EU publications EIOPA announces launch of EU-wide thematic review of the UL life insurance market Page 2

Insurance Regulatory Update August 2016 European regulatory developments of interest to insurers, reinsurers, asset managers and other market participants Summary EU publications EIOPA announces launch of EU-wide thematic review of the UL life insurance market Page 2 EIOPA publishes advice on PPPs Single Market Page 2 Insurance Europe publishes response on proposed changes to calculating the UFR Page 2 EIOPA updates reporting Q&As Page 3 UK publications PRA re-issues its external audit of SII public disclosures consultation (CP23/16) Page 7 PRA updates Supervisory Statement on regulatory reporting exemptions (SS11/15) Page 8 PRA updates Supervisory Statement on Supervisory options in the regulatory reporting ITS (SS40/15) Page 8 PRA updates Supervisory Statement on capital extractions by GI run-off firms (SS4/14) Page 8 Ireland publications Central Bank publishes first Insurance Quarterly Newsletter Page 9 Gibraltar publications GFSC publishes Feedback document on ORSA Page 11 Malta publications MFSA issues Circular on additional support for Group Solvency II returns on LH Portal Page 13

EU - Publications from EU institutions 5 July EIOPA EIOPA announces launch of EU-wide thematic review of the Unit-linked life insurance market EIOPA has announced that it intends to launch an EU-wide thematic review into market conduct of insurance companies operating in the unit-linked life insurance market. The review will consider: incentives and remuneration (particularly remuneration paid by asset managers) conflicts of interest structure of unit-linked insurance products EIOPA indicates that national regulators will be responsible for identifying the insurers requiring to take part in the review, gathering data, and acting as a primary contact. EIOPA will complete the final analysis and publish results of the review. It expects participating firms to report back by September 2016, and intends to publish the results in early 2017. 4 July EIOPA EIOPA publishes advice on PPPs Single Market EIOPA published advice to the European Commission on creating a European Union Single Market for personal pension products (PPPs). The advice follows EIOPA s 1 February 2016 Consultation on PPPs, and re-affirms the view that a standardised Pan-European Personal Pension Product (PEPP) regulated by a second regime (sometimes referred to as a 29th regime ) is the best option. 18 July Insurance Europe Insurance Europe publishes response on proposed changes to calculating the UFR Insurance Europe issued a press release on its response to EIOPA s consultation on the methodology to derive the Ultimate Forward Rate ( UFR ). Insurance Europe rejected the move to change the UFR, claiming the move was based on a misunderstanding of the use of the UFR: Calls for hurried changes to the UFR appear to be based on a misunderstanding of its purpose and how it impacts Solvency II liability valuations. The UFR of 4.2% is not the risk free rate used for Solvency II valuations; rather it is a parameter used to generate them. The actual risk free rates are far lower. For example, the risk free rate for euros in June at year 10 was 0.32% and even at year 60 was 2.76%. Insurance Europe also dispute the current low-interest rate as being a valid justification for the move, arguing that the UFR is designed to be a long-term, stable parameter that was only recently agreed. Moreover, the current environment on interest rates when seen as a response to ECB policy; which is intended to be temporary.

