates a systematic and structured supervisory process enhancing quality/consistency of supervisory assessment and judgment. - PRISM sets out minimum supervisory engagements driven by the impact ratings of insurers. - Engagement levels: - 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. ### Market structure and industry performance - Industry maturity and employment: - The insurance sector in Ireland, particularly the life insurance industry, is mature and highly developed. - It is estimated that the Irish insurance sector employs 14,000 people directly with some 13,000 people employed by third party service providers supporting a total employment of 27,000 in 2013. - Penetration and density (Table 1, Swiss Re Sigma World Insurance in 2013): - Life (Gross Premiums): - Ireland: 46,929 - EU: 890,912 5.3 - Advanced Markets: 2,200,249 2.1 - Life (Penetration As % of GDP): - Ireland: 6.18 - EU: 4.73 - Advanced Markets: 4.73 - Life (Density US$ per capita): - Ireland: 2,931 - EU: 1,620 - Advanced Markets: 2,073 - Non-life (Gross Premiums): - Ireland: 8,851 - EU: 603,406 1.5 - Advanced Markets: 1,653,018 0.5 - Non-life (Penetration As % of GDP): - Ireland: 1.80 - EU: 3.09 - Advanced Markets: 3.53 - Non-life (Density US$ per capita): - Ireland: 856 - EU: 1,060 - Advanced Markets: 1,547 - Total (Gross Premiums): - Ireland: 55,780 - EU: 1,494,318 3.7 - Advanced Markets: 3,853,267 1.4 - Total (Penetration As % of GDP): - Ireland: 7.98 - EU: 7.82 - Advanced Markets: 8.26 - Total (Density US$ per capita): - Ireland: 3,787 - EU: 2,680 - Advanced Markets: 3,620 - Source: CBI and Swiss Re Sigma World Insurance in 2013. - Market composition and trends: - The insurance sector is diverse: direct insurers, life and reinsurers operating in domestic and international markets. - Total number of insurers declined from 307 (59 life insurers, 129 non-life insurers and 119 reinsurers) in 2009 to 234 at end-June 2014. - There was a 35 percent drop in the number of reinsurers, driven partly by reinsurance regulations in 2006 and anticipatory exits ahead of SII compliance costs. - Insurers authorized by CBI can write business across the EU on an FOE or FOS basis; insurers authorized in other EU states can write business in Ireland on an FOE or FOS basis. All insurers operating in Ireland are subject to CoB supervision by CBI. - Market structure (Table 2, Source: Central Bank of Ireland): - No of insurers as at end-June 2014 / of which Captives / No of Employees as at end-2013 / Total Assets End-2013 € bn - Life: 53 / NA / 3,252 / 178.9 - Non-life: 104 / 55 / 5,267 / 32.2 - Reinsurance: 77 / 30 / 368 / 41.2 - Total: 234 / 85 / 8,887 / 252.4 - Foreign branches: 36 / NA / Breakdown not available - Irish branches abroad: 82 / NA - Market concentration: - In 2013, the top five life insurers accounted for 91 percent of the Irish market in terms of premiums written (up from 82 percent in 2011). - The top six non-life insurers had 93 percent share of the Irish market in 2013 (compared to 71 percent in 2011). - One non-life insurer accounted for 57 percent of gross written premiums in 2013. - The reinsurance industry: top ten accounted for 75 percent of premiums written in Ireland in 2012. - Reinsurance sector: - Ireland has the second-highest number of reinsurers in Europe and the asset size of the Irish reinsurance industry represented over 30 percent of GDP. - In 2013, Irish reinsurers accounted for 4.6 percent of global market share. - At end-2012, 19 percent of reinsurers in Europe were based in Ireland while 53 percent were based in Luxembourg. - Reinsurers with a presence in Ireland are subsidiaries of global groups, except one Irish-owned captive reinsurer. - Despite balance sheet size, reinsurance industry is not a major contributor to employment. - Group supervision and related-party issues: - Majority of insurers operating in Ireland are subsidiaries of large international insurance parents; some part of financial conglomerates domiciled in the EU. - CBI observed common related party transactions: inter-company loans, fees and charges paid to service companies within the group, reinsurance within group entities, and investments in subsidiary companies. - CBI noted investment of policyholder funds supporting unit-linked policies (ULPs) in related companies and liquidity swaps between an insurer and its parent bank. - Inter-company loans are inadmissible for solvency purposes. - CBI is the lead/group supervisor or has significant college responsibilities for four insurance groups in Ireland: - Lead/group supervisor of XL Group PLC and Beazley Group PLC (ultimate parents domiciled in Ireland). - Lead supervisor at sub-group level for MetLife, Inc. and Zurich, PLC. - Host supervisors of 25 (re)insurers who are members of foreign insurance groups. - Intermediaries and distribution: - 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 (figure excludes RFSPs such as credit institutions, credit unions, etc.; total Retail Intermediaries is 3,552). - Retail intermediaries employ over 30,000 employees and reported over 5 million policies/financial products held by their clients. - Distribution channels: - Life assurance market is heavily intermediated (independent brokers and credit institutions are main sales channels). - Non-life market: increase in direct sales but brokers and branch networks dominate; bancassurance is a small portion. ### Health insurance specifics - The insurance market accounted for approximately 13 percent (€2.39 billion) of national health spending. - Approximately 45 percent of the Irish population is enrolled in the private health insurance market. - There are four health insurers offering health insurance products on a community rating basis. - VHI Healthcare: - State owned undertaking and largest with 54 percent market share in 2013. - Has a much higher proportion of older lives than the other three insurers. - VHI was granted derogation from authorization and commercial solvency requirements in Article 4 of the First Non-Life Insurance Directive; the European Court of Justice found the derogation no longer applicable and VHI submitted an application for authorization by CBI (under consideration at the time of assessment). - Health Insurance Authority (HIA): - Independent statutory regulator of the private health insurance market. - Established in 2001 under the Health Insurance Acts and reports to the Minister for Health and Children. - Supervises compliance with the Acts, regulates risk equalizations, and increases public awareness of consumer rights and services. - Risk equalization aims to equitably neutralize differences in insurers' costs due to variations in age profile. - Given the community rating system, this assessment does not cover the role of HIA. ### Assets, liabilities, and investment profile - Aggregate asset trends: - Total assets in the Irish insurance sector increased from €139.5 billion in 2008 to €210.7 billion at end-2013. - Over the same period, the banking sector contracted from €1,622 billion to €791 billion. - Banking sector was 3.8 times the size of the insurance sector in 2013 compared to 11.6 times in 2008 (measured by total assets). - Insurance sector comprised almost 21 percent of financial system assets (considering just banking and insurance sectors) in 2013 compared to about 8 percent in 2008. - Life sector assets totaled €178.4 billion while the non-life sector had total assets of €32.3 billion in 2013. - Asset allocation (Table 3 summary): - Fixed income securities accounted for about 51 percent of the investment portfolios of Irish insurers. - Life insurers: - More than 50 percent of their assets in government bonds. - Another 15 percent in bank deposits. - Non-life insurers: - Largest asset allocation to government bonds (31 percent). - Relatively higher level of corporate bonds (24 percent). - Reinsurers: - Other loans and funds withheld (37 percent) are the largest asset category. - Corporate bonds (24 percent). - Low level of property holdings (1 percent) and equities (5 percent). - Exposure to the banking sector was immaterial. - Corporate bonds exposure of Irish insurers is mainly to European (non-Irish) and the financial sectors in the U.S. - (Re)insurers could have indirect exposures to the property sector through investment funds or bonds. *IMF staff assessment based on laws, regulations and supervisory practices in place as of November 2014.* ### 23. Life companies’ policyholder assets are invested predominantly in unit-linked assets at ### 23. Life companies’ policyholder assets are invested predominantly in unit-linked assets at ### Asset composition (end-2013) - Life policyholder assets: approximately 88 percent invested in unit-linked assets; 7 percent in government securities; remaining balance in other assets. - Life insurers’ shareholders assets composition: - cash and bank balances: 30 percent - government securities: 18 percent - unitized investments: 9 percent - equities: 3 percent - remainder spread over tax recoverables, receivables, and fixed assets - Table 3 — Analysis of Irish Insurance Sector—Asset Portfolios at End-2013 (figures in € mns and percent) - Government bonds: Life (Exclude ULPs) €13,016 52.5%; Non-life €9,580 30.6%; Reinsurance €6,490 15.8%; Total €29,086 29.9% - Corporate bonds: Life €3,024 12.2%; Non-life €7,357 23.5%; Reinsurance €9,889 24.0%; Total €20,270 20.8% - Bank deposits: Life €3,789 15.3%; Non-life €4,570 14.6%; Reinsurance €1,958 4.8%; Total €10,317 10.6% - Shares: Life €1,786 7.2%; Non-life €1,716 5.5%; Reinsurance €1,244 3.0%; Total €4,746 4.9% - Other loans/funds withheld: Life €468 1.9%; Non-life €59 0.2%; Reinsurance €15,019 36.5%; Total €15,546 16.0% - Property: Life €261 1.1%; Non-life €550 1.8%; Reinsurance €24 0.1%; Total €835 0.9% - Investment in related companies: Life €196 0.8%; Non-life €1,604 5.1%; Reinsurance €884 2.1%; Total €2,684 2.8% - Other assets: Life €2,239 9.0%; Non-life €5,906 18.8%; Reinsurance €5,664 13.8%; Total €13,809 14.2% - Total: Life €24,779 100%; Non-life €31,342 100%; Reinsurance €41,172 100%; Total €97,293 100% - Source of table: Central Bank of Ireland. ### Solvency position (Solvency I; end-June 2014 and end-2013) - Overall solvency: reported favorable solvency position under Solvency I; life, non-life and reinsurance industries reported solvency ratios much higher than required solvency margin of 150 percent. - Solvency ratios improved from end-2013 to end-June 2014. - EIOPA Insurance Stress Test 2014: average pre-stress SCR ratio for participating Irish insurers was about 100 percent, with no buffer for stress. - Table 4 — Solvency Position of Irish Insurance Sector (figures in € mns and percent) - Life (At end-June 2014): Available Assets €6,390; Required Solvency €2,263; Overall Solvency Ratio 282%; End-2013 Overall Solvency Ratio 281%; Change +1% - Non-life (At end-June 2014): Available Assets €6,660; Required Solvency €2,034; Overall Solvency Ratio 327%; End-2013 Overall Solvency Ratio 310%; Change +17% - Reinsurer (At end-June 2014): Available Assets €8,941; Required Solvency €2,547; Overall Solvency Ratio 351%; End-2013 Overall Solvency Ratio 354%; Change -3% - Source of table: Central Bank of Ireland. - Preparation for implementation of SII by CBI and Irish (re)insurers is well advanced. ### Operating and financial performance (domestic and international markets) - Domestic life market: - Stabilized in 2013 but weak economic conditions continue to dampen activity. - 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, but was 45 percent below its peak value in 2007. - Protection line declined by 13 percent in 2013, partly due to competitive pressures from U.K. domiciled insurers selling through Irish branches. - Lapse behavior: - Lapse rates spiked due to weak economic conditions, then fell and stabilized at a level higher than pre-crisis. - Insurers adjusted lapse assumptions so experienced lapse rates are now below assumptions; early lapses remain detrimental to policyholder interests. - International life market: - Concentrated in variable annuity (VA), Italian focused ULPs, captive and reinsurance businesses. - Majority of international life business is investment driven with relatively limited mortality cover. - Many cross-border life insurers remain focused on narrow product ranges. - Non-life market: - Non-life premiums from foreign risk business increased significantly since 2008; Irish risk premiums have declined for six consecutive years. - 2013 gross written premiums: total €14,899 million; property €4,446 million (30%); motor 25%; liability 21%; accident and health €1,513 million (about 10%). - Severe wind and flood events in late 2013 and early 2014 estimated cost to insurers: €130 million. - Potential for higher reinsurance costs as reinsurers review pricing in light of increased weather-related catastrophe frequency and severity. ### Key risks and challenges - Prolonged low interest rate environment: - Significant risk for international insurers writing VA business due to built-in guarantees. - VA portfolio primarily foreign-risk business; interest rate risk and interest rate volatility exposure noted. - Insurers typically use reinsurance or hedging to manage VA exposures. - CBI issued Stress Testing Framework for the VA Industry (September 2013); submissions received December 2013; seven participating insurers were adequately capitalized for a range of stresses, though some failures occurred under extreme scenarios. - Non-life insurers’ profitability: - From 2010 to 2013, 72 percent of profits before tax of Irish non-life insurance sector accounted for by investment income and gains; only 28 percent from underwriting income. - Investment income averaged 4.27 percent of insurers’ investment portfolios in 2005 and fell to 2.56 percent by 2013. - Risk that insurers may seek higher returns using riskier assets; potential for premature release of technical provisions to shore up profitability. - CBI focus: reserve adequacy and encouraging underwriting discipline and business model review. - Reinsurance sector: - Irish reinsurers pose limited domestic financial stability impact but have potential global systemic implications; some are part of global groups identified as G-SIIs. - Operating challenges: low interest rates, price/rate reductions, excess capacity, greater retention rates by primary insurers, inflow of alternative capital pressuring pricing. - Market tiering: demand concentration on well-diversified reinsurers; smaller firms face consolidation or exit. - Implementation of SII presents opportunities for primary insurers to reduce net risk via reinsurance; global pension crisis may increase longevity reinsurance activity. ### Preconditions for effective insurance supervision - Macroeconomic and financial context: - Ireland completed its EU-IMF Program on December 15, 2013 without a prearranged precautionary credit facility. - Financial sector restructured since 2008-09; balanced GDP recovery expected in 2014 and 2015 with exports and domestic demand contributing. - Public infrastructure and standards: - Well-developed public infrastructure, comprehensive legal and institutional framework, availability of information, and highly skilled labor force. - EU-driven financial sector legislation transposed into Irish law through statutory instruments (SI). - Accounting, auditing, and actuarial standards: - Publicly quoted EU incorporated companies must prepare consolidated financial statements in accordance with IFRS; others may choose IFRS or U.K. and Irish GAAP. - Statutory audits follow International Standards of Auditing (U.K. and Ireland). - Irish Accounting and Auditing Supervisory Authority oversees prescribed accountancy bodies (nine prescribed bodies listed in source). - Society of Actuaries in Ireland: as of October 2014, 1,505 members, of which 836 are Fellow members; issues Actuarial Standards of Practice and has a Disciplinary Scheme; at time of assessment, no disciplinary actions taken. - Statistics and market discipline: - CBI Statistics Division is main compiler of Irish financial statistics; data readily available on CBI’s website. - Corporate governance: Ireland’s CG system aligns with OECD Principles; CBI issued Corporate Governance Code and Captive Code setting higher standards for insurance sector. - Consumer protection: - Financial Services Ombudsman mediates and adjudicates unresolved individual complaints between consumers and RFSPs (except certain pension matters); decisions are legally binding on complainants and RFSPs; subject to statutory time limit of six years. *Source: Central Bank of Ireland; material as presented in the provided content unit.* ### 40. Insurers have access to a broad range of financial instruments in the EU, which ### Insurers have access to a broad range of financial instruments in the EU, which ### Market breadth and instruments - As at September 2014, there were a total of €16.5 trillion of fixed income investments outstanding and equities totaling €5.9 trillion issued by banks and other institutions in Eurozone countries. - Europe accounts for over 38 percent of the global market for exchange traded derivatives at June 2014, as reported by the Bank of International Settlements. - The European exchange traded derivatives market is second only in size to the U.S. derivatives market. ### Summary of compliance framework and supervisory context - The Central Bank of Ireland (CBI) operates under the CBRA and CBSEA (passage of the CBSEA in 2013 enhanced supervisory and enforcement authority). - CBI has financial autonomy in allocating resources to discharge financial regulation functions; making regulations on the industry levy requires Ministerial approval. - CBI remuneration packages for experienced staff and specialist expertise (e.g., actuaries) are uncompetitive compared with the market; constraints imposed under the FEMPI Act, which is expected to end in 2016, compound this issue. - Governance arrangements include potential political considerations: the Minister appoints all non-executive Commissioners and sets remuneration; the Secretary General of DOF is one Commissioner; grounds for removal of Commissioners include a broadly worded general ground. - CBI recognizes scope to enhance its data protection governance framework, including staff training. - CBI’s legal powers to exchange information are specified in the CBA and aligned with relevant EU Directives and protocols; CBI is a signatory to the IAIS Multilateral MoU and participates in supervisory colleges. ### Key statistics and supervisory population details - 126 (re)insurers are rated Low and are supervised reactively under PRISM. - 85 captive (re)insurers exist; of these, 54 transacted business that reinsured exposures of groups to claims against the groups from third parties who could potentially be considered as beneficiaries. - The coverage of the summary risk assessment of 74 (re)insurers with Medium-Low impact ratings may take about 10 years to complete one cycle, although regular meetings are conducted on a cycle of seven meetings over an 18 month period. - Ireland hosts approximately €6.3 billion of with-profits funds. ### ICP compliance highlights (Table 5 — selected ICPs 1–15) - ICP 1 — Objectives, Powers and Responsibilities of the Supervisor: O - CBI provides clear power and mandate as primary regulator; supervisory objectives stated in primary legislation. - CBI has sought legislative changes when identifying regulatory weaknesses or conflicts. - ICP 2 — Supervisor: PO - Governance structure clearly defined; appeals to IFSAT or High Court. - Financial autonomy exists; constraints on remuneration noted; potential political influence via appointment/removal processes. - ICP 3 — Information Exchange and Confidentiality Requirements: O - Legal powers to exchange information aligned with EU Directives; active MoU execution and college participation. - ICP 4 — Licensing: O - CBI sole authority for authorizing (re)insurers; clear criteria and public guidance; decisions align with service standards. - ICP 5 — Suitability of Persons: LO - F&P regime (introduced 2010) covers Board Members, Senior Management and Key Persons in Control Functions (PCFs). - Significant Owners are not explicitly covered by the F&P regime; no ongoing suitability requirement for Significant Owners. - ICP 6 — Changes in Control and Portfolio Transfers: O - Notification required for acquisitions at thresholds 20 percent, 33 percent or 50 percent; portfolio transfers require Court approval; CBI may object to protect policyholders. - ICP 7 — Corporate Governance: LO - CG Code largely observes ICP 7; insurers must submit annual compliance statements. - Shortfalls: certain 2013 CG Code aspects effective January 1, 2015; CG SII Guidelines effective January 1, 2014 for