This briefing explains why Ireland is an attractive location to the life assurance industry. It explains the regulatory application process and the ongoing supervisory controls to which a life insurer is subject. In the context of Brexit-planning, a key issue for UK insurers is the staffing presence required in Ireland. We have dealt with this, and other important considerations, in our separate briefing note on ‘Substance and Outsourcing Requirements’.
Advantages of Ireland
There are many advantages to locating a life insurance operation in Ireland:
- Ireland is a full member of the European Union and has implemented the Solvency II Directive so that life insurers regulated by the Central Bank of Ireland (the “Central Bank”) can service all other EEA markets without the need for further authorisation;
- The Central Bank is generally regarded as a responsible yet responsive regulator;
- No application fee for new authorisations;
- It is a well developed insurance market with many of the world’s leading insurers and reinsurers based here;
- In particular, many of these companies are active in the unit-linked and so-called “variable annuity” markets and, as a result, both the Central Bank and advisory firms are familiar with a broad range of investment products in addition to the more traditional protection products;
- Ireland’s close proximity to the UK enables easy interaction with the London market;
- The Irish legal system, like that in the UK, is based on the common law;
- English is spoken universally;
- Advantageous tax regime with 12.5% corporation tax rate and comprehensive double tax treaties in place with 72 countries;
- An exemption can be obtained from the 20% dividend withholding tax by many companies resident in, or controlled by residents in, EU member states or countries with which Ireland has a taxation treaty;
- No Irish stamp duty or premium taxes are payable on insurance policies where the risk is located outside Ireland; and
- With a plentiful supply of top quality legal, actuarial, accounting and insurance management firms, there is an experienced pool of service providers.
When considering Ireland as a location for a life insurance company, one of the initial steps an applicant should take is to arrange a preliminary meeting with the Central Bank to discuss, at a high level, its proposed operations. Thereafter, the applicant will prepare an application in the English language containing prescribed information, which is submitted to a dedicated insurance authorisation team in the Central Bank.
Following its review of the application, the Central Bank will typically issue a series of follow up queries to the applicant seeking additional information in respect of aspects of the application. Once the application is clear of comments from the authorisation team, it will be submitted to a senior management committee for formal approval. An applicant cannot commence writing business until the Central Bank has granted the formal authorisation.
Application to the Central Bank
The applicant must provide specific supporting information to the Central Bank in accordance with its application checklist, including a detailed business plan. The following is a non-exhaustive list of the information and documentation that would need to be submitted:
- Overview of the parent/group to which the applicant belongs;
- Whether the parent/group is subject to consolidated / group supervision;
- Ownership structure including details of all qualifying shareholders;
- Legal structure of the applicant company including its constitutional documents;
- Applicant’s objectives and proposed operations, including classes of business; product types; target markets; and distribution model;
- System of governance arrangements including details of board of directors and senior management and reporting lines;
- Risk oversight arrangements including the applicant’s proposed Own Risk and Solvency Assessment (ORSA) report, describing the risk management system (covering at least underwriting and reserving risks; asset-liability management risks; investment risks; liquidity and concentration risks; operational risks; risks related to reinsurance and other risk mitigation techniques); risk management procedures; Risk Appetite Statement; investment strategy; reinsurance policy; Anti-Money Laundering procedures; possible conflicts of interest; outsourcing arrangements; IT and Business Continuity plans;
- Key functions information covering internal audit, compliance, actuarial and risk management;
- Other functions including underwriting; administration; claims; finance; investment; distribution channels;
- Capital and solvency projections and financial information for a 5-year period including required certification by the Head of Actuarial Function; and
- Consumer-related issues (e.g. Minimum Competency Requirements and Consumer Protection Code), although if no Irish consumer business is to be written, these will be of little relevance.
Authorisation in principle / time-frames
When the Central Bank has approved the application and before the formal authorisation is granted, the applicant will receive confirmation of “authorisation in principle”. Attached to the “authorisation in principle” will be a list of conditions (including the provision of evidence that appropriate capital has been put in place) which the applicant must satisfy prior to final authorisation being granted.
Once all the relevant conditions have been satisfied, the formal authorisation is granted to the applicant and a Certificate of Authorisation will issue along with a standard set of conditions attaching to the applicant’s continued authorised status.
Following the receipt of a fully completed application by the Central Bank, the expected timeline to authorisation is 3 months but applications can take up to 6 months depending on various factors.