Insurance Europe call for the UFR to be left unchanged until the Solvency II review is carried out, where an impact assessment should be carried out on any change. 27 July EIOPA EIOPA updates reporting Q&As EIOPA published updates to the RSR Q&As, SFCR Q&As and FSR Q&As on its Q&A page. Included within the additional items were useful clarifications on some of the detailed reporting requirements: RSR reporting templates: Question 105 (6/7/16) S.08.02 C0120, C0310, C0330 for Currency forwards EIOPA provides a worked example for the approach to take for currency forwards. For example, in a forward contract USD GBP, 1 000 000 USD, exchange rate USD GBP = 0,6959: o C0120 (Nominal amount) should be 1 000 000 o C0310 (Currency) should be USD o C0330 (Trigger value) should be 0.6959 Question 109 (6/7/16) S.14.01 C0210 (Annualised guaranteed rate (over average duration of guarantee)) EIOPA confirms that where a guarantee is provided that is not explicitly a rate of return (example given being UK WP contracts that guarantee benefits (cash surrender values, maturity and death benefits) but no explicit reference of any guaranteed rate) then this field should not be reported Question 116 (2/6/16) S.36 Definition of transaction for the purposes of IGT QRTs EIOPA confirms a number of examples provided would all fall under the definition of Article 13(d) in the SII Directive and hence be in-scope for reporting in S.36 QRTs (where values exceed relevant thresholds): o a group entity sells a security issued by a group external counterparty to another group entity o a group entity invests in a bond which is issued by another group entity o two group entities close a reinsurance contract which transfers insurance risk from one group entity to another group entity? Question 117 (6/7/16) S.19.01 Reporting inflation rates at total LoB level EIOPA confirms that where reporting the inflation rates used for the claims development information at the total line of business level, the inflation rates do not need to reflect the inflation rates reported for different currencies within that line of business but rather should be the inflation rates used for the most material currency for the line of business (normally expected to be the reporting currency). NOTE: we have added a validation to check that for each inflation rate provided in a LoB level S.19.01.01 (eg S.19.01.01 for Motor business) matches the equivalent inflation rate data point in the LoB and currency level S.19.01.01 for the same line of business and reporting currency (eg S.19.01.01 for Motor business denominated in Euros (for an insurer with Euros as their reporting currency)) Question 121 (14/7/16) S.06.02 Reporting inflation rates at total LoB level

EIOPA confirms that for property investments (CIC 9) only the Total Solvency II amount column (c0170) should be completed ie neither Quantity (c0130) or Par Amount (c0140) should be used. NOTE: we have modified our C0130 and C0140 validations in light of this clarification, flagging a validation result if C0130 or C0140 is completed for CIC 9 Question 123 (14/7/16) S.10.01 Securities lending and repos EIOPA confirms that all contracts closed during the period should also be reported, however, contracts closed prior to the reporting date do not qualify towards the reporting threshold. Question 124 (14/7/16) S.10.01 Securities lending and repos EIOPA clarifies an ambiguity in the reporting instructions around which exposures to report for a counterparty for which a material (aggregated) exposure is identified at the group level: o The fourth paragraph in the instructions set out in S.37.01, The aim is to list the most important exposure (value of the exposure) by counterparty and by type of exposure is not necessarily to be interpreted as only one exposure (the largest) is to be reported for a counterparty / type of exposure combination. A group s reporting of its risk concentrations should be discussed with the group supervisor. Question 125 (14/7/16) S.02.01 Assets held as unit linked (r0220) vs S.06.02 EIOPA confirm that an exact match between S0201 r0220 and s0602 is not expected as s0602 includes on investments (within CIC 0-9) whereas r0220 in s0201 may contain other assets (i.e. other than investments) Question 127 (25/7/16) S.06.02 Valuation method (c0150) for cash (CIC 71) EIOPA clarifies its expectations for the valuation method (c0150) to be used for cash (CIC 71) holdings: o Where the cash is in the reporting currency: 1 - quoted market price in active markets for the same assets o Where the cash is not in the reporting currency: 1 - quoted market price in active markets for the same assets unless specific situations apply in relation to the exchange rate used NOTE: we have added a validation to check that the above is observed for CIC71 for reporting currency and non-reporting currency holdings SFCR reporting templates: Question 23 (2/6/16) S.36. Basis for threshold of IGTs for reporting EIOPA confirm that it is normally expected that the nominal value for a transaction should be used for the purposes of evaluating against the reporting threshold but this may differ depending on the type of the transaction. Therefore we advise to contact a relevant group supervisor in case of doubts. Question 24 (25/7/16) S.19.01 Gross Reported but not Settled Claims (RBNS) Year end (discounted data) reporting discounted figures EIOPA confirm that despite the title of the triangle, figures to be reported are expected to be on case-by-case reserves estimated by claim handlers and do not need to be on a best