high/medium-high impact and groups, expected January 1, 2015 for low and medium-low. - CBI framework not explicit on directors’ responsibility to act in best interests of insurer and policyholders (ICP 7.4). - Group-level expectations lack specificity; PRISM lacks clarity on group supervisory outcomes. - No supervisory assessment of CG practices for Low Impact insurers beyond checklist review. - Despite ~€6.3 billion with-profits funds, PRISM and CBI generally assume no role in assessing customer fairness for these customers. - ICP 8 — Risk Management and Internal Controls: O - CG Codes and F&P regime provide comprehensive framework for risk management and control functions. - Weaknesses: F&P regime does not cover certain functions at the group level where group head is non-regulated; supervisory assessment limited for Low impact insurers. - ICP 9 — Supervisory Review and Reporting: PO - PRISM introduced 2011; risk-based supervision with structured engagement plans. - PRISM impact assessment is purely quantitative; no supervisory assessment of potential risks (e.g., governance lapses) for 126 Low rated (re)insurers. - Assumption that regulatory returns are complete and accurate creates risk; proportionate independent verification of Low rated insurers recommended. - Insurance group supervision is not embedded in PRISM. - No thematic Conduct of Business inspections on Low impact (re)insurers due to absence of market intelligence triggers. - No explicit reporting requirements for off-balance sheet exposures, material outsourcing functions and activities, and material changes or incidents. - ICP 10 — Preventive and Corrective Measures: LO - No explicit provision and related penalties for unauthorized insurance activities; unauthorized activities considered a general offence under insurance Regulations with District Court summary action subject to low maximum penalty. - PRISM facilitates timely interventions for High/Medium-high impact insurers; CBI empowered to take progressive preventive and corrective measures. - ICP 11 — Enforcement: O - Enforcement options include F&P regime actions, administrative sanctions procedure (ASP), referrals, and summary criminal prosecutions. - CBI policy prefers ASP over summary prosecution due to low penalties and resource burden of criminal standard. - ASP supported by clear structure for proportionate and consistent sanctions; CBI enforces sanctions and maintains comprehensive records. - ICP 12 — Winding-up and Exit from the Market: O - Companies Acts and Insolvency Acts set procedures; policyholders of direct insurers have priority over assets representing technical reserves; ICF provides payment of non-life claims arising from eligible Irish risks in insolvency. - ICP 13 — Reinsurance and Other Forms of Risk Transfer: LO - CBI uses conditions of authorization to impose Reinsurance Guidelines. - Authorization wording inconsistent across types of Guidelines; Reinsurance Guidelines do not explicitly address liquidity implications and the need for binding documentation in a timely manner. - CBI’s assessment of insurers’ reinsurance strategy limited to those rated Medium Low and above. - ICP 14 — Valuation: LO - Valuation for solvency is based on Irish GAAP or IFRS; amortized cost allowed for some fixed income investments held to maturity. - Life technical provisions more market consistent than non-life; discounting for non-life TP only allowed under certain conditions. - Non-life reserving requires a current estimate and a margin over current estimate (MOCE); MOCE determination permits broad means and management judgement, differing from life valuation approach and ICP 14.9 guidance. - Overall valuation methods do not enhance a consistent economic view of solvency; expected rectification with IFRS 4/IFRS 9 developments and advent of SII. - ICP 15 — Investment: LO - Largely in compliance but weaknesses observed: - Wording in conditions of authorization with respect to CBI Guidelines is not consistent across types of Guidelines (e.g., CG versus Asset Management Guidelines). - Some Asset Management Guidelines lack sufficient direction relative to ICP 15 standards (e.g., standard 15.3 on asset security and diversification; standard 15.4 on cash flow matching). ### Supervisory practice and recommendations (selected) - Strengthen remuneration competitiveness to attract and retain experienced supervisors and specialists. - Clarify governance and appointment/removal safeguards to reduce potential political considerations affecting CBI independence. - Enhance data protection governance and staff training. - Introduce qualitative elements into PRISM to assess risk probability for Low impact (re)insurers proportionately; consider proportionate independent verification of regulatory returns. - Embed insurance group supervision into PRISM and clarify group-level supervisory outcomes. - Explicitly require reporting of off-balance sheet exposures, material outsourcing and material incidents that could affect insurer condition or customers. - Review penalties and explicit provisions for unauthorized insurance activities to ensure effective deterrence. - Harmonize conditions of authorization wording across Guidelines and address liquidity implications and documentation requirements in Reinsurance Guidelines. - Move valuation and accounting approaches toward more market-consistent methods in line with IFRS 4, IFRS 9 and Solvency II implementation. *Source: _cr15118 - 40. Insurers have access to a broad range of financial instruments in the EU, which (IMF).* ### 15.6 with regards to the general issue of more complex and less ### _cr15118 - 15.6 with regards to the general issue of more complex and less ### Enterprise Risk Management for Solvency Purposes (ICP 16) - Assessment outcome: Largely Observed. - Rationale: - CBI’s compliance with ICP 16 is dependent largely on the passage of time until all the provisions of the FLAOR/ORSA, 2013 CG Code and the SII Governance Guidelines become effective (i.e., various dates between January 1, 2014 and January 1, 2016). - The effective date of this assessment relates to practice observed as of the end of 2013. - Additional areas of weakness: - ERM requirements are not yet defined at the group level. - Standard 16.4 is only partly observed due to the complexity involved with fully exploring the relationships mentioned in this standard. - Standard 16.4 makes reference to risk tolerance limits. These limits are not covered by the 2013 CG Code but are briefly mentioned in Guideline 13 of the SII Governance Guidelines. - Related reference: - 15.4.1 states: “The insurer’s investment strategies should take into account the extent to which the cash flows from its investments match the liability cash flows in both timing and amount and how this changes in varying conditions.” ### Capital Adequacy (ICP 17) - Assessment outcome: Partly Observed. - Reasons for Partly Observed: - Lack of explicit regulatory framework references to the use of a total balance sheet approach; - Lack of a regulatory requirement for a PCR; - Lack of specific regulations pertaining to the solvency levels of groups; - Lack of sufficient regulatory criteria for the assessment of capital resources. - Forward-looking note: - The implementation of SII is expected to improve the observance of the solvency regime with ICP 17. ### Intermediaries (ICP 18) - Assessment outcome: Observed. - Key points: - CBI regulates a large number of insurance intermediaries with a wide range of operations in terms of scale and complexity. - The F&P regime requires intermediaries to possess appropriate levels of professional knowledge, experience, integrity and competence to carry out insurance mediation. - The Minimum Competency Code of 2011 (MC Code) provides for minimum competency standards including those for retail financial products; and recognized qualifications. - The CP Code is comprehensive and prescriptive on disclosure of information to consumers, including remuneration arrangements with product providers. - Intermediaries are required to implement conflicts of interest policy appropriate to the nature, scale and complexity of their operations. - There are adequate legislative safeguards and regulatory requirement on safeguarding client monies. - Supervisory approach: - Intermediaries are typically rated Low-Impact under PRISM; CBI adopts a reactive supervisory approach and uses thematic inspection as the principal supervisory tool. - CBI has taken enforcement actions on intermediaries. ### Conduct of Business (ICP 19) - Assessment outcome: Largely Observed. - Features of the regime: - The CoB regime established under the CP Code, MC Code and the insurance regulations is comprehensive; requiring insurers and intermediaries to: - a) act honestly, fairly and professionally in the best interests of its customers and the integrity of the market; - b) act with due skill, care and diligence; and - c) ensure fair treatment of customers in the areas of: promotion and marketing, information disclosures; knowing the customer and suitability; policy servicing; and dealing with claims and complaints. - Gaps: - No explicit requirements relating to group-wide market conduct as well as product development and communication of claims procedures. - Data protection: - Compliance with data protection is under the remit of the Office of the Data Protection Commissioner, supported by an industry code on best practices. ### Public Disclosure (ICP 20) - Assessment outcome: Partly Observed. - Current status: - There are no explicit public disclosure requirements, although (re)insurers have to make disclosures in accordance with IFRS or Irish GAAP. - IFRS disclosures are not fully aligned with the requirements of the standards of this ICP. - Forward-looking note: - The implementation of SII is expected to improve observance of the disclosure regime with ICP 20. ### Countering Fraud in Insurance (ICP 21) - Assessment outcome: Observed. - Legal and supervisory framework: - No specific legislation on insurance fraud, but a broad range of statutory and common law offences under the Irish legal framework address fraudulent conduct relating to insurance, which are subject to criminal proceedings. - Supervisory assessment of insurers’ operational controls and CBI’s power under the CBSEA allow fraud detection and taking appropriate measures to combat fraud. - Industry and supervisory practice: - CBI supervisors have demonstrated a good understanding of insurance fraud risk, which is assessed at various stages of its supervisory process. - Active industry collaboration in raising awareness of insurance fraud and reporting of fraudulent activities, including the use of an industry database. - CBI may cooperate, coordinate and exchange information relating to insurance fraud with other competent authorities, including foreign authorities. ### Anti-Money Laundering and Combating the Financing of Terrorism (ICP 22) - Assessment outcome: Largely Observed. - Legal framework and guidance: - The legal framework for the AML-CFT regime in Ireland was last updated in 2013. - 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 DoF. - CBI has confirmed that it will have regard to these Core Guidelines in assessing compliance by designated persons with CJA. - Supervisory arrangements: - CBI has effective mechanisms to cooperate, coordinate and exchange information with both domestic and foreign supervisors/FIUs. - CBI takes a risk-based approach to AML-CFT supervision. - Life insurers rated High impact are subject to annual AML-CFT risk assessment and 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) and there is scope for reviewing the AML/CFT inspection cycle, particularly with respect to intermediaries with Low impact under PRISM. ### Group-wide Supervision (ICP 23) - Assessment outcome: Partly Observed. - Key weaknesses in CBI’s group supervisory framework: - Gaps in the identification of groups; - Gaps in the extension of legal entity requirements at the group level including group solvency assessment; - Lack of an effective group supervision framework. - Overall approach: - CBI’s approach to supervising groups is in line with supplementary supervision under the EU Directives, but practical gaps remain in implementation. *Excerpted content from the referenced IMF country report section.* ### references within PRISM to the supervisory outcomes expected at the ### _cr15118 - references within PRISM to the supervisory outcomes expected at the ### Summary of observance and key ratings - Table 6. Summary of Observance Level: - Observed (O): 11 - Largely observed (LO): 10 - Partly observed (PO): 5 - Not observed (NO): _ - Total: 26 - Selected ICP ratings and comments: - ICP 24 - Macroprudential Surveillance and Insurance Supervision: Observed (O) but assessors noted lack of evidence that all sources of risk information available to CBI fed into an integrated CBI ERM process to decide and activate risk strategies at both overall CBI level and prudential/market conduct supervision strategies. - ICP 25 - Supervisory Cooperation and Coordination: Observed (O). CBI has coordination arrangements, written internal procedures for information sharing and crisis management, and internal procedures for communication with other supervisory authorities. - ICP 26 - Cross-border Cooperation and Coordination on Crisis Management: Largely Observed (LO). CBI prepared through CBI and EIOPA Guidelines and participation in supervisory colleges, but further development needed (see recommendations below). ### Recommendations to address ICP 26 deficiencies (as stated) - 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 resilience of the 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. ### Key recommendations across ICPs (Table 7 — selected highlights) - ICP 1 - Objectives, Powers and Responsibilities of the Supervisor: - Consider establishing explicit objectives for the supervision of insurance groups in the primary legislation. - ICP 2 - Supervisor: - a) Enhance CBI’s statutory independence by: - Reconsidering the DoF’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. - b) Address challenges in attracting and retaining skilled, competent and experienced staff; consider improving competitiveness of staff remuneration and exempting CBI from the FEMPI Act. - c) Implement measures to enhance CBI’s data protection governance framework. - ICP 5 - Suitability of Persons: - a) Extend the F&P regime to include Significant Owners. - b) Establish clear requirements for (re)insurers to notify CBI of any circumstances materially adversely affecting suitability of persons appointed to PCF and Significant Owners. - ICP 7 - Corporate Governance: - a) Secure powers to supervise corporate governance at the group level, including non-regulated holding companies; - b) Review checklist approach for Low impact (re)insurers; - c) Enhance CG framework per ICP 7.4 to explicitly state directors’ responsibility to act in best interests of (re)insurer and policyholders; - d) Define CBI’s role in assessment of fair treatment of with-profits customers. - ICP 8 - Risk Management and Internal Controls: - a) Establish clear supervisory expectations of PCFs at the group level; - b) Review checklist approach for Low impact insurers; - c) Clarify expectations for the actuarial function given changing roles (Appointed Actuary, Signing Actuary, Chief Actuary, SII actuarial function, etc.). - ICP 9 - Supervisory Review and Reporting: - a) Review PRISM framework, particularly one-size-fits-all reactive approach for Low impact (re)insurers; consider more proportionate and timely risk assessment and thematic visits covering a sample of Medium/Low impact (re)insurers; - b) Update PRISM to incorporate appropriate risk-based supervision for insurance groups; - c) Strengthen regulatory reporting by establishing consistent and more comprehensive regulatory reporting by insurance groups and explicit requirements for reporting off-balance sheet exposures, material outsourcing functions and activities, and material changes or incidents affecting condition or customers; - d) Regularly review adequacy of supervisory resources to support proportionate supervisory program for (re)insurers with Medium-Low/Low impact and effective supervision of insurance groups. - ICP 10 – Preventive and Corrective Measures: - Seek legislative amendments to enhance sanctions available for unauthorized insurance activities. - ICP 11 - Enforcement: - Regularly review adequacy of enforcement resources to support a strategy of credible threat of enforcement. - ICP 13 - Reinsurance and Other Forms of Risk Transfer: - a) Establish enforceable regulatory requirements for reinsurance; - b) Establish regulatory requirements on cedants to control liquidity positions and timely documentation of reinsurance contracts at inception; - c) Formulate proportionate risk-based supervision over Low impact (re)insurers regarding reinsurance use; - d) Establish clear regulatory requirements for reinsurance at the group level. - ICP 14 - Valuation: - Shortcomings in valuation of TP expected to be addressed by SII as from January 1, 2016. - ICP 15 - Investment: - Develop and implement explicit investment requirements at insurer and group level. - ICP 16 - Enterprise Risk Management for Solvency Purposes: - a) Establish ERM requirements at the group level; - b) Enhance CG Code to reflect SII Governance Guidelines and introduce need for risk tolerance limits. - ICP 17 - Capital Adequacy: - a) Develop and implement capital adequacy support processes/tools in readiness for SII (regular insurer stress testing, capital target setting, definition of capital resources, etc.); - b) Establish quantitative and qualitative capital adequacy requirements at the group level; - c) Build supervisory expertise and processes to approve and monitor internal models. - ICP 19 - Conduct of Business: - Establish clear requirements for group-wide market conduct; product development to take account of different customer interests; replacement of policies guidance; insurers to inform claimants about claim procedures; fine-tune CoB regulatory returns (e.g., persistency rates) and provide guidance under the Data Protection Act. - ICP 20 - Public Disclosure: - Engage with insurers and their audit firms on possible changes in disclosure to result in more meaningful and useful public disclosures by insurers. - ICP 22 - AML/CFT: - a) Empower CBI to issue enforceable rules on AML/CFT obligations consistent with FATF Recommendations and establish guidelines to facilitate compliance; - b) Review AML-CFT inspection approach for retail intermediaries; - c) Periodically analyze ML/TF risks of non-life insurance sector and reconsider whether AML-CFT regime should apply to non-life sector. - ICP 23 - Group-wide Supervision: - Note that SII will provide a structured group supervision regime including more comprehensive reporting requirements. - ICP 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 planning. - ICP 25 - Supervisory Cooperation and Coordination: - a) Develop and implement a group supervisory framework identifying roles and interactions at group level; - b) Agree coordination agreements with members of colleges led by CBI. - ICP 26 - Cross-border Cooperation and Coordination on Crisis Management: - a) Establish clear requirements for High/Ultra-High (re)insurers/groups to maintain and test contingency plans and procedures for going- and gone-concern situations; - b) Regularly review practical barriers to efficient and internationally coordinated resolutions and collaborate with relevant supervisors to resolve these issues. ### Authorities’ response — Central Bank of Ireland (CBI) summary points - The Central Bank expresses appreciation to IMF and Mission team for detailed assessment and welcomes IMF’s acknowledgement that PRISM significantly enhanced the supervisory framework and facilitates a challenging and proportionate risk-based system of supervision. - CBI largely agrees with findings and will review current practices in light of IMF recommendations. Specific comments on three ICPs rated Partly Observed: - ICP 2 - Supervisor: - CBI acknowledges recruitment and retention challenges and is taking actions to remedy them. - Reiterates that its independence is essential and that assessors found no evidence of political and commercial influence. - ICP 9 - Supervisory review and reporting: - CBI believes it employs an appropriate range of techniques and deploys resources proportionately according to risk profile and systemic importance. - Notes Low impact insurers account in aggregate for only 3 percent of the total assets of the sector supervised and an insignificant proportion of consumers. - ICP 23 - Group-wide supervision: - CBI accepts gaps in current group supervisory