The current legal and regulatory framework for the provision of insurance in the European Economic Area and the supervision of that activity is prescribed by European Union law in the life and non-life insurance directives. The provision of insurance throughout the EEA on a freedom of services basis and a freedom of establishment basis - that is, establishment of a branch - within this framework is predicated upon the absence of internal market frontiers and the mutual recognition of authorisation of insurance undertakings by member states.
The insurance directives specify particular roles for both the home member state supervisory authority - that is, the supervisory authority that grants an authorisation - and the host member state supervisory authority - that is, the supervisory authority of the member state where an insurance undertaking conducts business on a freedom of services or freedom of establishment basis - of an insurance undertaking. Insurance undertakings authorised under the insurance directives are subject to solvency and financial reserving requirements, the supervision of which is the sole responsibility of the home member state supervisory authority. The primary objective of these requirements is to ensure that claims made in respect of policies issued will be adequately provided for by the insurance undertaking. Under Article 20 of the third non-life insurance directive, the home regulator is required to notify the host regulator if the solvency margin of an undertaking falls below the statutory requirement. In such instances the home regulator should inform the host regulator of the measures it has taken to address the solvency deficit.
Where a non-life undertaking authorised in another member state goes into liquidation and policyholders in respect of risks in this state are affected, under the insurance compensation fund, ICF, the accountant of the High Court can make an application to the High Court on their behalf and, subject to certain exclusions, distribute sums due to such policyholders from the ICF.
Following negotiations completed at European level in November 2013, a new regime under the solvency II directive will commence on 1 January 2016. This will further strengthen the EU regulatory framework. The solvency II EU directive sets out new stronger EU-wide requirements on capital adequacy and risk management for insurers, with the key aim of increasing policyholder protection. The new regime will also ensure greater co-operation between supervisors.
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Furthermore, EEA insurance regulators are members of the European Insurance and Occupational Pensions Authority, EIOPA, and required to comply with the general protocol relating to the collaboration of the insurance supervisory authorities of the member states of the European Union. This general protocol statement was issued in 2008 and is under review by the EIOPA.
The recent liquidation of Setanta Insurance Company Limited emphasises the need for all EU member states to make a transition to the new solvency II regime to meet the January 2016 deadline. My Department and the Central Bank will be reviewing the circumstances relating to Setanta and reporting to me on what lessons can be learned and how the framework can be strengthened. The European Commission has also indicated that it will review whether any issue raised relating to the regulatory framework requires action.
