Global Corporate Insurance & Regulatory Bulletin (November 2012)

Keywords: CIRC, FSA, EIOPA report, NAIC, life insurers

China – CIRC allows overseas investments by Chinese domestic insurers

On 12 October 2012, China's Insurance Regulatory Commission ("CIRC") issued the Implementing Rules for the Interim Measures, which has the effect of widening overseas investment options for Chinese domestic insurers. Whereas previously they were permitted to invest only in Hong Kong, now they are permitted to allocate assets in 45 new countries, including 25 developed and 20 emerging markets.

The scope of approved asset classes has also been widened. Chinese insurers may now invest in offshore products in the following categories: equities, bonds, currency products and fixed income products as well as real estate and offshore private equity funds.

It remains unchanged that the total offshore investments by Chinese insurers should not exceed 15% of their total assets by the end of the previous year. The recent rules further provide that the total investments in the 20 emerging market jurisdictions should not exceed 10% of the insurer's total assets by the end of the previous year.

This move is the most recent among a series of policy amendments directed this year at boosting the profitability of China's insurers.

For further information, click here for our full article: "New CIRC Rules Aimed at Expanding China's Overseas Insurance Investment" and click here for our previous article: "CIRC Relaxes Restrictions on Permitted Investments by Insurance Companies".

UK – FSA moves to internal twin peaks model for authorisation

Following the FSA's adoption in April 2012 of an internal twin peaks model for supervision, on 15 October 2012 the FSA published a statement announcing the implementation of an internal twin peaks model for authorisation. This will only affect firms that will be dual regulated under the new regulatory structure (due to be implemented in April 2013), with such firms now being subject to assessment by both the Prudential Business Unit and the Conduct Business Unit. The FSA has said that this will only change how applications are processed internally, i.e. the submission process will not be affected.

UK – Lloyd's Market Association updates Contract Certainty Code of Practice

On 15 November 2012, the Lloyd's Market Association ("LMA") published an updated version of the Contract Certainty Code of Practice (the "CCCP"), which applies to general insurance contracts entered into by a UK regulated insurer or arranged through a UK regulated broker.

The revised CCCP reflects changes to the regulatory structure and addresses some minor inconsistencies that existed in the previous version, but the substantive guidance is unchanged.

Europe – Solvency II update

Timing

There is ongoing concern that Solvency II will not be ready in time for the intended full implementation date of 1 January 2014, with Gabriel Bernardino (chairman of the European Insurance and Occupational Pensions Authority ("EIOPA")) suggesting the best case scenario is implementation in either 2015 or 2016, with 2016 considered more likely.

This concern is compounded further by the announcement on 30 November 2012 that the European Parliament will now not consider Omnibus II until its 10-13 June 2013 plenary session (this was previously scheduled for March 2013). Until Omnibus II is finalised, the detailed Level 2 and 3 text cannot be finalised.

Some market participants consider this ongoing uncertainty to be damaging to the EU's reputation – in particular, Gabriel Bernardino has expressed concern that "the lack of certainty about Solvency II implementation is challenging the EU's credibility in international discussions". Mr Bernardino has said that strong commitment from the EU institutions is needed in order to determine "a clear and credible timetable based on a realistic assessment of the expected time needed to deliver the different milestones of the regime".

Technical developments

On 18 October 2012, EIOPA published Technical Specifications for the Solvency II valuation and Solvency Capital Requirements calculations Part I. This is a working document that EIOPA recommends should be used by insurance and reinsurance undertakings in quantitative assessments. The updated technical specifications have been published in order to help participants in the upcoming Long Term Guarantee Assessment to better prepare for the exercise. However, this first part of the updated technical specifications contains only general specifications, with the long term guarantee related specifications due to be published by EIOPA in due course.

FSA developments

The FSA has reminded firms that an approval to use an internal model for individual capital adequacy standards ("ICAS") purposes does not constitute approval to use that model for Solvency II purposes and that Solvency II models can only be approved once legal powers are granted to the FSA under Solvency II. The FSA has said it is aware of the need to optimise resources and avoid duplication of work and that it will therefore consider approval to use Solvency II work for ICAS requirements on a firm by firm basis.

The FSA has also updated its webpage on submissions under the FSA's internal model approval process for Solvency II. The revised webpage includes a link to an updated self-assessment template for use by firms and the FSA has reminded firms that they are required to demonstrate that they meet the requirements of Solvency II and its implementing measures in order to obtain internal model approval. The FSA has also published a letter regarding the use of early warning indicators as part of the monitoring process for the ongoing appropriateness of internal models.

Europe – EIOPA report on insurance industry training standards

On 9 October 2012, EIOPA published a report on the knowledge and ability requirements set by EU national competent authorities ("NCAs") for insurance intermediaries. The report is based on responses to a mapping exercises carried out by EIOPA members between March and September 2012 on the industry training standards that apply in difference jurisdictions.

The report concluded that knowledge and ability requirements are generally a combination of academic and professional experience, although in some countries academic qualifications can be waived if professional experience is long enough. In many member states, the requirements for insurance brokers are more stringent than for insurance agents.

The report also indicates that the requirement to update knowledge and ability requirements through continuous professional development ("CPD") varies considerably between jurisdictions, with some jurisdictions only assessing knowledge and ability before first registration of an intermediary while other jurisdictions require a minimum number of hours of CPD per year or require the passing of exams or training courses on a regular basis. With a few exceptions, there is limited availability for intermediaries to update their knowledge and ability via e-learning.

In addition, responsibility for assessing knowledge and ability at a national level was found to vary considerably. Some jurisdictions only permit assessment by the NCA, or by the NCA in tandem with undertakings/professional associations, while others delegate this responsibility to professional associations and some delegate this responsibility to the intermediary or undertaking itself.

The report found that NCAs had very little experience of receiving applications for mutual recognition of knowledge and ability requirements.

Finally, sanctions for failure to possess adequate knowledge and ability were found to vary; the basic sanctions are refusal to register the intermediary or a withdrawal of the intermediary's licence/authorisation, but some jurisdictions have more stringent regimes, involving suspensions, disqualifications, fines or imprisonment.

Europe – European Parliament publishes working document on IMD II

On 29 October 2012, the European Parliament published a working document on the European Commission's proposed Insurance Mediation Directive II ("IMD II"). This document raises a number of issues that the European Parliament believes need to be considered, including:

whether the appraisal of claims should be included within the scope of IMD II; the fact that the European Commission's proposal provides for a number of delegated acts, which would lead to maximum harmonisation in certain important areas; the resources that will be allocated to EIOPA to enable it to perform the tasks conferred on it under those delegated acts; whether...