framework and notes that SII implementation will provide a structured group supervision regime in line with ICP 23. - Concluding comment: CBI recognises the benefit of external review and commits to reviewing and considering IMF recommendations; implementation of SII is expected to bring CBI towards full observance of the ICPs. ### Detailed assessment excerpts — governance, resources, and supervisory arrangements - ICP 1 — Objectives, Powers and Responsibilities of the Supervisor: - CBI is the integrated financial supervisor; Insurance Directorate (ID) responsible for prudential supervision; Consumer Protection Directorate (CPD) responsible for consumer protection. - CBI has eight high level goals in Strategic Plan 2013-2015; two directly relevant to insurance: proper and effective regulation of financial institutions and markets; protection of consumers of financial services. - Going forward under SII main objective: “the protection of policy holders and beneficiaries.” (Art 27 and Art 28 of SII) - Assessment: Observed. Recommendation: consider establishing explicit objectives for supervision of insurance groups in primary legislation. - ICP 2 — Supervisor (governance, independence, accountability, resources): - Governance structure: - Central Bank Commission (Commission) manages activities; Governor is Chairman; ex-officio members include Deputy Governor (Central Banking), DG(FR), Secretary General of the Department of Finance (DoF); Minister appoints at least six, up to eight other members typically for five-year terms. - Internal committees include Governor’s Committee, Senior Leadership Committee, Financial Stability Committee, Operations Committee, Executive Risk Committee, Supervisory Risk Committee (SRC), Policy Committee. - Accountability and oversight: - Annual report to Minister within six months after end of financial year; accounts audited by Comptroller and Auditor General and external auditors; Annual Performance Statement required. - Internal audit reports to Governor; 2013 internal audit of insurance supervision rated “sufficiently effective”. - Appointment and dismissal: - Governor appointed by President for seven years, extendable by seven years; Minister appoints non-executive Commissioners and sets remuneration; Minister may remove Commissioner for specified grounds including a broadly worded ground “if 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. - Funding and supervisory resources: - Approximately 50 percent of financial regulation costs met by annual funding levy and fees on RFSPs; balance provided by CBI through the Exchequer. - Under PRISM, impact categorization determines minimum supervisory engagement and resource allocation. - Impact category supervisory allocations stated: - Ultra-high: Eight supervisors - High: Between two to four supervisors - Medium high: Between 50 to 100 percent of a supervisor - Medium low: Between 10 to 20 percent of a supervisor - Low: A team of fours supervisors for reactive supervision - Number of supervisors (FTE) allocated to prudential supervision increased from 42 in 2009 to 104 at end-August 2014. - Within CPD there were five supervisors for insurers, 14 for retail intermediaries and payment institutions, and four for market intelligence and advertising monitoring. Enforcement Directorate has 49 staff dedicated to enforcement. - Of 104 ID supervisors, about 51 percent had less than three years supervisory experience; 8 percent had more than 10 years experience; about 34 percent had more than 10 years industry experience (recruitment targeted mid-career intakes). Two external specialists seconded to ID at time of assessment. - Staff turnover rates for insurance supervisors: 20.2 percent in 2012 and 10.5 percent in 2013. - At end-July 2014 there were 14 Insurance vacancies out of staff complement of 108. - FEMPI Acts impacted remuneration: staff earning more than €65,000 subject to pay cuts ranging from 5.5 percent to 10 percent in 2013 (8 to 15 percent in 2009 and the threshold was €125,000). Public Service Pension Reduction described with specific percentage ranges. - Training and capacity: Talent Projects Manager appointed 2012; bespoke leadership program attended by over 200 staff; in 2013, 122 centrally organized training programs delivered totaling 2,500 training days; 145 technical training courses involving 1,755 participants and 3,300 training days; new mentoring scheme launched November 2013; training budget about €1,660 per annum per staff member over last six years. - Transparency and consultation: - CBI publishes Insurance Statistics annually and issues consultation papers for material regulatory changes; required to arrange a review of regulatory performance at least every four years. - Appeals and confidentiality: - Certain decisions appealable to IFSAT; appeals do not affect operation of CBI’s decision or prevent implementation (s45 of CBSEA). - Confidentiality obligations criminalized with fines and imprisonment specified (fine up to €30,000, imprisonment up to five years on indictment; summary fines up to €3,000 or imprisonment up to 12 months). - Assessment: Partly observed. - Key recommended actions (repeat of summary): - Enhance statutory independence (reconsider DoF involvement, clarify removal grounds, require public disclosure of removal reasons, review Minister’s statutory powers relating to regulatory functions and levy approval). - Address recruitment and retention challenges (improve remuneration competitiveness, consider exemption from FEMPI Act). - Enhance data protection governance framework. - ICP 3 — Information Exchange and Confidentiality Requirements: - Legal bases: section 33AK of CBA, EC (Insurance and Reinsurance Groups Supplementary Supervision) Regulations 2007 (SI 366/2007), Siena Protocol, IAIS multilateral MoU. - CBI has non-binding MoUs with domestic authorities including IAASA (June 2008), Financial Services Ombudsman and Pensions Ombudsman (April 2006), Office of the Director of Corporate Enforcement (December 2003), Irish Stock Exchange (October 2001), and the CCPC (February 2011). - Supervisory cooperation: active participation in supervisory colleges as group and host supervisor; information sharing with domestic authorities and international bodies such as OECD. - Assessment: Observed. *Source: _cr15118 - references within PRISM to the supervisory outcomes expected at the (IMF country report content provided).* ### introduction of capital, appointment of directors, finalizing the company’s name and objects ### introduction of capital, appointment of directors, finalizing the company’s name and objects ### Authorization process and certificates - “Authorization in principle” confirms that the applicant will be in a position to comply with its conditions of authorization within 21 days of authorization but does not entitle the applicant to write any business. - Formal authorization is granted in the form of a certificate of authorization after: - the applicant’s capital has been introduced, and - all other pre-licensing requirements are met. - After licensing, the newly authorized entity has 21 days to agree to its conditions of authorization. - A Certificate of authorization: - is granted for an unlimited period; - is required before carrying out the business of (re)insurance; - clearly states: the legislation under which authorization was given; the name and address of the reinsurer; the date of authorization; and the classes of insurance authorized. ### Service standards and timelines - CBI service standard commitments: - timeline for authorization in 75 percent of complete applications is three months; - timeline for authorization for 100 percent of applications is within six months. - Timeline determinants include: - quality and complexity of the initial proposal; - time taken by the applicant to respond to comments on each draft; - quality of responses addressing all issues raised; - changes made by the applicant during the authorization process; - time taken by any relevant third parties to respond to queries. ### Refusal of authorization and appeals - If the Authorization Unit considers the application does not meet licensing requirements, it informs the applicant; in such instances, the application is usually withdrawn by the applicant. - If CBI rejects a reinsurance application, it shall promptly give the applicant a written notice of refusal, which must include reasons for the refusal and an opportunity for the applicant to make representations in writing. - In the case of life and non-life applications, there is no specific requirement for CBI to provide an explanation; however, CBI is expected to notify the applicant of the reasons for refusal. (R10 of SI 380/2006) - Applicants have a right of appeal to the IFSAT. Appeals can relate to refusal of authorization or the conditions on which an authorization has been granted. Further appeal is available to the Courts. ### Assessment observations (authorization and process) - CBI is the sole authority for authorizing (re)insurers to conduct insurance business in Ireland. - There are clear and objective criteria and process for assessing applications for authorization, which are publicly available on CBI’s website. - CBI has issued supervisory guidance on the licensing criteria. - The authorization process is well structured for robust assessment of applications and consistent decisions. - CBI makes authorization decisions in line with its service standard commitments and provides reasons for the refusal of authorization. ### ICP 5 — Suitability of Persons (F&P regime overview) - Statutory basis: - Part 3 of the CBRA empowers CBI to make regulations on and supervise the F&P of controlled functions (CFs) in RFSPs (s18 to s53 of CBRA). - Cross-sectoral F&P regime introduced in October 2010 establishes: - Pre-Approval Controlled Functions (PCFs): - prior approval of CBI required before appointment; - CBI has prescribed 41 senior positions, including Board Members, Senior Management and Key Persons in Control Functions; - these individuals must complete an online Individual Questionnaire (IQ), endorsed by the proposing insurer. - Controlled Functions (CFs): - includes 11 categories of positions (CF 1 to CF11) that exercise a significant influence, monitor compliance or are responsible for provision of a financial service involving customers; - an insurer must be satisfied on reasonable grounds that the person complies with the F&P Standards and has agreed to abide by the F&P Standards before appointment. (s20 to s22 of CBRA and SI No 437 of 2011 & SI No 615 of 2011) - Significant Owner: - not subject to regulation under the F&P regime, but CBI requires Significant Owners to provide information on financial soundness and probity as part of applications for new authorizations and acquisition of, or change in a qualifying shareholding under the Acquiring Transaction Regime; - in practice, CBI would assess the F&P of a Significant Owner who is an individual using the same standards as PCF/CF. - Definition note: - Significant Owner refers to a person with a qualifying holding (direct or indirect) that represents 10 percent or more of the capital of, or the voting rights in, an insurer; or is able to exercise a significant influence over the management of an insurer. ### Scope exclusions and guidance - The F&P regime does not apply to: - Call Centre staff, who are subject to the Minimum Competency Code 2011; - Inward branches / cross border service providers: individuals performing PCFs/CFs on behalf of a EEA insurer providing services in Ireland on a cross border or branch basis; - Individuals with functional responsibility at group level who are already required to comply with F&P requirements in their home jurisdictions; - Outsourcing arrangements where the individual is regulated by CBI or a similar authority in another country and a written agreement is in place between the RFSP and the individual. - November 2011: CBI issued the non-statutory F&P Guidance requiring insurers to look beyond job titles and consider responsibilities when assessing CFs, and to maintain records of persons assessed as performing PCFs/CFs including due diligence undertaken. ### Suitability requirements (F&P Standards) - F&P Standards criteria for PCF and CF: - Fitness — to “have the qualifications, experience, competence and capacity appropriate to the relevant function”; - Integrity — to act honestly, ethically and with integrity; - Financial Soundness — to manage their affairs in a sound and prudent manner. - Competence and capability expectations include demonstration of: - appropriate professional or other qualifications and capability; - appropriate competence and skills obtained through training or experience in an employment context; - competence and proficiency via previous functions, current CFs, or any role similar to CF/PCF; - clear and comprehensive understanding of the regulatory and legal environment appropriate to the relevant function. - Persons providing services directly to consumers are also subject to the Minimum Competency Code. ### Probity adverse indicators - Circumstances that may adversely affect probity include: - Refusal, prohibition, restriction or suspension from carrying on any trade, business or profession; - Complaint to CBI, the Financial Services Ombudsman or an equivalent body; - Disciplinary proceedings, a warning, reprimand or other administrative sanction; - Dismissal from any position of trust or fiduciary appointment; - A director of a company that was struck off the register of companies or disqualification or restriction from acting as a director or in a managerial capacity; - Convictions (e.g., ML or TF, fraud, misrepresentation, dishonesty or breach of trust, civil penalty enforcement action); - Provision of untruthful, false or misleading information to CBI or uncooperative behavior in dealings with CBI. ### Financial soundness considerations - Factors CBI considers include whether the person: - has defaulted upon any payment due arising from a compromise or scheme of arrangement with his or her creditors or made an assignment for the benefit of his or her creditors; - is subject to a judgment debt which is unsatisfied; - is or has been the subject of a bankruptcy petition or has been adjudicated a bankrupt; - was a director of an entity which has been the subject of insolvency. ### Ongoing suitability, gatekeeping and review - Suitability is assessed at appointment and on an ongoing basis: - Gatekeeper role — initial requirement to demonstrate suitability. CBI has a gatekeeper role in respect of initial appointments of PCFs (s23 of CBRA); - Ongoing requirement — insurers must not allow persons to perform CF/PCF roles unless satisfied on reasonable grounds that the person complies with the F&P Standards and has agreed to abide by them (s21 of CBRA); - Extent of review — level of due diligence may differ depending on CF categorization; insurers expected to undertake additional due diligence for higher CFs (CF1 and CF2) and PCFs. - CF1 roles involve an ability to exercise a significant influence on the conduct of the affairs of the insurer; CF2 roles involve ensuring, controlling or monitoring compliance of the insurer. - F&P Guidance recommends: - RFSPs require persons performing CFs to notify the RFSP of material changes in initial due diligence; - RFSPs carry out an audit of persons performing CFs/PCFs on an annual basis by asking persons in CFs/PCFs to confirm whether they are aware of any material developments affecting compliance; - RFSPs investigate and take appropriate action if concerns regarding a person’s F&P arise. - IQ submitted by PCFs requires prompt notification to CBI of any changes that materially affect suitability (s21 of CBA and P21 of F&P Guidance). - There is no legal obligation or guidance on the ongoing suitability of Significant Owners other than at the stage of authorization or changes in control. ### Supervisory powers and actions - CBI statutory powers: - investigate individuals who perform or are proposed to be appointed to a CF role; - to initiate an investigation CBI must apply a preliminary threshold test to form an opinion that there is reason to suspect a person’s F&P and that an investigation is warranted; - following an investigation, a report is prepared for consideration by the Commission and the Governor; - CBI can remove individuals from CFs by issuing a prohibition notice and/or a suspension notice (s25, s26 and s43 of CBRA). - Historical note: So far, CBI has not issued any prohibition notice and one case was in progress at the time of assessment. - Exceptional circumstances: CBI may issue a prohibition notice without conducting an investigation where undisputed facts render an investigation unnecessary and the subject and insurer have been afforded a reasonable opportunity to make submissions. ### Exchange of information - The EIOPA General Protocol articulates reciprocal responsibilities of EU authorities to share information on the good repute, competence and professional experience of directors, managers and other persons who effectively run insurers, and the good repute and financial soundness of shareholders/members. - If a person is currently approved for a PCF role in another EEA/EU Member State and proposes a similar role in Ireland, CBI may expedite the application based on a positive reference check from the relevant EEA/EU supervisor. (P4.1 of General Protocol) - CBI’s legal powers to exchange information with other relevant supervisors are outlined in ICP (text truncated in source). *Source: _cr15118 - introduction of capital, appointment of directors, finalizing the company’s name and objects* ### 3. If deemed necessary, CBI may request an insurer signs a waiver to enable CBI to discuss the ### _cr15118 - 3. If deemed necessary, CBI may request an insurer signs a waiver to enable CBI to discuss the ### Fitness & Probity (F&P) regime — Supervisory practice and findings - An initial F&P assessment is completed by the Regulatory Transactions Department (RTD) based on applications from entities proposing candidates for PCF/CF roles. 42 - Application form content: professional experience, qualifications, reputation and character, other directorships and shareholdings. - Proposed PCF candidate must complete the IQ. IQ approvals: - Some IQs approved by RTD; others approved by relevant supervisory division depending on PRISM impact rating or whether IQ is part of authorization. - For Low and Medium-low impact insurers, RTD decides to approve/reject. - For High, Medium-high and new authorizations the decision is made by ID. - For High impact insurers, key PCFs are expected to be interviewed prior to a decision. 