estimate Solvency II basis. In this case the concept of discounting/undiscounting would not apply. However, should the concept of discount be applied to reserved amounts C0400-C0550 are undiscounted and C0560 should reflect the last diagonal but discounted. NOTE: we have amended the validation in the year-end column to allow the last diagonal to be greater than or equal to the year-end amount, reflecting the fact that this amount might be discounted. Reporting guidelines: Question 8 (3/6/16) Guideline 22 - Confirmation RSR requirement to disclose information on technical provisions excludes group level Confirmation from EIOPA that Guideline 22 does not apply to the group RSR. However, EIOPA note that Article 308 (3)(f) of the Commission Delegated Regulation 2015/35 are applicable at a group level and therefore the impact of the LTGA measures (if applied) on the group level technical provisions should be disclosed. Question 9 (3/6/16) Guideline 22 Further clarification on meaning of evolving in relation to options and guarantees in technical provisions EIOPA provide some further details on their expectation in response to a query on what is meant by evolving within "Details of the key options and guarantees within the calculation of the technical provisions and the significance of each and how they are evolving." EIOPA clarify that they expect insurers to disclose: o information regarding the past and expected evolution of the options and guarantees, e.g. if options are in/out of the money o expectations that options are used by policyholders, and when o ALM to meet payment of the guarantees embedded in the obligations Question 10 (3/6/16) Guideline 22 Confirmation no exemption for specific LoB In response to a query regards whether lapse rates on UL and inward reinsurance could be excluded from these disclosures EIOPA state no exemptions from the scope of GL 22 are available. Question 11.1 (11/7/16) S.30.02 Code reinsurer (c0050) where no LEI available and where reinsurance pools used EIOPA confirm in relation to this field: o If a LEI code does not exist undertakings have to attribute a specific code. Moreover, although there is no specification in the Log, in the cases where a code already exists (e.g. national identifier), it is expected that the same code is used as this identifier should be kept consistently over time until a LEI code exist. o If the (reinsurance) pool is not a legal entity (as defined by EIOPA: Legal entity is an entity that has a legal standing in the lies of the law. ) the reinsurers have to be identified. Question 11.4/5 (11/7/16) S.30.01 Risk ID codes (c0030)

EIOPA confirm that the same risk ID can be reported in more than one line of business, when applicable. Further EIOPA confirm that the risk ID must not be reused. Question 11.9 (11/7/16) S.30.01 Sum insured (c0130) In response to a query on how an unlimited sum insured amount should be reported EIOPA advises that an estimation should be calculated, noting that the risks to be reported are the ones with the highest reinsured exposure. Question 11.10 (11/7/16) S.31.01 Reporting exposures to unknown counterparties In response to a query on whether it would be allowed to report recoverables relevant to unknown counterparts, EIOPA advise this is not permitted.

UK - Publications from the UK 6 July PRA PRA re-issues its external audit of SII public disclosures consultation (CP23/16) The PRA has published Consultation Paper CP23/16, proposing minor changes to the draft rules on external audit of the SII public disclosure first proposed in the PRA s November 2015 Consultation Paper CP43/15. Overall, there are no substantive changes in the PRA s policy, and the amendment does not change the substance of what an auditor or actuary must do to comply with the PRA s rules but there are several changes to provide further clarity. Notably, the first returns to be covered by the audit requirement has been delayed to those with a year end on or after 15 November 2016. The main changes are: PRA removed as an addressee of the report to align with current audit practice Clarification on duties of the auditor o Opinion will be on whether the relevant elements have been prepared in all material respects in accordance with the PRA rules and Solvency II regulations. Previously the wording read: meets the requirements of the PRA rules. o The auditor should identify whether the other elements of the SFCR are materially inconsistent with information that they have access to in the course of the external audit of the SFCR and (where applicable) with the audit of the financial statements Previously the wording covered any information that the auditor may have access to. Clarification of exclusion of SCR calculated using Partial or Full Internal model o Exclusion of any information that relates to the SCR calculated using a full or partial internal model has been modified to information that is, or derives from the SCR calculated using a full or partial internal model at the solo and group level Responsibilities of the governing body o The PRA has included the requirement that the governing body evidence their responsibility by acknowledging in writing and signing the public disclosure document. Audit guidance and application date o In response to concerns that guidance for auditors would not be available in time for the first disclosure, the PRA has deferred the requirement for external audit of the public disclosure to firms with years ending on or after 15 November 2016. The PRA encourages insurers with years ending before 15 November 2016 to procure assurance over their public disclosure where it is practicable and views existing material, ISAs as issued by the International Auditing and Assurance Standards Board (IAASB), as appropriate guidance for auditors until the FRC issues further standards and guidance The consultation period closes on 4 August 2016.

