International focus

Global Publication August 2016

IAIS releases updated G-SII assessment methodology and publishes revised approach to identifying activities undertaken by insurers that might pose a systemic risk

The International Association of Insurance Supervisors (IAIS) has recently published a revised assessment methodology to identify whether a firm is a globally systemically important insurer (G-SII). The 2016 Methodology outlines a five-phase approach to the G-SII assessment process that includes fact-based qualitative and quantitative elements in the process for determining whether a firm can be categorised as a G-SII.

Alongside the new methodology the IAIS has published a revised approach to identifying activities that might pose a systemic risk to the financial system. The ‘non-traditional’ insurance approach is revised and replaced by a more nuanced assessment of specific product features and their ability to drive systemic risks. In particular the paper now published takes into account the correlation between particular product features and the broader economy.

For further information: IAIS introduce a five phase assessment methodology to identify G-SIIs

EIOPA publishes consultation paper on Technical Advice on IDD delegated acts

The European Insurance and Occupational Pensions Authority (EIOPA) has published for consultation technical advice on the content of delegated acts concerning the Insurance Distribution Directive (IDD). If the advice of EIOPA is followed, the contents of this consultation paper would form the basis of secondary legislation in which much of the detail of the new distribution regime would be contained. EIOPA sees the IDD and its secondary legislation as contributing to the creation of a single rulebook on consumer protection for insurance products.

On 24 February 2016, EIOPA received a formal request for advice from the European Commission to provide technical advice on delegated acts to provide detail in relation to the following articles in the IDD:

  • product oversight and governance (Article 25);
  • conflicts of Interest (Articles 27 and 28);
  • inducements (Article 29(2)); and
  • assessment of suitability and appropriateness and reporting (Article 30).

The technical advice covers each of the above aspects of the IDD. Although EIOPA has already undertaken extensive work on product governance (in particular producing Preparatory Guidelines on product oversight and governance arrangements by insurance undertakings and insurance distributors), new policy proposals have been included in this latest advice. Of particular interest are the new proposals that seek to provide guidance on when an intermediary or insurance undertaking will be acting as ‘manufacturer’, the granularity needed to identify a target market and product review and information arrangements.

The remaining areas of the consultation concern insurance-based investment products.

The consultation on the technical advice will run until 3 October 2016. A public hearing will take place in Frankfurt on 23 September 2016.

For further information: Consultation Paper on Technical Advice on possible delegated acts concerning the Insurance Distribution Directive

OECD publishes draft recommendation on OECD Guidelines on Insurer Governance

On 12 July 2016, the Organisation for Economic Co-operation and Development (OECD) published a draft recommendation of the Council on Guidelines on Insurer Governance for online public consultation.

The draft recommendation is aimed at revising the May 2011 revised OECD Guidelines on Insurer Governance and complements the G20/OECD Principles of Corporate Governance which were published in September 2015.

The guidelines are organised around four main sections: governance and structure; internal governance mechanisms; groups and conglomerates; and stakeholder protection. The draft recommendations include the following changes to the May 2011 Guidelines:

  • Regarding governance and structure in respect of the board of directors, the draft recommendations have added a new ‘performance’ guideline: The board should possess the right mix of backgrounds and competencies to address the broad spectrum of issues related to the insurer’s activities and risks.
  • Also regarding governance and structure in respect of the board of directors, the draft recommendations have changed the wording of one of the ‘independence’ guidelines to: The board shall, collectively and individually, demonstrate both formal and perceived independence and exercise objective and impartial judgement in the affairs of the insurer.
  • Regarding internal governance mechanisms, the draft recommendations have an additional ‘whistleblowing’ guideline: The board should have oversight of the whistleblowing policy and ensure that senior management addresses legitimate issues that are raised.
  • Regarding groups and conglomerates, the draft recommendations have added the following sentences to existing guidelines:
    • Under ‘comprehensive view’: The boards and key executives of controlling and controlled entities within a group should have a comprehensive view of the business, operations and overall risks of the group and of the major entities within it, and promote a strong culture of compliance across the group.
    • Under ‘governance system’: This governance system should recognise the responsibility of the board of any insurer within a group to exercise independent decision-making and ensure the soundness and performance of the insurer. It should ensure that intra-group arrangements and transactions are carried out in a fair and transparent manner.

The guidelines are non-binding and are intended to provide guidance and serve as a reference point for policymakers, insurers and other relevant stakeholders. The OECD warns that the draft is a work in progress and so the content may be subject to modification.
The deadline for comments on the draft is 29 August 2016.

For further information: OECD publishes draft recommendation on OECD Guidelines on Insurer Governance

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