43 - On average, about three percent of PCF applications were withdrawn. - Upon notification from a reinsurer about a CF/PCF suitability issue, ID requests RTD to place a “Notification” on the CBI’s Supervision System (in-house database) and RTD will flag the named individual to indicate potential adverse suitability concerns. - CBI has statutory powers to remove individuals from PCF/CF roles via prohibition or suspension notices and may exchange information on suitability with other supervisors. - Significant Owners: - Not explicitly covered by the F&P regime. - CBI requires information on financial soundness and probity from Significant Owners as part of authorization or qualifying shareholding acquisition/change. - No ongoing suitability requirement for Significant Owners. ### F&P assessment and recommendations - Assessment: Largely observed. - Authorities are advised to: - a) Extend the F&P regime to include Significant Owners; and - b) Establish clear requirements for insurers to notify CBI of any circumstances that may materially adversely affect the suitability of persons appointed to PCF and Significant Owners. ### ICP 6 — Changes in Control and Portfolio Transfers: Legal authority and procedural requirements - Notification requirement: - Any person proposing to acquire a qualifying holding (10 percent or more of capital or voting rights or enabling significant influence) must first notify CBI. Notification also required for increases to prescribed percentages: 20 percent, 33 percent or 50 percent, or resulting in the insurer becoming the proposed acquirer’s subsidiary. (R2(1) & R20A of SI 359/1994, R2(1) & R40A of SI 360/1994 and R2(1) & R40A of SI 380/2006) - “Control” definition: relationship between a parent and a subsidiary, or a similar relationship between any natural or legal person and an insurer. (R20(9) of SI 359/1994, R40(9) of SI 360/1994 and R3 of SI 380/2006) - Acquiring Transaction Notification Form required information: identity of proposed acquirers, individuals responsible for management, financing of acquisition, structure of resulting group. (R20A(3)&(4) of SI 359/1994, R40A(3)&(4) of SI 360/1994 and R40A(3)&(4) of SI 380/2006) - Disposal notification: persons proposing to dispose a qualifying holding must notify CBI, indicating size and whether disposal reduces holding below prescribed percentages. (R20A (5)&(6) of SI 359/1994, R40A (5)&(6) of SI 360/1994 and R40A(5)&(6) of SI 380/2006) - Insurer obligations: inform CBI of acquisitions/disposals that reach/exceed or fall below prescribed percentages. (R20B of SI 359/1994, R40B of SI 360/1994 and R40B of SI 380/2006) - Assessment objective: ensure sound and prudent management of the insurer. CBI will appraise suitability and financial soundness of proposed acquirer against criteria: - the reputation of the proposed acquirer; - the reputation and experience of the individuals who will direct the business of the insurers as a result of the proposed acquisition; - the financial soundness of the proposed acquirer; - whether the insurer will be able to comply and continue to comply with the prudential requirements; - whether the group of which it will become a part has a structure that makes it possible to exercise effective supervision; and - potential risk of ML or TF. - CBI shall not examine proposed acquisitions in terms of economic needs of the market. (R20D of SI 359/1994, R40D of SI 360/1994 and R41A of SI 380/2006) - Where CBI does not oppose an acquisition, it may fix a maximum completion period and impose conditions. Where opposed, CBI must inform proposed acquirer of reasons and may publish a statement of reasons. (R20F & R20G of SI 359/1994, R40F &40G of SI 360/1994 and R42A & R43 of SI 380/2006) - Purported acquisitions in contravention of Regulations: - a) are of no effect to pass title to any share or other interest; and - b) any exercise of powers based on the purported acquisition is void. (R20J of SI 359/1994, R40J of SI 360/1994 and R44A of SI 380/2006) - Insurers must inform CBI annually of names of shareholders or members with qualifying holdings and sizes. (R20L of SI 359/1994, R40L of SI 360/1994 and R45A of SI 380/2006) - Where CBI reasonably believes control is inconsistent with prudent and sound management or notification requirements are breached, CBI may apply to the Court for orders directing disposal, suspending voting rights, or invalidating votes. (R20N of SI 359/1994, R40N of SI 360/1994 and R45B of SI 380/2006) ### Demutualization, conversion and portfolio transfers — legal process and supervisory input - Change of legal form (mutual to stock company and vice versa) treated as change in ownership and subject to acquiring transaction requirements. - Portfolio transfers: - Assurance Companies Act, 1909 (ACA) requires High Court approval; CBI often a notice party but not a party to hearings. s13 of ACA. - Petitioner must lodge documents including an independent actuarial report; preserving equity among policyholders is key consideration. - Additional legal requirements: - a) Transfer of FOE or FOS portfolio in Ireland to an EU insurer is subject to a Court order sanctioning the scheme. - b) An Irish insurer may, after prior consultation with CBI, assign a portfolio to another Irish/EU insurer; assignment not effected unless transferee home supervisor certifies solvency after assignment. - c) For Irish branches assigning portfolios carried on in another EU State, CBI shall consult that State’s supervisor. - d) An Irish insurer may not assign portfolio to insurer established in another EU State whose head office is not in EU. (R12(1) of SI 359/1994 and R35(1) of SI360/1994) - Consultation and deemed consent timelines: - Supervisors must respond within three months to avoid assignment being deemed agreed. CBI shall issue a response within three months or assignment deemed agreed. (R12(2)-(4) of SI 359/1994 and R35 (2)-(4) of SI360/1994) - Irish reinsurer acquiring another reinsurer’s reinsurance portfolio must obtain CBI certificate that required solvency margin will be met post-acquisition. (R22 of SI 380/2006) - Publication and policyholder rights: - Transfer must be published in Iris Oifigiuil and twice in daily newspapers in Ireland and relevant EEA states. - Transferring insurer must inform existing policyholders of material facts and give option to cancel policy. (R12(5) of SI 359/1994 and R35 (5)of SI360/1994) - Actuarial practice: - Society of Actuaries in Ireland issued an Actuarial Standard of Practice for actuary’s role in ensuring equity among three sets of policyholders for life business transfers. ### ICP 6 — Supervisory practices and assessment - Supervisory practices: - Acquiring Transaction Notification Form requires detailed information similar to authorization applicants, including legal/regulatory status, financial position, sources of revenue, assets/liabilities, pledges and guarantees, and any related-party interests. - CBI applies same requirements to proposed acquirers inside and outside Ireland and consults relevant foreign authorities where appropriate. - Approval from proposed acquirer’s home supervisor is prerequisite to CBI approval. - CBI seeks to identify all proposed/intended beneficial owners via shareholding details and can oppose acquisitions if information is incomplete or requests are unanswered. - For ACA portfolio transfers, CBI will consider impact on transferring and remaining policyholders, relying on independent actuarial report and solvency certificate from transferee home regulator. - CBI has procedures for several portfolio transfers annually. - Assessment: Observed. - Comments summary: - Notification and approval regime in place for acquisitions/increases/reductions of qualifying holdings at prescribed levels (20 percent, 33 percent, 50 percent). - CBI may apply to Court for remedies if notification requirements not met or control is prejudicial. - Portfolio transfers require Court approval; CBI may object where policyholder interests are detrimentally affected. - CBI may impose conditions to approve conversions between mutual and stock company forms. ### ICP 7 — Corporate Governance: legal framework, supervisory framework, and observations - Legal framework and instruments: - 2013 Corporate Governance Code for Credit Institutions and Insurance Undertakings (CG Code) and 2011 Corporate Governance Code for Captive Insurance and Captive Reinsurance Undertakings (Captive Code). - 2013 CG Code replaces and enhances 2010 CG Code and is effective January 1, 2015. - CG Codes are imposed as authorization conditions; enforceable via preventive and corrective powers and sanctions (ICP 10 and ICP 11). - CG Codes apply to (re)insurers but not non-regulated holding companies of insurance groups; CBI uses indirect supervision via regulated reinsurer. (R9 of SI 366/2007) - Insurers must submit an annual compliance statement on compliance with relevant CG Code. (s25 of 2010 CG Code, s26 of 2013 CG Code, s22 of Captive Code and s27A of CBA 1997) - CG SII Guidelines (CBI Guidelines on Preparing for – System of Governance) supplement CG Codes from January 1, 2014 (effective but not legally binding) with more explicit group-level requirements for High and Medium-high impact insurers and groups; Low and Medium-low impact insurers expected to apply from January 1, 2015. - Board responsibilities and governance content: - Board must set business strategy, understand risks, establish documented risk appetite, and ensure effective, prudent and ethical oversight. (Sections 6, 12, 13, 14, 22 of 2010 CG Code and sections 6, 13, 14, 15, 23 of 2013 CG Code) - Board retains primary responsibility for CG; Senior Management responsible for operating oversight consistent with Board policy. (Sections 6.3–6.6) - F&P regime requires appropriate Board mix and numbers commensurate with governance structure and nature, scale and complexity of business (Sections 7–13 of 2010 CG Code; sections 7–14 of 2013 CG Code). - Individual directors have general obligations under the Companies Act to act in good faith, honestly and reasonably, and exercise due care and diligence. - CG framework less explicit than ICP 7.4 on directors’ duties to act in best interests of insurer and policyholders (e.g., putting those interests ahead of personal interests; exercising independent judgment). - Board must oversee design and implementation of risk management and internal control systems; documented risk appetite required. (Sections 6 and 15 of 2013 CG Code) - Remuneration policy requirements: not to induce excessive or inappropriate risk taking, aligned with risk appetite and long-term interests; must cover Board, Senior Management, Key Persons in Control Functions and other material employees. (Sections 14, 18 and 23 of 2010 CG Code; sections 13, 15, 19 and 24 of 2013 CG Code) - Financial reporting and audit oversight: reliable financial reporting process and Audit Committee duties to monitor statutory audit and accounts. (SI 359/1994, SI 360/1996, SI 380/2006, s193(1)&(2) of CA 1990, s21 of 2010 CG Code and s22 of 2013 CG Code) - Communication and reporting: insurers must notify CBI of material deviations from CG Code and submit annual compliance statements; listed companies have separate CG statement requirements (s158(6C) of CA 1963) which do not apply to unlisted insurers. - Senior Management responsibilities and CEO/CRO roles: policies to ensure day-to-day operations consistent with strategy, promote risk culture, provide Board with timely information, oversight of senior management, appointment/removal/succession responsibilities; additional CRO and governance culture requirements effective January 1, 2015. (s6, s9, s13 of 2013 CG Code) - Insurers must report material deviation from CG Code to CBI within five business days and specify remedial action. (s4 and s25 of 2010 CG Code, s4 and s26 of 2013 CG Code and s.25 and s.27A of CBA 1997) - Supervisory framework and tools (PRISM-based) - Governance assessments covering Board/committee quality, management quality, internal audit quality, culture and compensation, supervisibility and structural complexity, and risk management quality. - Meetings with Board members and Heads of CFs to assess leadership suitability and competence. - Review of Board and committee minutes and papers to assess processes, structures, and information flows. - Review and testing of Board-approved policies and procedures (including remuneration and nomination policies). - Conducting FRRs such as review of risk management framework. - PRISM frequency: - High impact insurers: full governance review at least every two years. - Medium-high impact insurers: review at least once every two to four years. - Review of Annual Compliance Statement signed by all Board members detailing material deviations and remedial actions. - For Low impact insurers (e.g., captives), CBI reviews Compliance Statements and determines need for reactive measures including enforcement. - Where insurer reports material breach, CBI may require supervisory measures such as changes to Board composition. - Specific supervisory gap: - Responsibility for fair treatment of with-profits policyholders is not currently part of PRISM or CG Code. Insurers subject to CBI’s prudential supervision manage a total of €6.3 billion in with-profits funds. CBI relies on insurer’s actuary for fair treatment (e.g., allocation of profits in accordance with Policy holders Reasonable Expectations – PRE). - Assessment: Largely observed. - Comments — specific shortfalls: - Certain aspects of the revised 2013 CG Code are applicable only from January 1, 2015. *International Monetary Fund — Ireland, selected extracts from supervisory assessment chapter* ### 2015. For example, these include the role of the CRO. The CG SII Guidelines are ### _cr15118 - 2015. For example, these include the role of the CRO. The CG SII Guidelines are ### Corporate Governance (CG) framework and observed gaps - CG SII Guidelines effective (but not legally binding) from January 1, 2014, for all (re)insurers designated as high impact, medium-high impact and groups. Low impact and medium low impact (re)insurers are expected to apply these guidelines from January 1, 2015. - Observed weaknesses and ambiguities: - CBI’s CG framework regulation is not as explicit as ICP 7.4 in stating the responsibility of individual directors to act in the best interests of both the (re)insurer and policyholders. - Specificity of expected outcomes at the group level is unclear; CG Codes directed at (re)insurers but contain fairly general language with respect to groups (example: Section 6.3 of the Code states – “All institutions shall have robust governance arrangements ....both on a solo basis and at group level”). - PRISM lacks clarity of supervisory outcome expected at the group level, though actual CBI supervisory practice for Irish based cross-border groups includes some assessment of CG at the group level for some groups. - No supervisory assessment of the CG practices of Low Impact (re)insurers beyond a check-list approach to reviewing the Annual Compliance statements. - Despite approximately €6.3 billion of with-profits funds in Ireland, PRISM and CBI generally assume no role in the assessment of customer fairness for these customers. - Recommended CBI actions to improve governance practices: - Secures the necessary powers to supervise CG at the group level, even for non-regulated holding companies. - Reviews its current checklist approach to reviewing the CG of Low impact (re)insurers. - Enhances the CG framework regulation in accordance with ICP 7.4 to further explicitly state the responsibility of individual directors to act in the best interests of both the (re)insurer and policyholders. - Defines its role in the assessment fair treatment of with-profits customer. ### ICP 8 — Risk Management and Internal Controls: legal framework and requirements - Principal requirements for risk management and controls stated in the CG Code, the Captive Code and CG SII Guideline. - 2013 CG Code (becomes effective from January 1, 2015) sets out additional requirements relating to risk management and internal control compared to the current CG Code. - F&P regime (ICP 5) covers risk management, compliance, actuarial matters, and internal audit, which are categorized as PCFs. - Board responsibilities under the 2013 CG Code include: - The strategy for the managing material risks (s13.1.c of 2013 CG Code); - Overseeing an adequate and effective internal control framework (s13.1.f of 2013 Code); and - Identifying risks that require contingency plans (s15.8 of 2013 Code). - Requirements for key control functions (CFs): - All key CFs are independent of business units and have adequate resources and authority (s14.5 of 2010 CG Code, s13.5 of Captive Code, s 15.5 of 2013 CG Code). - The Board receives accurate, detailed and timely information from CFs (s14.6 of 2010 CG Code, s13.6 of Captive Code, s 15.6 of 2013 CG Code). - Prior Board approval for removal of the head of a CF and notification to CBI within five working days; no agreement should impede provision of information by that Head to CBI (s13.7 2010 CG Code, s12.7 Captive Code, s14.8 of 2013 CG Code). - Governance structures and committees: - Insurers should have remuneration policies consistent with sound risk management (s6.3 of 2010 CG Code & Captive Code). - Board must establish a risk committee to advise on risk appetite and tolerance (s22 of 2010 CG Code). - Insurers are required to appoint a CRO under s12 of the 2013 CG Code; Captive Code is more proportionate (s17 of Captive Code). - Board must establish a documented risk appetite expressed qualitatively and with quantitative metrics; annual review required (s14 of 2010 CG Code and s15 of 2013 CG Code). - Board responsible for compliance framework (s12 of 2010 CG Code & s13 of 2013 CG Code). CBI CO Guideline outlines role of Compliance Officer. - Actuarial and reserving requirements: - Life insurers required to have an Appointed Actuary with statutory functions including annual investigations and valuation of liabilities (s14.5 of 2010 CG Code and R15 & 19 of SI360/1994). - Non-life (re)insurers must submit a Statement of Actuarial Opinion (SAO). 2014 Reserving Requirements effective for financial years ending on or after December 31, 2014, replacing The 2008 Guidelines. - Internal audit and audit committee: - CBI requires an effective internal audit function; Board to establish an Audit Committee with written terms of reference. Head of Internal Audit (PCF13) is designated as a PCF role (Section 2, s18.1, s21 of 2010 CG Code). - Outsourcing and group-level coverage: - CBI requires (re)insurers to retain at least the same degree of oversight and accountability for outsourced material activities. - F&P regime does not cover risk management, compliance, actuarial and internal audit functions at the group level, particularly where group is headed by a non-regulated company. ### ICP 8 — Supervisory practices and assessments - Supervisory scope under PRISM: - Supervisory teams assess risk management and internal control practices of High, Medium-high and Medium-low insurers; for Low impact insurers reliance placed on annual compliance statement. - PRISM includes sub-categories such as Risk Management Quality and Internal Audit Quality within Governance Risk. - Required supervisory engagement: - Supervisory teams must meet with the CRO, the Actuary, Head of Internal Audit, External Audit and members of the Board on a regular basis, with frequency determined by impact rating. - Supervisors assess embeddedness of ERM framework via governance reviews and ongoing engagement (including FRRs). - CBI receives and reviews risk registers, risk appetite statements and risk tolerances of High impact insurers, and reviews Board and Board Committee meeting packs and minutes regularly. - Group supervision: - Assessment occurs at the group level; CBI group supervision includes supervisory colleges and inclusion of risk management and internal controls in college agenda. - Outsourcing assessment: - Outsourcing arrangements assessed as part of PRISM engagement for High, Medium High and Medium Low insurers. PRISM provides examples of structural complexity including operations in other jurisdictions and critical CFs being outsourced. - Observed weaknesses (risk management and internal controls): - The F&P regime does not cover risk management, compliance, actuarial and internal audit functions at the group level, particularly for groups headed by a non-regulated company. - Supervisory teams assess High, Medium-high and Medium-low insurers, but for Low impact insurers reliance is on the annual compliance statement. - Recommended CBI actions (ICP 8): - a) Establishes clear supervisory expectations of PCFs at the group level; - b) Reviews its current checklist approach to reviewing the risk management practices Low impact insurers; and - c) Clarifies its 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.). ### ICP 9 — Supervisory Review and Reporting: legal powers and PRISM risk-based approach - Legal enhancements under CBSEA (enacted July 2013): - a) Increasing powers to investigate, give directions and make regulations; - b) Consolidating and augmenting the authorized officer role; - c) Providing protection for whistle-blowers; and - d) Increasing the level of sanctions CBI may impose. - Authorized officer powers (s24, s26, s27 and s29 of CBSEA): - Enter business premises at reasonable times; search and inspect premises; require records; summon insurer to give information; inspect records; take copies/extracts; require declarations; attend meetings relating to RFSP business. - For Irish branches operating in EU, CBI may (after informing relevant EU supervisor) carry out on-the-spot verification (R11 of SI 359/1994 and R11 of SI 360/1994). - CBI has general powers to require returns and accounts; may obtain information relating to any connected body of an insurer which the insurer “may reasonably be expected to provide.” - Noted gap: no provision on information related to a connected party of a reinsurer (s16 of IA 1989, s4 of IA 1983 and R21 of SI 380/2006). - CBI has legal authority and has conducted inspections of outsourced activities; governance reviews consider due diligence, service provider capability, documentation and governance of outsourcing. - PRISM objectives: - Adopt consistent risk thinking across RFSPs; allocate resources based on impact and probability; engage with all High Impact RFSPs; assess firm risks systematically; ensure action taken to mitigate unacceptable risks; provide RFSPs clarity on CBI’s view of risks; use quality control mechanisms; provide improved management information about RFSP risk profiles. - PRISM assessment components: - a) Impact categories — Ultra-High/High, Medium-High, Medium-Low, Low. Impact assessment is purely quantitative; classifications