6 July PRA PRA updates Supervisory Statement on regulatory reporting exemptions (SS11/15) The PRA has updated its Supervisory Statements SS11/15 of March 2015 on regulatory reporting and exemptions to bring the template reference numbers in Table A in line with Commission Implementing Regulation (EU) 2015/2450 of 2 December 2015. There is no change in the list of templates in Table A, simply the template references have been updated (e.g. S.02.01.b to S.02.01.02). 6 July PRA PRA updates Supervisory Statement on Supervisory options in the regulatory reporting ITS (SS40/15) The PRA has updated its Supervisory Statements SS40/15 of October 2015 on Supervisory options in the regulatory reporting ITS updated to address the options for supervisory authorities in accident or underwriting year reporting and disclosures. It also includes references to template S.29.03.01 (the instructions for template S.29.03 give supervisory authorities discretion to stipulate accident or underwriting year reporting). 28 July PRA PRA updates Supervisory Statement on capital extractions by GI run-off firms (SS4/14) The PRA published update to SS4/14 on capital extractions by run-off firms within the general insurance sector. The update sets out the PRA s updated expectations, in light of the SII Directive obligations, regarding the factors that senior management of general insurance firms in run-off should take into account when considering making a request to the PRA to extract capital from the firm in run-off. It also explains the approach the PRA takes when considering such requests. The updates proposed to this statement reflect the changes to the PRA Rulebook that will occur on the implementation of SII on 1 January 2016. The updates to the Supervisory Statement do not represent a change in PRA policy but do offer further guidance of how the ORSA should be used in the decisions making process in applying for a capital extraction. In particular, the PRA expects that firms will not seek a capital extraction that would bring the level of capital below its overall solvency needs as set out in the firm s ORSA, even if this figure is above the SCR.

Ireland - Publications from Ireland 30 June CBoI Central Bank publishes first Insurance Quarterly Newsletter The CBoI published the first edition of its Insurance Quarterly Newsletter, the publication that replaces the now retired Solvency II Matters newsletter series. The newsletter provides a general update on the first wave of SII reporting, feedback on the 2015 FLAOR submissions, and other updates including upcoming policy changes. Reporting CBoI provided summary statistics on the submission rates for Day 1, Q1 (EIOPA and NST) returns: o Day 1 QRTs: 100% completion (96% on time); o Quarter 1 QRTs: 99% completion (96% on time); o Quarter 1 NSTs: 99% completion (95% on time). The CBoI comment that a common observation was that insurers would be required to make several attempted submissions before the XBRL was successfully accepted by the Portal. CBoI advise firms to engage early with testing upcoming reporting types, namely semiannual and annual returns. The CBoI also commented that a number of issues in respect of data quality observed in the reporting to date. The CBI say it is actively engaging with undertakings individually to resolve these issues, the result of which in many cases such engagement will result in advice for future submissions, there may also be cases where resubmissions of Day 1 or Quarter 1 returns will be required. FLAOR 2015 feedback CBoI largely refer readers to its May 2016 Dear CEO letter regards the 2015 FLAOR submissions, which the CBoI state, report an improvement in submission quality compared with the 2014 FLAORs and set out a number of key points arising out of the review of the 2015 FLAORs: o the reports should specifically identify the material risks, whether quantifiable or not, used in determining the rationale behind the firms Overall Solvency Needs; o insufficient consideration of potential future material changes in risk profile and the resultant impact on capital or own funds; o reports should be concise and focused; and the time lag between the date of collection of the data and consideration by the Board of the report should be reduced. The CBoI also, however, provide feedback on a thematic review of 2015 FLAOR s from crossborder life insurers. Although the review was into a particular sub-set of the market, the CBoI advise that the lessons from the review are more widely applicable and we recommend that undertakings take note of the outcomes of the cross-border FLAOR review.