Passporting / branch notifications
Life insurers are entitled to distribute their products in all other EEA markets on either a freedom of establishment (“FOE”) or freedom of services (“FOS”) basis. Although additional authorisation from the supervisory authorities in the target markets is not required, life insurers are required to comply with local requirements in those markets known as “conduct of business” or “general good”. Additionally, prior to distributing into another EEA market for the first time, life insurers are required to submit an appropriate notification to the Central Bank in accordance with the European Union (Insurance and Reinsurance) Regulations 2015 (the “2015 Regulations”).
Most of the international insurers based in Ireland write business into EEA markets and, as a result, the Central Bank has developed familiarity and expertise in cross-border business.
A FOE notification must contain reasonably detailed information concerning the proposed branch operation including the target market; branch manager; and scheme of operations. A FOS notification is more straightforward and requires less information to be provided in respect of the business proposed for the target market.
It is important to remember that in a post-Brexit scenario where the UK may be considered a “third country”, a UK insurer may consider establishing a “third country branch” in Ireland in accordance with the 2015 Regulations. A reasonably detailed application would need to be submitted to the Central Bank in this regard.
The Central Bank is responsible for the prudential regulation and supervision of life insurers on an ongoing basis. The principal requirements applicable to life insurers derive from the 2015 Regulations, which implement the Solvency II Directive in Irish law. Below is a description of some of the main ongoing requirements applicable to life insurers.
Regulatory capital requirements
Life insurers, once authorised by the Central Bank, must maintain technical provisions with respect to all insurance obligations towards policyholders and beneficiaries. The valuation of an insurer’s assets and liabilities and the calculation of its technical provisions must be done in accordance with the 2015 Regulations.
Life insurers are required to hold eligible own funds to cover the Solvency Capital Requirement (“SCR”). The SCR is calculated in accordance with the standard formula or by using an approved internal model as set out in the 2015 Regulations. Life insurers are also required to hold eligible own funds to cover the Minimum Capital Requirement (“MCR”). The MCR for life insurers has an absolute floor of €3,700,000.
Regulatory reporting requirements
Life insurers are obliged under the 2015 Regulations to file various regulatory reports on quarterly and annual bases with the Central Bank and make certain information publicly available in accordance with Solvency II. A list of the reporting requirements may be found on the Central Bank’s website.
Central Bank and EIOPA Guidelines
In addition to the requirements imposed by applicable legislation, life insurers are required to comply with guidelines issued by the Central Bank and EIOPA.
The Central Bank’s Corporate Governance Requirements for Insurance Undertakings 2015 (the “Requirements”) apply to life insurers. Among other things, the Requirements set out the roles of both executive and non-executive directors; rules on the composition of the board; requirements in relation to sub-committees of the board; and necessary policies and procedures (e.g. risk appetite statement; conflict of interests policy; and remuneration policy).
Life insurers are subject to the Central Bank’s risk based supervision framework called “PRISM” (Probability Risk and Impact System). PRISM is a software application and a supervisory tool designed to assess financial firms based on two distinct concepts – the potential impact on financial stability in a crisis and the probability that problems will arise. An insurer’s PRISM rating will dictate the volume of regulatory resources allocated to it and the intensity of the supervisory approach.
Along with the Solvency II requirements relating to the Actuarial Function, a life insurer must comply with the additional requirements specified by the Central Bank’s Domestic Actuarial Regime and Related Governance Requirements under Solvency II. These requirements apply as a condition of authorisation to all insurers and require formal opinions to be provided by the Head of Actuarial Function on technical provisions annually and on each ORSA process carried out by the insurer. There is also a requirement for periodic peer review of the technical provisions by a separate reviewing actuary, with a frequency depending on the life insurer’s PRISM rating.
Fitness and Probity
Life insurers, their directors and key personnel are obliged to comply with the standards issued by the Central Bank pursuant to the Fitness and Probity regime (the “Standards”).
The applicant will need to determine those persons that are proposed to carry out pre-approval controlled functions (“PCF”) and controlled functions (“CF”), as defined in the Standards. The applicant must conduct a detailed due diligence to ensure that those persons are fit and proper to fulfil their roles and that they can and will comply with the Standards.
For those persons proposed to hold a PCF, their appointment must also be approved by the Central Bank in advance. PCF positions include, but are not limited to, Directors, CEO, CRO, COO and Heads of Actuarial Function, Finance, Retail Sales, Underwriting, Investment, Claims, Compliance and Internal Audit.
Currently, the Central Bank does not charge a fee to applicants seeking to become authorised as life insurers. However, once authorised, an applicant would be subject to an annual Central Bank industry funding levy which varies considerably depending on the size of the applicant’s business calculated by the Central Bank using certain impact metric data.