are supervisory judgment and not subject to appeal. - b) Probability risk — likelihood of firm failing; risk rating categories High, Medium-High, Medium-Low, Low; PRISM requires supervisors to challenge insurers and form judgments. - Ten probability risk categories: capital, conduct, credit, market, insurance, governance, environmental, liquidity, operational and business model/strategy, and 24 sub-categories. - 12 point risk rating scale is non-numeric (ranging from Low- to High+). Insurers rated Low are not subject to probability risk assessment. - PRISM engagement and supervision levels: - PRISM is a minimum engagement model; supervisory teams can add tasks as needed and may conduct engagement well in excess of minimum. - As at June 2014, 10 insurers and one reinsurer were classified as Ultra-High/High; these are subject to ongoing Financial Risk Reviews (FRRs) covering six areas: asset-liability management and liquidity management; asset quality; capital management; premium and reserving; risk transfer; and underwriting concentration and risk appetite. Business model analysis and governance reviews conducted every two years. - Full Risk Assessment (FRA) for Medium-High impact insurers (23 insurers as at June 2014) every two to four years; FRA incorporates business model analysis, governance review, and FRR. - Approximately 10 percent of Medium-low impact insurers (74 insurers as at June 2014) will be subject to proportionate FRA each year. This sampling means it will take 10 years to conduct summary risk assessment for all Medium-low insurers. - Regular meetings for Medium-low insurers on a cycle of seven meetings over an 18 month period to provide continuous supervisory attention. Onsite meetings involve significant preparation and requests for advance data (Board minutes, terms of reference, MI on underwriting, capital, liquidity, credit positions, etc.). - Outcome of FRRs and FRAs shapes Risk Mitigation Program (RMP) for each insurer (except those rated low). PRISM facilitates proactive monitoring of RMP implementation. - Proactive supervisory assessment does not apply to insurers rated as Low-impact. - Low-impact insurer profile and supervision: - As at June 2014, there were 126 insurers (including 84 captive insurers/reinsurers) rated as Low-impact, which accounted for 3 percent of total assets of the insurance industry and 4 percent of gross premiums written. - Supervision of low rated insurers driven solely by impact rating with minimal prudential risk assessment by a team of four prudential supervisors, mainly reactive monitoring of triggers from regulatory returns or financial statements. - Higher level of supervisory engagement with respect to their CoB through thematic visits by CPD. - CBI will increasingly use technology to improve supervisory efficiency, e.g., automating receipt and analysis of financial returns with automatic alerts when a Low-impact insurer fails key financial health checks. - Macro and cross-border monitoring: - CBI’s Financial Stability Division (FSD) and Risk Division work with ID to monitor environmental risk, updating environmental assessments at least twice-yearly. - As a member of EIOPA, CBI interacts with other EEA supervisors and participates in ad hoc projects such as stress tests. - PRISM supervisory actions and quality assurance: - Any probability risk rated Medium-high or High must be mitigated; PRISM prompts supervisors to open RMP issues for Medium-high/High ratings, setting outcome-focused actions and deadlines. - Quality assurance mechanisms include: - a) Risk Governance Panels (RGPs) to scrutinize supervision team strategy, judgments and RMPs; - b) Annual Risk Rating Meetings to challenge PRISM data inputs and surface new risks/emerging trends; - c) Management oversight of RMP actions not scrutinized by RGPs; - d) Management Information delivered by PRISM to CBI leadership; and - e) Supervisory Risk Committee chaired by the DG(FR) meeting weekly to review significant risk issues. - Senior management oversight for Low impact insurers includes: - a) Weekly team meeting with Deputy HOD; - b) Quarterly solvency report with details of those close to the minim solvency requirements; - c) Regulatory applications e.g., voluntary revocation, extension of authorization, mergers or derogations from CP Code; and - d) Matters escalated to SRC. ### Regulatory reporting and ongoing supervision (ICP 9) - CBI legal authority to require regulatory returns and supervisory information under: - SI 202 of the EC (Non-Life Insurance Accounts) Regulations 1995; - EC Framework Regulations: SI 359/1994, SI 360/1994, SI 380/2006; and - Requirements for Composite Reinsurance Undertakings (R-CR). - Submission timelines and thresholds: - All insurers/reinsurers must submit annual returns electronically using the Online Reporting System and in hard copies within four months of the financial year. - Direct insurers must file quarterly returns within one-month of end-of-quarter. - Reinsurers, except captive reinsurers, with total assets in excess of €20 million are required to submit a quarterly return. - All other reinsurers must submit a quarterly return where their available solvency margin falls below 150 percent of their required solvency margin. - Branches, both headquartered in EEA or outside EEA, required to submit relevant annual returns and statistical information. *International Monetary Fund — mission assessment text excerpt* ### Chapter 5 of R-CR) ### Chapter 5 of R-CR) ### Annual returns and regulatory reporting - Annual returns include: - On-line forms -17 forms for non-life insurers and 30 forms for life insurers, which include their reinsurance programs; - Signed Directors Compliance Statement; - Auditor’s Report on Statutory Insurance Returns; - Full set of audited Financial Statements. Insurers' financial statements should be prepared in accordance with IFRS or Irish/UK GAAP; - Statement of Intra-Group Transactions or confirmations that none exist. The scope of the intra-group transactions is limited to those where the regulated insurer is a party to the transaction; - Statement of Actuarial Opinion (SAO) -non-life insurers and reinsurer; - Abstract of Valuation Report - life insurers only; - Statement of Compliance with the Criminal Justice (Money Laundering and Terrorist Financing) Act of 2010 - life insurers only; - Retrocession Strategy, Strategic Solvency Target and information on finite/financial reinsurance or reinsurance in relation to VA products of reinsurers only. - Supervisory teams may request ad hoc information: board pack, board minutes, additional committee minutes, key risk indicators (KRIs). - CG Code requirement: insurers must report a material deviation from the Code within five business days to CBI, advising background and proposed remedial action. - Explicit reporting gaps identified: - a) Insurance Groups – no established routine regulatory returns on group reporting structure or material group changes; CBI required two groups to provide ad-hoc group information for supervision; - b) Off-balance sheet exposures – no quarterly reporting; IFRS/Irish/UK GAAP provides for such exposures but may not fully address supervisory needs; - c) Material outsourcing functions and activities – no explicit reporting requirement; reviewed as part of Governance Review; - d) Material changes or incidents that could affect condition or customers except acquisition of qualifying holdings and portfolio transfers (ICP 6). Reinsurers required to notify CBI of significant changes in business plan. - CBI validation and correction process: certain returns must be certified/attested; online validation checks and triggers for unusual trends; inaccuracies logged in a spreadsheet that must be closed by the supervisor after correction. - CBI reviews and amendments: Compliance Statements consolidated into a single statement in January 2014; non-life branches required to submit additional statistical information since May 2014. ### Role of external auditors - Audit standards and deliverables: - External audits in accordance with the International Standards on Auditing (UK & Ireland). - External auditors must submit the Statutory Duty Confirmation to CBI stating no matter came to their attention that gives rise to a duty to report to CBI; matters previously reported should be referred to in the Confirmation. - If an auditor reports to an insurer on matters covered by the Confirmation, auditor must provide CBI with a copy. - CBI may require an auditor to conduct an examination and provide a statement on compliance obligations (s27B, s27C and s27BA of CBA 1997). - Whistleblowing obligations of auditors where: - a) circumstances likely to affect materially an insurer's ability to fulfil obligations to policyholders or meet prudential requirements; - b) material defects in financial systems/controls or accounting records; - c) a qualified audit opinion is proposed; - d) a decision to resign or not seek re-election as auditor is made; - e) facts or decisions likely to affect materially an insurer's ability to fulfil obligations to policyholders or meet prudential requirements in entities in a control relationship with the insurer. - Legal immunity exists for auditors acting in compliance with whistle obligations (s35 of IA 1989). To date, one whistle-blowing notification by an external auditor. - Auditor Protocol: framework for exchanging information between CBI and external auditors; updated to reflect legal immunity changes; meetings governed by principles to share information deemed confidential under the CBA. Audit engagement terms shall acknowledge CBI-auditor communication not to be a breach of duty. ### Onsite reviews, PRISM engagement and supervisory follow-up - PRISM engagement program: - Regular meetings with insurers (except those rated Low impact) are integral to PRISM. - Supervisory FRAs include onsite reviews; insurers notified in writing prior to an FRA. - Onsite meetings cover strategic direction, strengths/vulnerabilities, governance, risk profile, and suitability/competence of leadership. - Communication and follow-up: - Findings communicated via written reports (including RMP) and discussions with board/management. - For insurers rated Medium Low or above, RMP documented; PRISM facilitates monitoring, tracking and closing RMP actions. - Supervisors follow up via desktop analysis and onsite inspections depending on mitigation required. - Thematic reviews in 2013: - a) Pricing, claims and reserving practices of non-life insurers; - b) Asset quality of reinsurers and strategic asset allocations; - c) Use of derivatives by High and Medium-High Impact (re)insurers to assess if for efficient investment portfolio management. ### Conduct of Business (CoB) supervision and intermediaries - CBI supervises over 3,400 retail intermediaries; considered Low impact under PRISM. Of which, there were 2,979 (re)insurance intermediaries as of September 8, 2014. - Supervision approach: combination of reactive and thematic measures and enforcement actions where non-compliance is identified; thematic visits principal tool for consumer conduct risk. - CPD inputs into PRISM FRAs via Conduct Risk assessment for High/Medium-High/Medium-Low impact insurers. - Thematic inspections 2013: - a) Sales incentives and remuneration for direct employees of life insurers — CBI required insurers to review remuneration arrangements and take remedial action during 2014; - b) Handling of household property claims from water damage — assess fair claim settlements; - c) Financial position and professional indemnity insurance (PII) for retail intermediaries — 97 percent of firms rectified financial position as directed; seven intermediaries reprimanded and fined for PII gaps; - d) Pension Sales Processes — compliance with CP Code of 2012. - No thematic CoB inspections on Low impact (re)insurers as market intelligence did not trigger concerns. ### Insurance group supervision and intra-group reporting - SI 359/1994 and SI 360/1994 require insurers to provide CBI with draft contracts for material transactions with related companies. - EC (Insurance and Reinsurance Groups Supplementary Supervision) Regulations 2007 (SI 366/2007) require Irish reinsurers in a group to report intra-group transactions exceeding 5 percent of the available solvency margin. Applies where transaction involves the reinsurer and: - a) a group company, an entity that holds a participation in the reinsurer, a subsidiary of such entities; - b) a natural person who holds a participation in the insurer or related entities. - Scope of intra-group transactions includes loans; guarantees and off-balance-sheet transactions; elements eligible for calculating solvency margin; investments; reinsurance and retrocession operations; agreements to share costs (R4 of SI366/2007). - CBI may seek information from a group company if an Irish reinsurer fails to provide required information; to extend powers to transactions not involving the Irish established reinsurer CBI must demonstrate necessity for supplementary supervision (R9 of SI 366/2007). - CBSEA (s22) empowers CBI to require information from a range of persons where necessary for proper and effective regulation, including supplementary supervision. - PRISM does not cover insurance groups for impact/risk ratings and minimum supervisory engagements. No routine regulatory returns for insurance groups; CBI obtains ad-hoc group information tailored per group. CBI is lead/group supervisor of XL Group PLC and Beazley Group PLC; lead supervisor at sub-group level for Metlife Inc and Zurich PLC. ### Assessment, findings on PRISM and regulatory reporting (summary) - Overall assessment: Partly observed for reporting and supervision aspects. - Key observations: - PRISM introduced in 2011 and improved structured supervision for High/Medium High/Medium Low impact (re)insurers. - 126 (re)insurers rated Low are supervised reactively regardless of risk ratings; PRISM impact assessment is purely quantitative without supervisory assessment of potential risks for Low rated firms. - Regulatory returns are assumed accurate; independent supervisory verification of Low rated (re)insurers is limited. - Coverage of summary risk assessment of 74 (re)insurers with Medium-Low impact ratings may take about 10 years to complete one cycle, though regular meetings are conducted on a cycle of seven meetings over an 18 month period. - Insurance group supervision is not embedded in PRISM. - No explicit reporting requirements for: group information; off-balance sheet exposures; material outsourcing functions/activities; material changes/incidents affecting condition or customers. - Recommendations to CBI: - a) Reviews the PRISM framework, particularly the one-size-fits-all reactive approach for Low impact (re)insurers; consider proportionate and timely risk assessment (e.g., thematic visits covering a sample of Medium/Low (re)insurers); - b) Updates PRISM to incorporate appropriate risk-based supervision for insurance groups; - c) Strengthens regulatory reporting by establishing: - consistent and more comprehensive regulatory reporting by insurance groups; and - 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; - d) Regularly reviews the 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. ### ICP 10 — Preventive and corrective measures - Unauthorized insurance activities: - CBI considers unauthorized insurance activities an offence under EC Framework Regulations, subject to summary legal action in the District Court; maximum penalties generally capped at €5,000. No explicit provision and related penalties specifically for unauthorized insurance activities (R59 of SI 359/1994, R73 of SI 380/1994 and R71-R80 of SI 380/2006). - CBI investigated several suspected instances; none merited invoking powers under the Regulations. - Powers available to CBI for corrective/preventive measures include: - Extensive powers of information gathering or making inquiries (S16 of IA 1989 and R53 of SI 380/2006); - Directing an Investigation (S17 of IA 1989 and R53 of SI 380/2006); - Require a Skilled Person’s Report (Part 2 of CBSEA); - Require information and records including forecasts, plans and accounts (s22 and s23 of CBSEA); - Appoint authorized officers with powers to search premises, inspect records and require persons to answer questions (s24 to s29 of CBSEA); - Issuance of a RMP and requiring insurers to take mitigating action; - Giving enforceable directions; - Require undertakings or impose authorization conditions on manner of business conduct (s24 of IA 1989 and R12 of SI 390/2006); - Apply to High Court to restrain conduct or compel action (s52 of CBSEA). - Supervisory practice: - CBI communicates corrective actions in RMP letter to Board/Senior Management early and requires regular written progress reports until corrective actions are completed. - For Group Holding Companies in Ireland, CBI communicates with Holding Company’s Board and Senior Management and categorizes all insurance groups as High Impact. - Assessment: Largely observed. - Recommendation: CBI seeks legislative amendments to enhance sanctions available for unauthorized insurance activities. ### ICP 11 — Enforcement framework and ASP regime - Enforcement strategy: - Enforcement options: F&P regime (ICP 5); ASP regime; referrals to other enforcement agencies (s33AK of CBA); summary criminal prosecutions (summary penalties capped at €5,000). - Policy preference: pursue prescribed contraventions under ASP instead of summary prosecution due to low summary penalties and resource intensity of criminal standard; exceptional criminal prosecutions in cases of willful or reckless non-cooperation. - If prescribed contravention was subject to an Inquiry under ASP, no criminal prosecution may be brought for the same matter; overlap rules between ASP and criminal prosecution specified. - Formal directions CBI can issue (examples): - Direct insurer to refrain from taking new business; limit premium income; refrain from certain investments; realize certain investments; maintain assets equal to whole or specified proportion of liabilities in Ireland (S18 of IA 1989); - Direct insurer to suspend business or payments; dispose assets; raise/maintain capital; modify systems/controls; apply to High Court to enforce directions (s45 & s47 of CBSEA); - Prohibit disposal of assets where insurer fails to maintain adequate technical reserves and solvency margin (R 16(1) of SI 359/1994, R36(1) of SI 360/1995 and R58(1) of SI 380/2006); - Require financial recovery plan or short-term finance scheme where solvency margin falls below guarantee fund (R 16(2)/(5) of SI 359/1994, R36(2)/(5) of SI 360/1995, R58(2)/(5) of SI 380/2006); - Require insurer to provide financial recovery plan where policyholders’ rights threatened (R 16A of SI 359/1994, R36A of SI 360/1995 and R59 of SI 380/2006). - ASP Inquiry and Settlement: - Inquiry: where reasonable grounds to suspect a prescribed contravention; Inquiry decides if contravention occurred and determines sanctions. Inquiry Guidelines issued pursuant to s33BD of the Central Bank Act 1942 (2013). - Settlement: voluntary alternative before conclusion of Inquiry; objectives include timely sanctioning, cost-effectiveness and early implementation of corrective measures (s33AV of CBA); CBI policy is to publicize all settlements; in 2013 CBI entered into 16 settlement agreements, 15 under ASP. - Available sanctions and limits: - Private Supervisory Warnings (not published but form part of compliance record); - Sanctions against PCM: caution/reprimand, monetary penalty, disqualification (s33AQ of CBA); - Direction to refund or withhold money (s33AQ of CBA); - Suspension/Prohibition Notices for individuals in CFs (s26 and s43 of CBRA) — does not apply to Significant Owners and external auditors; - Formal directions, monetary penalties, suspension of authorization (up to 12 months), revocation of authorization (s22A & s34(3) of IA 1989, R15 of 380/2006 and s33AQ of CBA); - Direction to reimburse CBI costs of investigation/Inquiry (s33AQ of CBA); - Petition High Court for administration and appointment of an administrator (s2 of IA 1983); - Criminal prosecution (summary only by CBI; maximum penalties capped at €5,000). - Monetary penalty caps under ASP: - For a body corporate or unincorporated body - not to exceed the greater of €10,000,000 or 10 percent of the turnover of the RFSP for its last complete financial year before the finding is made; - For a natural person - €1,000,000. - Failure to provide/provision of false/misleading information: - Summary conviction: fine not exceeding €5,000 or imprisonment up to 12 months, or both; - Conviction on indictment: fine not exceeding €250,000 or imprisonment up to five years, or both (s31 & s32 of CBSEA). - Supervisory