On 4 July 2022, the Central Bank of Ireland published its consultation paper addressed at intra-group transactions affecting Irish (re)insurance undertakings. The consultation paper is open for responses until 22 September 2022. It appends a draft guidance paper which, subject to the consultation feedback, would become effective at the relevant point after that date.
The Central Bank in issuing the paper commented as follows:
“The Central Bank recognises the benefits of being part of a group but also the risks associated with inadequate oversight and governance in the Irish (re)insurance undertaking.
Supported by findings of its thematic reviews, the Central Bank has reviewed and assessed whether the fundamentals of the governance and the management of risks introduced by intragroup arrangements, as well as the treatment of these items by (re)insurance undertakings, are sound, by reference to the relevant regulatory requirements.”
The draft guidance is split into two parts, the first of which concerns an undertaking’s governance and risk management framework. Within the second part, it identifies three key IGT exposures that can arise. Each is elaborated upon in some detail. The areas are dealt with as follows:
1. Governance and Risk Management
- Board and Senior Executive (initial and on-going involvements)
- Risk Function (initial and on-going involvements)
2. Key Exposures:
- intragroup assets
- intragroup reinsurance
- cash pooling/treasury function arrangements
The individual elements will need careful analysis relative to each (re)insurer’s activities, as there are likely to be broad impacts. A key theme in the guidance is that undertakings must establish their optimum structuring distinctly for themselves, without undue group influences, concentration or other risks.
The Central Bank expects that a comprehensive review and monitoring of IGTs is adequately applied at (re)insurer level and that there is no undue influence or control from the group or overreliance on group practices, policies and procedures. The Guidance does not introduce any new requirements on (re)insurers in relation to IGTs. Rather, the Central Bank wishes to clarify its expectations on what compliance with the existing Solvency II requirements might look like for (re)insurers. As such, the Guidance should be read in conjunction with the existing legislative requirements.
The draft guidance notes that material intragroup financial links (through intragroup loans, intragroup reinsurance, and centralised treasury management functions, for example) and a dependence on the parent for capital, may expose a (re)insurer to high levels of concentration and other risks. Furthermore, as IGT arrangements may be more commonly perceived as being ‘less risky’ than external arrangements, there may be a heightened risk of inadequate governance and/or recording of intragroup arrangements by a (re)insurer. As such, the Central Bank believes that the management and supervision of intragroup arrangements merits special attention.
The Central Bank expects (re)insurers to consider the draft guidance and adopt appropriate measures in a proportionate way to ensure that the risks associated with IGTs are properly identified and integrated in their capital considerations, governance and risk management frameworks. The Central Bank expects (re)insurers to demonstrate how they have done this if requested to do so by the Central Bank.