Editors: Martin Mankabady , Lawrence R. Hamilton and David W. Alberts Keywords: The Financial Services Act, FSA, Lloyd's, EIOPA, NAIC, Solvency II
UK – Financial Services Act 2012 receives Royal Assent
The Financial Services Act 2012 (the "Act") received Royal Assent on 19 December 2012. The Act, which will come into force on 1 April 2013, will deliver the long-awaited reform of financial regulation in the UK, replacing the old tripartite system. Among other things, the Act:
gives the Bank of England responsibility for protecting and enhancing financial stability, bringing together macro and micro prudential regulation; introduces the Financial Policy Committee; and abolishes the FSA and replaces it with the twin peaks structure of the Prudential Regulation Authority and the Financial Conduct Authority. Draft secondary legislation under the Act, including regulations setting out how regulated activities will be divided between the new authorities, is expected in the new year.
UK – Lloyd's update
Three year plan
Lloyd's has published its three year plan for 2013-2015 (the "Plan"), which sets out the first steps needed to deliver Lloyd's longer term strategy, Vision 2025. The Plan focuses on reinforcing the position of Lloyd's as the global centre for specialist insurance and reinsurance, with key aspects of the Plan including:
increasing the proportion of Lloyd's business that originates in developing economies; achieving greater diversity of capital and talent; maintaining focus on market oversight; and preserving underwriting discipline. Solvency II progress
At a recent briefing, Lloyd's announced that it considers the planned implementation date for Solvency II of 1 January 2014 to be "completely unrealistic". However, it also announced that its internal model for Solvency II is now fully operational and has been approved by the FSA for use from 2013 onwards. This is contrary to the position of many UK insurers, with two thirds being reported to have cut back their programmes to implement Solvency II in light of continuing delays in Europe.
UK – Equality Act 2010 (Amendment) Regulations 2012 come into force
In order to align UK law with a change to European Union law arising from the March 2011 judgment of the Court of Justice of the European Union in the Test- Achats case, the Equality Act 2010 (Amendment) Regulations 2012 (the "Regulations") came into force on 21 December 2012. The Regulations amend the Equality Act 2010 by removing an exemption formerly provided for by the EU Gender Directive (2004/114/EC), with the effect that providers of insurance and related financial services may not discriminate on grounds of sex when it comes to the pricing of products and the benefits that are offered to consumers.
Europe – EIOPA financial stability report
On 14 December 2012, the European Insurance and Occupational Pensions Authority ("EIOPA") published its financial stability report for the second half of 2012 (the "Report"). The Report concerns the financial stability of the insurance, reinsurance and occupational pension fund sectors in the EEA and concludes that these sectors could face a "significantly negative outlook over the medium term due to macroeconomic uncertainties and the fragile state of financial markets".
For the insurance sector, the Report notes that premium growth has been observed overall, although with wide variations between companies, and the profitability of companies remains relatively stable. It also notes that Solvency I capital ratios are still at comfortable levels but that this should not give rise to complacency as Solvency I is not market or credit risk sensitive and so does not give the full picture.
For the reinsurance sector, profitability is expected to remain under pressure due to excess capacity in the market and reduced demand resulting from the weak global macroeconomic environment. Losses arising from Hurricane Sandy are yet to be quantified but are expected to have a significant impact in the market.
For the pensions sector, EIOPA's key concerns are funding shortages and the increased longevity of pensioners.
Europe – EIOPA comments on IMD2 proposal
During a speech given by Gabriel Bernardino (chairman of the European Insurance and Occupational Pensions Authority ("EIOPA")) at EIOPA's second annual consumer strategy day, it was indicated that EIOPA welcomes the European Commission's proposal to introduce a revised Insurance Mediation Directive ("IMD2") in order to improve the retail insurance markets and promote a more level playing field. Mr. Bernardino made the following supplementary comments:
it is important that IMD2 creates a regulatory regime for the retail insurance market that can be supervised effectively at national and European levels, bearing in mind the wide variety of existing structures at a national level for supervising insurance intermediaries; while the professionalism of intermediaries should be reinforced, IMD2 should respect proportionality and give full consideration to existing market specificities such as a diverse range of distribution...