practices and resources: - Since 2011, CBI published annual Enforcement Priorities focusing on systems/controls and prudential requirements. - Enforcement Division (ED) established June 2010; core responsibilities include ASP cases, F&P advice, refusals/revocations of authorizations, summary prosecutions. - As at August 2014, ED had 49 officers (lawyers, accountants, investigation experts) organized into multi-disciplinary teams. - Enforcement referral process: Enforcement Relationship Managers, Case Clinics, monthly Case Decision and Allocation Meetings (CDAM). - Outcomes between 2011 and mid-2014: - settled 50 cases with RFSPs/PCM and imposed fines of €21,706,755 (27 of these cases related to insurers and totaled €10,237,815 in fines); - issued 48 supervisory warnings (12 related to insurers); - procured agreed disqualification of three individuals (one related to management of insurance clients’ funds); - refused three authorizations managed by the ED; - revoked six authorizations for cause (three related to insurers). - In 2013, 86 percent of insurance cases accepted by ED were classified as low impact entities (66 percent for first half of 2014). - Assessment: Observed. - Recommendation: CBI regularly reviews adequacy of enforcement resources to support credible threat of enforcement. ### ICP 12 — Winding-up and exit from the market - Winding-up types under Companies Acts (CA): - Voluntary Liquidation: - Members’ voluntary liquidation (solvent) — directors must make statutory declaration of solvency that company can pay debts in full within 12 months (s251 and s256 of CA 1963); - Creditors’ Voluntary Liquidation (insolvent) — company may resolve to wind up voluntarily; may convert to creditors’ liquidation (s251(1)(c), s256(5) and s261 of CA 1963). - Compulsory Liquidation: - Irish High Court has jurisdiction to wind up a company including insurer where unable to pay debts; petitioners include members, creditors, company itself; CBI may apply to High Court for winding-up on grounds insurer unable to pay debts and entitled to be heard on any other petition (s212 to s215 of CA 1963, s45 of IA 1936 and s30 of IA 1989). - Definition of insolvency (s214 of CA 1963; s44 of IA 1936): - a) unpaid written demand from creditor for sum due; - b) judgment/decree/order returned unsatisfied in whole or part; - c) proved to court’s satisfaction that company unable to pay debts considering contingent and prospective liabilities. - Solvency II transposition implication: SII Directive provides supervisor may withdraw authorization where insurer does not comply with Minimum Capital Requirement (MCR) and finance scheme inadequate or insurer fails to comply within three months (Art 144 of Directive 2009/138/EC). - Policyholder entitlements and technical reserves: - SI No. 168/2003 establishes priority of policyholders in winding up: insurance claims with respect to assets representing technical reserves take absolute precedence over other claims, except winding-up expenses (R 9 of SI 168/2003 and s285 of CA 1963). - Insurers must keep register of assets representing technical reserves at principal office; total value entered shall not be less than value of required technical reserves; assets subject to rights in rem recorded and not admissible for solvency computation (R9(3) to R9(f) of SI 168/2003). - Insurance Compensation Fund (ICF): - Established under IA 1964; covers non-life policyholders in relation to Irish risks when an Irish or EU non-life insurer goes into liquidation. - Total amount payable from ICF in respect of any sum due to a person under a policy is capped at 65 percent of the sum due or €825,000, whichever is less. - ICF does not cover commercial policyholder unless sum due relates to liability to an individual; exclusions include health, dental and life policies (s3, s3A and s3B of IA 1964). - ICF financed through contributions from non-life insurers up to maximum of 2 percent of aggregate gross premiums written in respect of Irish risks; CBI performs annual assessment and sets contribution (maintained at 2 percent in 2014) (s5 of IA 1964). - Role of Minister: may make an advance to ICF on repayment/interest terms after consulting CBI. - Quinn Insurance Limited insolvency resulted in ICF compensating eligible policyholders totaling approximately €1.4bn since 2011. - No ICF for life insurance liabilities. - Assessment: Observed. ### ICP 13 — Reinsurance and other forms of risk transfer - Context: - Many Irish insurers part of large global groups purchasing reinsurance centrally or cross-jurisdictionally. - CBI licenses approximately 77 reinsurers (30 captive reinsurers who rely on retrocession arrangements). - Governance and strategy: - (Re)insurers required to have appropriate/robust governance and internal controls covering reinsurance strategy implicitly via CG Code and Captive Code (R10 of SI 359/1994, R10 of SI 360/1994 and R12 & R20 of SI 380/2006). - Insurers required to have documented risk appetite approved by Board, reviewed at least annually; risk appetite should detail risk transfer/mitigation strategy (s25 & s14 of CG Code and s18 of Captive Code). - Reinsurance Guidelines (2012): - CBI expects insurers to have a fully documented reinsurance strategy approved by the Board as part of underwriting strategy. - Strategy must define types of reinsurance, selection criteria, monitoring, required contract clauses (e.g., insolvency clause), evaluation of reinsurer security and collateral, and monitoring/reporting arrangements between Irish and foreign operations (s4 and s5 of Reinsurance Guidelines). - Reinsurance strategy should evaluate prudence of insurer’s risk profile including concentration; sufficiency of cover under extreme but plausible loss scenarios; sufficiency of reinsurance security; appropriateness of ART techniques; frequency/appropriateness of internal monitoring and reporting. - Legal enforceability and authorization conditions: - Guidelines generally not legally enforceable; CBI uses conditions of authorization to compel adoption but conditions’ wording is inconsistent across different Guidelines (captives vs other Guidelines). - Current conditions for captives: (re)insurers “shall adopt all of the obligations of the CG Code for Captive Insurance and Reinsurance Undertakings.” - For other Guidelines, wording states a reinsurer’s “compliance strategy will make provision for adherence to, in addition to all primary and secondary legislation, all and any guidance issued by the CBI and its predecessors to date and any future guidance issued by the CBI.” - Transparency and documentation: - Reinsurance Guidelines expect insurers to maintain an up-to-date approved reinsurer list with exposure limits, ascertain intended retrocession and quality of retrocessionaires, and include global reinsurance strategy details where part of group. - No provision on finalizing formal reinsurance contract in a timely fashion (IAIS standard 13.4 referenced as different focus). - Required submissions to demonstrate timely information: reports describing reinsurance cover/treaties; ceding insurer financial statements; copies of contracts/amendments; copies of slips and cover notes; financial statements of reinsurers; written contract descriptions and summaries (s5 of Reinsurance Guidelines). - Deductions and security: - (Re)insurers may only deduct reinsurance/retrocession recoveries from TPs if recoveries derive from arrangements acceptable to CBI; criteria include size, rating, ownership, service, relationship (SI 380/2006). - EU supervisors cannot apply trade restrictions to EEA reinsurers; for non-EU reinsurers backup security may include letters of credit, funds withheld, trust funds. - SPRVs and capital market instruments: - EU regulations provide for authorization of SPRVs in Ireland; CBI has Special Purposes Reinsurance Guidance Paper; to date no Irish insurers have been sponsor/beneficiary of a capital market instrument (SI 380/2006). - Supervisory practice and scope: - Supervisors assess reinsurance strategy within PRISM; supervisor assessment of counterparty risk can influence capital risk assessment. - Under PRISM, all 85 captive (re)insurers are Low impact and receive reactive supervision. - Examples of supervisory actions: exercised discretion on acceptability of arrangements; noted lack of transparency from change in reinsurer/retrocessionaire not communicated; taken action to address liquidity issues arising from proposed reinsurance contract. - Assessment: Partly observed. - Recommendations: - a) Establish enforceable regulatory requirements for reinsurance (rules/regulations) and align wording in authorization conditions across Guidelines; - b) Establish clear regulatory requirements on cedants to control liquidity positions considering structure/payment patterns of risk transfer contracts and require timely documentation of reinsurance contracts at inception; - c) Formulate proportionate (not only reactive) risk-based supervision over Low impact (re)insurers regarding reinsurance use; - d) Establish clear regulatory requirements for reinsurance at the group level. ### ICP 14 — Valuation of assets and liabilities - Legal/regulatory framework and standards: - Recognition, derecognition and measurement of insurance assets/liabilities defined in accounting and actuarial standards supporting legislation: SI No. 116/2005 deems IFRS as GAAP and practice; Annex III of SI 359/1994, Annex IV and V of SI 360/1994, SI 23/1996 and Companies Amendment Act 1986 prescribe valuation bases; actuarial standards ASP GI-2, ASP GI-3, ASP LA-3 address valuation principles. - Financial statements subject to independent audit under Section 193 of the Companies Act 1990. - Overall valuation basis uses GAAP (Irish or IFRS); accounting practice allows amortized cost for some fixed income investments held to maturity (Para 8, 20 of IFRS 7). - Non-life technical provisions (TP): - Discounting permitted only in certain situations with prior permission from CBI (R14.2 of SI 359/1994). - Discounting allowed for investment income arising from assets invested for claims provision if: - a. expected date for settlement of claims on average at least four years after accounting date; - b. discounting calculated on recognized prudential basis; changes must be notified in advance to CBI; - c. total cost of settling claims must account for all factors increasing cost; - d. insurer must have adequate data to construct reliable model of claims settlement rates; - e. rate of interest used shall not exceed a prudent estimate of investment income from assets invested as provision for claims during payment period. - Insurer must disclose in notes: total claim provision before discounting, categories of claim discounted, methods used to calculate discounts including rates applied and criteria for estimating time until claim settled (SI 359/1994). - Reinsurers (composite/non-life) can only carry out explicit discounting in limited circumstances; implicit discounting by composite reinsurers prohibited; permission to discount reserves must be sought in advance from CBI (Annex IV of SI 359/1994; Requirements for Non Life Reinsurance Undertakings 2012). - Non-life reserving method requires provisioning for both current estimate and a MOCE; non-life rules permit broad means to determine MOCE on Signing Actuary advice subject to management judgement. Changes to be addressed by 2014 Reserving Requirements and Solvency II by January 1, 2016. - Life technical provisions: - Life insurers required to report life assurance provisions based on “present value of future payments” with “prudent valuation” including appropriate margin for adverse deviation (Paragraphs of Annex IV of SI 360/1994). - Proper provision must include all guaranteed benefits, guaranteed surrender values, bonuses already entitled, options available, expenses, taking credit for future premiums due (Paragraph 2(a), 2(f), 7(1) of Annex IV of SI 360/1994). - Valuation must allow for embedded options and guarantees; Appointed Actuary decides rates of interest and where options offer wide range of outcomes, reserves and adequacy should be assessed stochastically (Actuarial Standard ASP LA-3). - Discount rate for life business capped at a maximum of 7.5 percent (Paragraph 7 of Annex IV, SI 360/1994). - Appointed Actuary must consider resilience of valuation to changes and provide appropriate margins (ASP LA-3). - Life insurers have legacy with-profits business backed by assets totaling €6.3 billion at time of assessment; no CBI practice to monitor fair treatment of with-profits policyholders. - Credit standing: - Credit standing of an insurer is not a factor in determining TP values. - Supervisory practices and enhancements: - CBI monitoring via PRISM, SAO report review, annual return review (reinsurance) and enforcement powers where breaches found. - 2014 Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers introduce Signing Actuary role and SAO timelines: - Signing actuary required; SAO within four months and SAO report within six months of year end; SAO report to be available to CBI on request. - Key enhancements: governance arrangements, data reconciliation, Reserving Committee for High Impact undertakings; Signing Actuary as PCF under F&P; SAO provides independent view of adequacy of reserves; guidance on Best Estimate disclosure; internal audit assessment of reserving process; peer review of methodologies/assumptions; specific requirements for margin for uncertainty. - Appointed Actuary required to carry out annual financial investigation for life insurers including valuation consistency with Annex IV and assessment areas (investment policy; reinsurance, underwriting, claims handling; premiums sufficiency; solvency position; valuation data correctness; profit allocation recommendations). - Assessment: Largely observed. - Comments: - Valuation based on Irish GAAP or IFRS; current non-life discounting rules and MOCE approach differ from life valuation and IAIS guidance. - Overall methods do not produce a fully consistent economic view of solvency position; expected rectification as IFRS 4/IFRS 9 evolve and advent of Solvency II from 1 January 2016. - Current TP shortcomings expected to be addressed by Solvency II implementation. ### ICP 15 — Investment requirements for solvency purposes - Legal/regulatory framework: - Investment requirements reflected in legislation and CBI guidance: Guidelines for Insurance Undertakings on Asset Management (2010) and Guideline on the Risk Management of Derivatives (2010) (SI 360 of 1994, Annex V, 2.1 & 2.2). - Guidelines generally non-binding; CBI uses conditions of authorization to compel adoption; wording inconsistent across Guidelines. - Asset Management Guidelines core expectations: - Integrated view on product policy, underwriting policy, reinsurance policy, investment policy and solvency level policy; - Ensure sufficient assets of appropriate nature, term and liquidity to meet liabilities as they become due; - Define investment policy and procedures and provide guidance on asset allocations in terms of security, liquidity and diversification (Asset Management Guidelines, Section 2, 2.1, 4). - Gaps relative to ICP 15 expectations: - Guidelines limited in scope on security of assets (credit/counterparty risk) and diversification. - Asset/liability management guidance limited: need for testing resilience of asset portfolio to market scenarios but limited guidance on cash flow matching (IAIS 15.4.1 expects consideration of extent investments match liability cash flows and changes under varying conditions). - Asset valuation rules: SI 359/1994 and SI 360/1994 set valuation rules and state nil value assigned where valuation rule not explicitly stated. - Quantitative and qualitative requirements on derivatives limited and non-binding; limited coverage for complex/less transparent assets (collateralized assets, off-balance sheet assets). - No explicit investment requirements at group level. - Supervisory framework: - PRISM tasks used to assess compliance: ALM and Liquidity Management review; Asset Quality review; Stress Testing; Governance reviews every two years (High Impact only); FRAs (Medium High/Medium Low); regular Board meetings. - CBI has exercised good supervisory judgement and enforcement in investment-related cases. - Assessment: Largely observed. - Recommendations: - Develop and implement explicit investment requirements at insurer and group level. ### ICP 16 — Enterprise Risk Management (ERM) for solvency purposes - Legal/regulatory framework: - Risk management and controls principally from CG Code, Captive Code and CG SII Guideline. - 2013 CG Code (effective 1 January 2015) increases ERM/internal control requirements. - F&P regime covers risk management, compliance, actuarial matters and internal audit as PCFs. - CG Code provisions mapped to IAIS standards: - Standard 16.1 (identification and quantification of risk): strategy for managing material risks by Board (13.1.c); CRO responsible for ERM (12.4); Board responsibility for risk appetite (15.1, 15.8); Risk Committee oversight (23.6). - Standard 16.2 (document ERM framework): CRO to provide comprehensive/timely risk information (12.8); Board ensures systems/controls aligned with risk appetite and adequate reporting (15.3). - Standard 16.3 (risk management policy): CRO responsibility for ERM processes (12.4); Board responsibility for strategy (13.1.c). - Standard 16.4 (relationship between tolerance limits, regulatory capital, economic capital and monitoring methods): CRO reporting (12.7-9); Risk Committee advising Board on risk appetite/tolerance and distribution of internal capital and own funds (23.6, 8 in part); Guideline 13 of the SII Governance Guidelines. - Standards 16.5 (ALM), 16.6 (investment policy), 16.7 (underwriting policy) expected to be met via non-binding CBI SII Governance Guidelines. - Assessment: (Assessment details cut off in provided content; content preserved up to mapping of CG Code provisions.) *Source: _cr15118 - Chapter 5 of R-CR) (IMF staff extract of the referenced PDF chapter)* ### references in the SII Governance Guidelines are #19, 20 and 15. ### _cr15118 - references in the SII Governance Guidelines are #19, 20 and 15. ### ERM and ICP 16: Enterprise Risk Management and Governance - Key coverage: - Requirement of standard 16.8 (risk tolerance statement) is not in the 2013 CG Code but contained in the SII Governance Guidelines #13. - Standard 16.9 (ERM responsive to changes in risk profile) references 2013 CG Code: CRO responsibility (12.4) and Risk Committee advice (23.8). - Standard 16.10 (feedback loop) references 2013 CG Code: CRO information provision (12.8) and Risk Committee liaison/advice (23.7, 23.8). - Standards 16.11–16.16 to be met via FLAOR (pre-cursor to ORSA) introduced in 2014; ORSA introduction aligned with SII on January 1, 2016. First FLAOR reports under review by CBI supervision staff. - Supervisory framework highlights: - Regular meetings with CEO, CRO, Chairman, senior non-executive directors; frequency determined by insurer impact rating. - Regular risk reviews including FRRs focused on ERM; ultra-high/high impact firms subject to four reviews a year (three FRRs and either a governance review or business model analysis once every two years); medium-high firms subject to a FRA every 2-4 years; medium-low firms subject to a FRA on a sample basis of 10% per year. - Annual RGP for high impact firms; RGPs for medium-high/medium-low after FRA. - CBI reviews Board and Risk Committee agendas, minutes; inspects ERM documentation (risk appetite statement, risk tolerances, policies, reporting) with reference to the Code and Guidelines on Preparing for SII – System of Governance. - CBI requires FLAOR/ORSA submission at least annually beginning with 2014. - Assessment: Largely observed (effective date relates to practice as of end of 2013). - Weaknesses: - ERM requirements not yet defined at the group level. - Standard 16.4 only partly observed; risk tolerance limits not covered by 2013 CG Code (briefly mentioned in Guideline 13 of SII Governance Guidelines). - Recommendations: - Establish ERM requirements at the group level. - Enhance CG Code to reflect SII Governance Guidelines and introduce need for risk tolerance limits. ### ICP 17: Capital Adequacy - Description and current regime: - Solvency I uses a simple factor-based approach; total balance sheet approach used for life insurance valuation by actuaries under ASP-LA 1, 2 and 3; general insurance actuarial standards provide no direction on total balance sheet approach. - Regulatory capital requirements: - Minimum solvency margin: - Non-life: higher of premiums or claims basis (specified factors). - Life: sum of 4 percent of mathematical reserves and 0.3 percent pf the total capital at risk retained. - Reinsurers: higher of premiums or claims basis; composite reinsurers must cover total sum for non-life and life reinsurance activities. - Guarantee funds: at least one-third of required solvency margin with specified floors: - €2.5 million to €3.7 million for non-life insurers depending on class; - €3.7 million for life insurers and reinsurers; - €1.1 million for captive reinsurers. - Post-authorization solvency margin requirements: - 200 percent of required minimum solvency margin for first three years; - Reduced to 150 percent after three years; - Non-life captive insurers generally 150 percent except pure property and ancillary business interruption classes must hold higher of 125 percent of required minimum solvency margin or minimum guarantee fund. - CBI empowered to direct insurers not maintaining adequate capital (s45(3) of CBSEA). - Solvency control level and recovery: - No explicit solvency control level; CBI may issue directions including refraining from new business, limiting premium income, restricting investments, realizing investments, maintain assets in Ireland, and other specified measures (s18(1) of IA 1989). - Insurer breaching minimum solvency margin must submit plan for restoration (S16(2) SI 359/1994; s36(2) SI360/1994; s59(2) SI 380/2006). - PCR and MCR: - CBI considers solvency requirement at authorization as the MCR. Explicit PCR to come with SII. - Capital resources: - Solvency margin corresponds to assets free of foreseeable liabilities less intangible items and may include: paid up share capital; one-half of unpaid share capital under conditions; reserves not corresponding to underwriting liabilities; carry-forward of profits; cumulative preferential share capital and subordinated loan capital meeting criteria; securities with no specified maturity date; other items (e.g., future profits of life insurer) with Minister/CBI consent. (Annex II of SI 359 of 1994, Annex II of SI 360/1994 and Schedule 1 of SI 380/2006) - Scope exists to establish clearer criteria for eligible capital resources on going-concern and wind-up bases. - Internal models: - Use of internal models not currently permitted; SII from 2016 allows internal models with VAR criteria at 99.5 percent confidence over one-year period. - CBI implementing EIOPA “Guidelines on the pre-application of internal models” and released “Guidelines for Preparing for SII – Pre-Application of Internal Models.” - Group capital: - CBI supervises groups on legal entity basis only; no explicit group-wide capital adequacy requirement; group assessments made with adjustments for fungibility/transferability constraints. - Assessment: Partly observed. - Deficiencies: - Lack of explicit regulatory framework references to total balance sheet approach. - No regulatory requirement for a PCR. - No specific regulations for group solvency levels. - Insufficient regulatory criteria for capital resources assessment. - Recommendations for SII preparation: - Develop and implement capital adequacy support processes/tools (regular stress testing, capital target setting, definition of capital resources, etc.). - Establish capital adequacy requirements (quantitative and qualitative) at the group level. - Build supervisory expertise and processes to approve and monitor internal models. ### ICP 18: Intermediaries - Scope and population: - CBI supervises 2,979 insurance and reinsurance intermediaries as of September 8, 2014. - Intermediaries’ gross income/turnover ranged from less than €10,000 to more than €1 million; income from regulated activities ranges from €0 to over €7.5 million, with over 4 percent earning in excess of €1 million. - 17 percent of intermediaries reported a loss in financial year 2012; over 3 percent reported a loss in excess of €100,000. - Almost 24 percent engaged in one or more unregulated business activities. - Regulatory framework: - Key instruments: SI 13 of 2005 (IMR), CP Code of 2012, MC Code, and F&P regime for CFs/PCFs. - Registration and authorization: - Offence to undertake insurance mediation unless registered under IMR or exempted. - Applicants submit Retail Intermediaries/Brokers Application Form – Authorization; PCFs complete an IQ (ICP 5). - No capital requirement; intermediaries must be solvent and maintain separate CPA. - PII required prior to authorization: minimum €1,000,000 per claim and aggregate not less than €1,500,000; amounts may be adjusted by CBI (R17 of IMR). - CBI registers only if applicant can comply with IMR (R8), staff have requisite knowledge (R15), and PCFs/CFs meet F&P Standards. - Supervision and enforcement: - Intermediaries generally rated Low impact under PRISM; supervision primarily reactive with desk-based analysis, thematic reviews, and triage/filtering template. - In 2013, 46 issues assessed under triage/filtering, each investigated and followed up, resulting in two enforcement actions. - Since 2011, three themed PII inspections covering 160 firms: 56 voluntary cancellations; 33 cases referred to ED leading to six involuntary cancellations, 10 administrative sanctions and five Supervisory Warnings; 10 cases at various stages. - Thematic inspection on financial condition covering 195 intermediaries led to directions for those with negative financial position to confirm PII validity and ability to meet debts. - Competence, governance and conduct: - F&P regime and MC Code set minimum competency standards; continuing professional development requirement of 15 hours per year. - CP Code prescribes disclosure, conflicts of interest policies, CoB requirements, obligations on terms of business, client monies (CPA requirements), and advertisement rules. - Client monies: premiums deemed paid to insurer; intermediaries must lodge premiums to segregated CPA; monthly bank reconciliation required. - Outreach and transparency: - Intermediary Times newsletter published three times a year; six publications in 2013. - 2013 regional road shows attended by almost 300 firms. - Assessment: Observed. - Comments: Adequate legislative safeguards and supervisory tools; reactive supervisory approach proportionate to Low-Impact rating. ### ICP 19: Conduct of Business - Regulatory strategy: - “Getting it right for consumers” based on five “C”s: consumer, confidence, challenge, culture and compliance. - Primary supervisory method: themed inspections; reactive supervision for consumer concerns. - Regulatory instruments: - CP Code, MC Code, Life Assurance (Provision of Information) Regulations 2001, Non-Life Insurance (Provision of Information) (Renewal of Policy of Insurance) Regulations, 2007. - No explicit group-wide market conduct requirements. - Key CoB provisions and requirements: - Insurers must act honestly, fairly and professionally (P2.1, P2.2 CP Code). - Product information requirements for investment products: key characteristics, target market, risks, guarantees; applies to investment products not protection-only life policies. - Vulnerable customers: insurers required to provide reasonable assistance and CBI issued guidance (2010) for elderly consumers. - Advertising: RFSP must ensure advertisement is clear, fair, accurate and not misleading; CP Code contains 52 advertising rules. - Disclosure at point of sale: terms of business prior to first service (p4.12); information on main features prior to offering (p4.21); terms and conditions before contract (p4.22); various other presale and quotation requirements including R27 SI 359/1994 and R45 SI 360/1994 (30-day cooling-off period). - Suitability: insurers must gather sufficient information on consumer needs and financial situation; prepare written Statement of Suitability (p5.19); exemptions exist where consumer specifies product/producer by name (p5.24). - Conflicts of interest: policy required; disclosure where conflicts cannot be avoided (P3.28, P3.29). - Service of policy and post-sale obligations: process instructions promptly, notify consumers of changes at least one month in advance (P3.10), provide annual benefit statements for investment products (P6.13–P6.16), claims and complaints handling. - Claims handling: insurers must notify decision within 10 business days; consumer given at least 10 business days to accept/reject offer; accepted claims discharged within ten business days from agreement (P7.6–P7.21). - Complaints: acknowledge within five business days; unresolved within 20 business days require progress update; aim to investigate and resolve within 40 business days; inform consumer of Ombudsman recourse (P2.8, P10.7–P10.12). - Supervisory actions and outcomes: - Examples: life insurer required to refund around €14m; 11 credit institutions instructed to review PPI sales resulting in approximately €67 million identified for refund to 77,000 policyholders; 182 advertising issues investigated leading to 128 withdrawn/amended ads; themed inspections on annual statements and property claims. - CBI publishes warning notices, settlement agreements and thematic inspection results. - Assessment: Largely observed. - Gaps and recommendations: - No explicit requirements for group-wide market conduct, product development considering different customer types, policy replacement by intermediaries, and clear requirements for insurers to inform claimants about claim procedures. - Recommendations: establish clear requirements for group-wide market conduct; insurers to consider different customer types in product development/marketing; requirements on replacement of policies; insurers to inform claimants about claim procedures; fine-tune CoB regulatory returns (e.g., persistency rates) and provide guidance on Data Protection Act obligations. ### ICP 20: Public Disclosure - Current disclosure framework: - Disclosure via lodgement at Companies Registration Office (CRO) of annual statutory returns and annual financial statements prepared under specified accounting standards; CRO access online for a fee of about €3 per file. - Irish insurers required to publish consolidated accounts under IFRS; annual audited financial statements at solo and consolidated levels. - Disclosures include quantitative and qualitative information on financial position, performance, main risks and uncertainties, and use of financial instruments; only basic governance/control disclosures required. - IFRS 4 disclosures on TPs made at consolidated level; solo level disclosures by appropriate segments. - Gaps relative to ICP 20: - Technical Provisions (TPs): no requirement to disclose future cash flow assumptions rationale, choice of discount rates, risk adjustment methodology or method description. - Capital adequacy: IFRS at consolidated level strengthens disclosure but gaps remain. - No requirement to disclose ERM including asset-liability management. - Segmented financial performance: limited at solo level. - CRO fee-for-access contents not as robust as ICP 20.8. - Assessment: Partly observed. - Recommendation: - CBI should engage with (re)insurers and their audit firms on possible disclosure improvements individually, collectively or via CBI requirements to achieve more meaningful public disclosures. SII implementation expected to improve alignment with ICP 20. ### ICP 21: Countering Fraud in Insurance - Legal/institutional context: - No single statutory “fraud” offence; fraud captured across statutory and common law offences including CLCA 2004 and CJTFA 2001. - CLCA introduces specific offence of insurance fraud for personal injury actions with penalties up to €100,000 fine and/or up to 10 years in prison. - CBI powers: search and inspect premises, demand and inspect documentation, take copies/extracts, summon and question employees (s22, s26, s27 of CBSEA). - Garda Bureau of Fraud Investigation (GBFI) responsible for investigation/prosecution and intelligence. - Supervisory understanding and actions: - Fraud assessed at authorization (controls, governance, F&P), ongoing supervision (Financial Crime Controls module of PRISM), and via preventive/corrective measures and enforcement (ED under ASP). - CBI reviewed high-risk non-life insurers within last 18 months covering anti-fraud policies, reporting lines, staffing, data collection, detection methods, trends and recent issues. - Reactive approach for low-impact insurers/intermediaries under PRISM. - Industry collaboration: - Insurance Ireland operates Insurance Confidential website and newsletter; thousands of suspected cases investigated from submissions. - InsuranceLink anti-fraud claims matching search engine maintained by Insurance Ireland. - Guidelines for reporting suspected insurance fraud to GBFI developed with An Garda Síochána. - Cooperation: - CBI refers suspected fraud to relevant authorities (An Garda Síochána, Revenue Commissioners, Directorate of Corporate Enforcement, CCPC) and can share information with other supervisors per CBA and EC Directives (s33AK of CBA; Art16 of Third Non-life Insurance Directive and Art16 of Life Insurance Directive). - Assessment: Observed. - Comments: Good supervisory understanding of fraud risk, active industry collaboration, and powers for cooperation and information exchange. ### ICP 22: Anti-Money Laundering and Combating the Financing of Terrorism (AML-CFT) - Legal framework: - CJA 2010 (transposing EU Third Money Laundering Directive), CJA 2013, and Criminal Justice (Terrorist Offences) Act 2005. - CJA 2010 obligations: Customer due diligence (CDD), suspicious transaction reporting, AML-CFT policies and procedures, record keeping, AML-CFT training, prohibition of anonymous accounts, and prompt response to Garda enquiries. - Life insurers and insurance intermediaries designated persons; non-life insurers and captive (re)insurers not covered. - In 2013, insurers filed 251 suspicious transaction reports. - CBI is competent authority for supervising insurers’ compliance with CJA (s3, s42, s60, s62 of CJA 2010). - No Minister-approved enforceable guidelines to date; industry Core Guidelines published by DoF are not enforceable though CBI will have regard to them (s107 CJA 2010). - Coordination: - Domestic: Money-Laundering Steering Committee chaired by DoF includes CBI, Department of Justice, An Garda Síochána, Revenue Commissioners. - International: CBI member of AMLC (Joint Committee sub-committee) and participates in supervisory colleges. - Supervisory practices: - Risk-based approach under PRISM: High/Medium-High life insurers subject to annual AML-CFT risk assessment; reactive approach for intermediaries (all Low impact). - PRISM guidance addresses firm risk profile, AML/CFT control framework, and adequacy of risk management controls. - AML-CFT inspection frequency for retail intermediaries since 2010: one in 2010 and 2011; three in 2012 and 2013; four in 2014. - Life insurers typically do their own CDD and transaction monitoring irrespective of intermediary processes. - Supervisory inputs: AML-CFT Risk Evaluation Questionnaire (REQ); approximately 25 to 30 AML/CFT onsite inspections per year; communications and industry engagement. - Insurers must provide annual statement signed by board chair confirming compliance with CJA 2010. - Quality assurance mechanisms: internal audit, RGPs, Risk Division reviews, AML Division training, ED interaction, monitoring international developments, SRC presentations twice a year. - In 2012, settlement agreement with an insurer for AML-CFT lapses with fine €65,000; CBI issued “Dear CEO” letter on AML-CFT developments. - Assessment: Largely observed. - Recommendations: - Empower CBI to issue enforceable rules on AML/CFT consistent with FATF Recommendations and establish guidelines. - Review AML-CFT inspection approach for retail intermediaries. - Periodically analyze ML/TF risks of the non-life insurance sector and reconsider AML-CFT coverage. ### ICP 23: Group-wide Supervision - Legal and practical framework: - (Re)insurers belonging to an insurance group subject to supplementary supervision; SII to provide more comprehensive group supervision. - From January 1, 2014, CBI assesses compliance with FLAOR (equivalent to ORSA), System of Governance, and submission of qualitative/quantitative information by groups. - PRISM group supervision comprises offsite/onsite reviews and supervisory colleges; documented supervisory guidance exists. - CBI identifies groups and scope in cooperation with other supervisors; group definition includes parent, subsidiaries, significant influence entities and linked entities. - CBI required to conduct group supervision covering group solvency, risk concentration, intra-group transactions, risk management, internal controls (R3–R6 SI 366/2007; art 212–214 SII). - CBI may exclude an undertaking from scope on case-by-case basis for legal impediments, negligible interest, or inappropriateness. - Insurance groups required to have transparent organizational structure and effective information transmission (R7 SI 366/2007; art 41 SII). - Gaps and supervisory practice: - No explicit provision extending entity-level requirements to group level (group solvency, governance, risk management, internal controls, group market). - Supplementary supervision includes verification and onsite parent inspections if necessary; CBI as lead supervisor may require quarterly submissions (income statement, balance sheet by line/legal entity, intragroup balances, CAT losses, investment portfolio details). - PRISM does not provide for group supervision ratings or standardised regulatory returns for groups; group identification process could be improved. - Supervisory colleges generally well conducted. - Assessment: Partly observed. - Weaknesses: - Gaps in identification of domestic groups. - Need to extend legal entity requirements to group level including group solvency assessment. - Lack of effective group supervision framework within PRISM; limited market conduct supervision at group level; inconsistent supervision of non-regulated holding companies. - Note: SII expected to provide structured group supervision and comprehensive reporting requirements. ### ICP 24: Macroprudential Surveillance and Insurance Supervision - Data collection and analytical framework: - CBI collects data from statutory returns, horizontal reviews, PRISM, Macro-Financial Review, insurance groups (via colleges) and compiles indicators for life, non-life and reinsurance sectors. - Multi-disciplinary and cross-sector team approach involves Risk, Governance and Accounting Policy Division; FSC; FSD (Macro-Financial Review); SRC; Insurance Supervision Divisions including Prudential Reporting and Actuarial teams. - Quantitative and qualitative analyses use public and internal sources (statutory returns, Bloomberg market data, Broker Reports). - Publications: Macro-Financial Review, Insurance Statistics, detailed aggregated non-life and life market data report. - Use of surveillance: - FSD engages bilaterally with Insurance Supervision Division; MoU with DoF on financial stability responsibilities. - CBI staff on FSC of EIOPA utilises EIOPA outputs (e.g., opinion on low yield environment). - Sector-wide and EIOPA stress testing results used. - Outputs feed into supervision of individual insurers. - Assessment: Observed. - Comment and recommendation: - Assessors note lack of clear evidence that all risk information sources feed into an integrated CBI ERM process for decision activation across CBI. Recommendation: better integrate internal ERM processes to improve focus on emerging prudential and market conduct issues and CBI planning. ### ICP 25: Supervisory Cooperation and Coordination - Arrangements and procedures: - CBI has coordination arrangements for cross-border legal entity and group-wide supervision under SI 366 of 2007, Helsinki Protocol DT/NL/194/00 and SII Directive article 248. - Internal procedures for information sharing and crisis cooperation: - Procedure 26 – Information sharing with other regulators; - Procedure 36 – Cooperation and exchange of information in crisis management; - Procedure 63 – Sharing of Confidential Information with Third Country Supervisory Authorities. - Subject to EIOPA SII Guidelines on Operational Functioning of Colleges (Guideline 8) and signatory to the Revised Siena Protocol (General Protocol on Collaboration 2008). - Supervisory college flexibility in membership (EEA/non-EEA supervisors, subsidiaries, significant branches). - Lead supervisor identification and task assignment per Helsinki Protocol Article 2.2. - Assessment: (content truncated beyond Procedure 63 in source) *Italic source: _cr15118 - references in the SII Governance Guidelines are #19, 20 and 15.* ### 2.2 and SII Directive article 248 require supervisory colleges to be set up to facilitate the ### _cr15118 - 2.2 and SII Directive article 248 require supervisory colleges to be set up to facilitate the ### Supervisory colleges and group-wide supervision: legal requirements and purpose - 2.2 and SII Directive article 248 require supervisory colleges to be set up to facilitate the exercise of group supervision. - Colleges are chaired by the group supervisor who sets up key functions and coordination mechanisms during regular and emergency/crisis situations. - Purpose of supervisory colleges: - Support the role of a group-wide supervisor. - Assist the group-wide supervisor in undertaking its functions including facilitating information sharing and analysis of risks at the group level. - Enhance cooperation between college members. - Generally established as a permanent, integral part of the group-wide supervision process and required to meet at least annually. - Existing instruments requiring mapping and structure identification: - Helsinki Protocol DT/NL/194/00 paragraph 2.2 and Draft EIOPA SII Guidelines on Operational Functioning of Colleges of Supervisors, Guideline 1, require the CBI as group supervisor to map all the related undertakings of the group to determine the group structure and identify all members and participants of the College. - SI 366 of 2007 paragraph 5 and SII Directive article 214 require the group supervisor and other supervisors to understand the structure and operations of the group, including identifying all entities of the group, their links/connections, and determining the scope of application of group supervision. - These processes assist in identification and determination of the members of the college. - SI No. 366 of 2007 Reinsurance Groups Supplementary Supervision Regulations 2007 (selected paragraphs): - Paragraph 4 requires the Central Bank to supervise groups by assessing compliance with the requirements of SI 366/2007 - EC (Insurance and Reinsurance Groups Supplementary Supervision) Regulations 2007; - Paragraph 6 indicates that the Central Bank will enter into an agreement with other supervisory authorities as to which of them will be responsible for exercising supplementary supervision; - Paragraph 7 requires the Central Bank to assess that the group has adequate internal control mechanisms; and - Paragraph 10 requires the Central Bank to co-operate and exchange information with other supervisory authorities to facilitate efficient group supervision. ### Assessment of CBI implementation on colleges and group supervision - Assessment: Largely observed - Observed practices: - CBI has taken appropriate steps to put in place adequate coordination arrangements involving supervisors on cross-border issues on a legal entity and a group-wide basis. - Implemented written internal procedures for information sharing, including information exchange and cooperation with other regulators, on a routine basis and in crisis management. - Internal procedures related to communication and sharing of information with other supervisory authorities are in place. - Recommendations for CBI regarding group supervision: - a) Develops and implements a group supervisory framework that (among other things) would identify the various roles and interactions of the group level; and - b) Agrees on coordination agreements with the members of colleges led by CBI. ### ICP 26 — Cross-border Cooperation and Coordination on Crisis Management - Principle: The supervisor cooperates and coordinates with other relevant supervisors and authorities such that a cross-border crisis involving a specific insurer can be managed effectively. - Background instruments and arrangements: - Helsinki Protocol (entered into force in 2000 pursuant to the Insurance Groups Directive (Directive 98/78/EC)) facilitates cooperation through Coordination Committees/College of Supervisors. - CBI hosts (if it is the group supervisor), or attends, regular College of Supervisors meetings and attends EIOPA hosted meetings. - CBI leads supervisory Colleges for three High Impact international insurance groups based in Ireland. These Colleges have been in operation since 2011 and comprise both EU and non-EU supervisors. - Relevant EU supervisors concerned are subject to the provisions of the Siena Protocol, and a Multilateral Cooperation Agreement is in place. - MoUs and confidentiality agreements have been agreed with respect to relevant non-EU supervisors. - Topics and guidance used in Colleges and crisis preparation: - Key topics discussed at Colleges have included the group’s business continuity plan and fungibility of capital issues. - CBI is guided by the steps and procedures in the EIOPA “Guidelines on preparation for and management of a financial crisis.” - CBI developed a specific procedure entitled Co-operation and Exchange of Information in Crisis Management, outlining procedures to be adopted in the event of a crisis. - Legal basis for information sharing and confidentiality: - Strict confidentiality obligations in section 33AK of the Central Bank Act 1942, subject to provisions in the relevant EU Supervisory Directives. - Relevant Supervisory Directives: Third Non-life Insurance Directive (92/49/EEC) and the Life Insurance Directive (2002/83/EC). Article 16 of both directives facilitates the exchange of information between competent authorities of other Member States. - Crisis coordination with firms: - In a financial crisis, the CBI will meet with the Board of Directors of the undertaking concerned; Section 7.5 of the Code requires insurance undertakings to ensure a majority of its directors are reasonably available to the CBI at short notice, if so required. - Section 15.8 of the CG Code for Credit Institutions and Insurance Undertakings 2013 requires identification of the risks of the institution to be addressed by contingency plans based on, inter alia: - The areas where it considers the institution be especially vulnerable; - The risk appetite of the institution; and - The risk management system of the institution. - Contingency plans are required to be reviewed, updated and tested on a regular basis. - Guideline 10 of the CBI Guidelines on Preparing for SII – System of Governance states: “the undertaking should identify risks to be addressed by contingency plans covering the areas where it considers itself to be vulnerable, and review, update and test these contingency plans on a regular basis.” - CBI supervisory actions on business continuity: - On October 5, 2012 the Central Bank wrote to the CEOs of all high-impact companies requesting that they should carry out an assessment to ensure that appropriate business continuity plans are in place and required insurers to ensure that any gaps or weaknesses identified be mitigated. - The combination of the EIOPA guidelines and the CBI procedure on Cooperation and Exchange of Information in Crisis Management assist CBI duties as supervisor/group-wide supervisor during a crisis. ### Assessment and further actions for ICP 26 - Assessment: Largely observed - Rationale and gaps: - Through CBI and EIOPA Guidelines and participation in supervisory colleges (including those led by CBI), CBI is prepared for various elements of ICP 26 relating to cross-border cooperation and crisis management. - ICP 26 rated Largely Observed due to need for further development by CBI in the following areas: - 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; and - Request that the top cross-border (re)insurers complete their own detailed study of their firm and group crisis management and recovery plans. - Recommendations to CBI for ICP 26: - a) Establishes clear requirements for High/ Ultra-High (re)insurers/groups to maintain and test contingency plans and procedures for use in a going- and gone-concern situations; and - b) Regularly reviews the existence of practical barriers to efficient and internationally coordinated resolutions and collaborate with the relevant supervisor to resolve these issues. ### Appendix I — Status of Implementation of Recommendations Arising from the 2006 FSAP (selected entries) - Recommendation 1: FSSA — Continue to develop the necessary expertise and ensure adequate staff resources for supervising an increasingly sophisticated financial system. - Technical note: Continuously review the adequacy of regulatory resources, including actuarial expertise for supervision of the direct insurance and reinsurance industries. - Training: - Staff of the Insurance Divisions are required to undertake a minimum of six days training per year. - External contractors and internal experts provided training on topics including: Insurance Company Analysis (Fitch); Risk of material misstatement; Role and effectiveness of Internal Audit; Outsourcing; Features of a good Operational risk and internal control framework; Evaluating risk management systems; Analysis of corporate bonds; Investments - the language of performance measurement; Introduction to Insurance Company Financial Statements; Risk Transfer; Statement of Actuarial Opinion (“SAO”) and Reserving Requirements; Business Model Analysis; Investments/Asset Quality; Introduction to Derivatives. - External providers used include EIOPA, Insurance Institute of Ireland, Litmus training, the Insurance Management Institute, Compliance Ireland. - Human Resources have a Learning and Development (“L&D”) team and offer comprehensive soft skills training. - Example: bespoke SII training program delivered via classroom training and eLearning; SII training is mandatory and a log of attendees is maintained; during 2013 all members of Insurance staff were required to carry out refresher training on SII training initiated in 2012, with newly developed tests and access via the Central Bank’s eLearning platform within MyCareer. - Staff resources: - Insurance Divisions staff numbers increased from 42 staff members in May 2009 to 96 staff members between the two Insurance Divisions (GEN and LIFE), as of December 31, 2013. - The total compliment at the end of 2013 was 104 staff. - The ED was established in June 2010 and currently has 49 staff dedicated to enforcement related activities. - The Central Bank has recruited staff with qualifications including chartered or certified accountancy, actuarial, chartered financial analysis, and compliance and risk management; the Central Bank also has in-house underwriting and claims. - Recommendation 2: FSSA — Enhance the scope and intensity of the onsite supervisory program. - Technical note: Review scope and intensity to enable independent assessment of risk management and corporate governance (CG) practices. - Measures implemented: - Introduction in 2011 of a risk-based supervisory approach PRISM. - Introduction of the CG Code for Credit Institutions and Insurance Undertakings in 2010 and a separate Code for captive insurance undertakings in 2011. - Under PRISM, supervisory teams regularly assess risk management processes and internal controls. - High impact insurance undertakings subject to four reviews a year, which include an onsite element. This includes three FRRs on topics such as assets quality, Asset Liability Management (“ALM”), risk transfer, pricing, reserving, and either a governance review or a business model analysis once every two years. - Medium-high impact firms subject to a FRA every two to four years; Medium-low impact firms subject to a FRA on a sample basis of 10 percent per year. - Weaknesses identified lead to an RMP issued to the company requiring remedial steps within a specified timeframe. - Since 2012 the Central Bank publishes annual ‘Enforcement Priorities’; System and Controls (covering governance and risk management) has been a priority in all years and several enforcement cases have been concluded by settlement since 2012. - Recommendation 3: FSSA — Implement enhanced public disclosures by insurers in line with IAIS best practices. - Technical note: Implement enhanced public disclosures to allow for effective market discipline. - Status: - Due to impending implementation of SII, the Central Bank has not introduced additional public disclosure requirements beyond audited financial statements. - Central Bank publishes aggregate market information for life and non-life companies in the Insurance Statistical Review annually. - SII, coming into effect on 1st January 2016, will require insurers to disclose certain information publicly and report a greater amount of information to supervisory bodies. - Accounting standards and disclosure requirements have significantly evolved; enhancements discussed in section on ICP 20 in this FSAD. - Recommendation 4: FSSA — Consider upgrading the position of the Prudential Director regarding IFSRA Board Membership. - Implementation: - Central Bank Reform Act 2010 (effect from October 1, 2010) created a new single unitary body – the Central Bank – responsible for central banking (reports to the Deputy Governor (Head of Central Banking)) and financial regulation (reports to the Deputy Governor (HOFR)). The Governor and both Deputy Governors sit on the Commission (Board) of the Central Bank. - Recommendation 5: FSSA — Have a full re-assessment of the IAIS Core Principles undertaken after transposition of the EU Reinsurance Directive can be assessed. - Status: A Review of the Central Bank’s compliance with the IAIS ICPs is being undertaken by the IMF during 2014. *Source: IMF staff report content from the supplied PDF excerpt.* ### 6. FSSA: Review the current regulatory requirements ### 6. FSSA: Review the current regulatory requirements ### Technical Note: Review SAO requirements and actuary independence - Review the current regulatory requirements for the SAO to be provided by non-life insurers on their technical reserves: - a) Consider the desirability of keeping the current options for actuarial certification and/or appropriate public disclosures on the basis of calculation including whether the reserves are actuarially determined; and - b) Greater clarity on the Board’s responsibility for approving the technical reserves certified in the SAO. - Consider appropriate measures to strengthen the oversight and independence of actuaries. ### Developments in the Central Bank Requirements (2014) - In 2014, the Central Bank published the Requirements. The purpose of the Requirements is to improve the existing regime for reserve adequacy in non-life insurance companies and life and non-life reinsurance companies. - The Requirements set out the minimum requirements, which insurance companies are required to meet, in relation to reserving, including the preparation and submission of a SAO to the Central Bank. ### Key Components of the Requirements - The Role of the Signing Actuary: - The Signing Actuary role is being prescribed as a PCF and therefore will be subject to all of the Central Bank’s F&P powers, including suspension and prohibition notice. - Candidates must demonstrate to the Central Bank the necessary experience, knowledge and competencies required to carry out this role. - The Requirements also stipulate that, for companies, which are designated as High Impact under the Central Bank’s PRISM ratings, the Signing Actuary must be an in-house actuary. - SAO: - The Requirements outline a number of enhancements to the current scope of the SAO and the circumstances under which the Signing Actuary should make disclosures to the Central Bank on issues noted in completing the SAO. - The SAO should give an independent view of the adequacy of a company’s reserves. ### Governance Structures (Board and Committees) - Boards must ensure regular reconciliation of claims data between the actuarial and claims functions. - Boards must ensure that External Auditors have sufficient expertise and understanding of the business. - Boards of High Impact companies must establish a Reserving Committee (the Committee does not have to be a Board sub-committee). ### Public disclosure of distressed or failed insurers (Technical Note 7) - Section 33AK of the Central Bank Act 1942 places strict confidentiality obligations on the Central Bank. - In the event a failing insurer or an insurer being subject to considerable financial distress the Central Bank would make certain public disclosures including information on official actions taken by the Central Bank. - Any disclosures would be made keeping in view the Central Bank’s statutory objectives and subject to the legislative constraints and permissions contained in Section 33AK. ### Enforcement capacity and Administrative Sanctions (Technical Notes 8 and 9) - Since the Technical Note was issued in 2006, the Central Bank has established a dedicated ED, staffed by appropriately skilled personnel. This Directorate is dedicated to implementing the enforcement powers of the Central Bank against regulated firms found to be in breach of regulatory requirements. - The Central Bank’s ED is responsible for prosecuting enforcement cases under the ASP. - In certain circumstances a breach of a regulatory requirement by a regulated entity will constitute both a prescribed contravention and a criminal offence for which the Central Bank may commence summary prosecutions. - Current policy: the Central Bank pursues prescribed contraventions pursuant to the ASP in preference to bringing a summary prosecution. In exceptional circumstances, the Central Bank will pursue a prescribed contravention via the criminal courts and is committed to pursuing criminal prosecutions through to conviction. ### Legal powers over significant owners and key functionaries (Technical Note 11) - a) The Central Bank (Supervision and Enforcement) Act of 2013 has provided legal powers to the Central Bank to take action against significant owners. - b) Since the 2006 review, the Central Bank has introduced a new Fitness & Probity regime, which applies to all control functions (i.e., pre-approval functions and control functions) within an insurer. - The positions of Chief Actuary and Signing Actuary of an insurance undertaking are PCF roles under the Central Bank’s new F&P regime and the Central Bank has the power to suspend, remove or prohibit an individual from carrying out a Controlled Function pursuant to Part 3 of the Central Bank Reform Act 2010. - External auditors are not subject to the Central Bank’s F&P regime, so the Central Bank does not have any powers to remove them on the basis that they no longer meet the Central Bank’s fit and proper requirements. However, if necessary the Central Bank may make a complaint to the Chartered Accountants Regulatory Board (“CARB”) of the Institute of Chartered Accountants. ### Composite reinsurance undertakings and segregation of assets/liabilities (Technical Note 12) - For life reinsurance business, composite reinsurance undertakings must have TPs determined on the basis of recognized actuarial methods annually by a Fellow Member of the Society of Actuaries in Ireland. - For non-life reinsurance business, composite reinsurance undertakings must have TPs determined with due regard to the requirements of the Insurance Accounts Regulations. - For reinsurance contracts that contain elements of both non-life and life reinsurance business, composite reinsurance undertakings must determine based on an appropriate actuarial methodology, the TPs in accordance with the requirements for each of the non-life and life reinsurance elements separately. - This determination must be consistent with the prudent person approach and the Signing Actuary must be able to demonstrate that the TPs represents a prudent view of future liabilities given the nature, risk and uncertainty of future cash flows. - Reinsurance undertakings must adopt a prudent person approach when determining the assets covering TPs. Composite reinsurance undertakings must consider their entire business from acceptance through to retrocession when deciding the asset mix (and investment) strategy best suited to match all of the liabilities of their business. - Consideration must be given to the claims pay-out patterns of their TPs and the potential volatility of these patterns with a view to projecting liquidity requirements and ensuring that the assets selected provide the degree of liquidity required by this analysis. - The issue of segregating the assets and liabilities of life and non-life reinsurance business was not explicitly provided for in the Reinsurance Directive (Directive 2005/68/EC) and imposing such a requirement was deemed to be contrary to the goal of harmonized European legislation. - Composite Reinsurers are required to follow the Prudent Person Approach, which ensures that the assets are secured and reflect the profile of the reinsurance undertaking’s liabilities. This negates the need for segregations of assets and liabilities attributable to the life and non-life business if composite reinsurers are allowed to conduct both types of businesses within a single legal entity. *Source: _cr15118 - 6. FSSA: Review the current regulatory requirements* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15118.pdf_