Insurers can see a heat-map analysis that helpfully summarises the findings of compliance against the 17 FLAOR guidelines. Other policy updates The CBoI list out recent consultations and policy updates, in addition to announcing some policy decisions: o CBoI consultation on External Audit of the SFCR (I June 2016) All firms are proposed to be in scope, with the requirements being applicable for years ending 31 December 2016 onwards o CBoI consultation on Guidelines on Head of Actuarial role (20 May 2016) Guidance in relation to certain tasks of the Head of Actuarial Function which have been introduced either by SI 485 of 2015 or by the 2015 Domestic Actuarial Requirements. o Information note on S.06.03 LT difficulties (April 2016) CBoI report that 10 insurers completed the narrative submission which the CboI requested where the insurer could not (fully) achieve look-through on held funds o EIOPA Survey on ECAI Ratings CBoI report that 25 undertakings responded to the survey, with no major issues identified by respondees o SII NCA Reporting discretions CBoI advise that it is not precluding or directing on whether accident year or underwriting year basis should be used for non-life claims reporting QRTs. Also, the CboI is not requiring insurers to report claims development triangles (S.16.01 and S.19.01) by currency in the reporting currency these can and should be reported in original currency o Directors Certification for Solvency II Undertakings CBoI advise that development of the draft templates for Directors Certification for Solvency II undertakings is in progress. An update on this will be provided in the September 2016 edition of the newsletter

Gibraltar - Publications from Gibraltar 18 July GFSC GFSC publishes Feedback document on ORSA The GFSC published a feedback document on the ORSA s (FLAOR s as they then known) that the GFSC requested from insurers for 31 December 2015 under the preparatory ORSA guidelines. The document is a very useful insight into the GFSC s expectations on the process and reporting of the ORSA, examples of good practice and bad practice seen in the submitted FLAOR s. The GFSC note that the final Solvency II EORSA guidelines are further reaching than the preparatory guidelines. Non-Gibraltar insurers will also likely find this document useful, particularly in lieu of any feedback or guidance from their local regulator. The document consists of eight sections, with the EIOPA ORSA GL s as an appendix: The executive feedback and structure and presentation sections give high-level outline on common issues and good practice, namely: Executive feedback o Lack of demonstration of Board oversight o Lack of granular detail on drivers and assumptions in the business plan o Non-quantifiable material risks and risks not explicitly covered by Standard Formula should be assessed and included in risk register o Lack of clarity on choice of stress tests applied and quantification of the results and impact o Limited detail on assessment of Standard Formula appropriateness Structure and presentation of ORSA. Good practice: o Key risks identified near top of document o Risks, tolerance and metrics in Tabular forms o Commentary on numbers o No general statements o Organisational structures and outsourcing arrangements diagrammatically presented o Business plan detailed with supporting figures and charts o Reinsurance strategy and programme details articulated o SCR presented by risk category, with key assumptions detailed o Related documents (risk register, committee structures etc.) included as appendices o Glossary of firm-specific terminology The remaining sections flesh out these key points with example tables, commentary, presentation etc. 22 July GFSC GFSC issues statement on direction to direct Enterprise to cease effecting new insurance contracts On 22nd July 2016 the GFSC announced it had issued directions under Section 105 of the Financial Services (Insurance Companies) Act (the Act), directing Enterprise Insurance Company PLC to immediately cease effecting new contracts of insurance.

The GFSC also issued certain directions under Section 100 of the Act including prohibiting Enterprise from making any payments unless previously authorised by the Commission, in order to protect the assets of Enterprise. The actions follow Enterprise advising the GFSC that it is insolvent and has not been able to secure additional funding. The GFSC is advising that is taking appropriate steps to protect policyholders and has notified EIOPA and the relevant financial services regulators and compensation schemes in France, Greece, Italy, Norway, Ireland and the UK, where Enterprise issued motor vehicle and other insurance policies.

Malta - Publications from Malta 6 July MFSA MFSA issues Circular on additional support for Group Solvency II returns on LH Portal The MFSA published a Circular informing insurers that Solvency II Group returns can now be uploaded to the LH Portal. The same process (and file naming convention) as required for solo uploads to the Portal apply. The UIC to be used in the file name should be the UIC assigned to the subsidiary entity + H e.g. group holding company of insurer with UIC of XYZ should use a UIC of XYZH. The document doesn t advise on the code to use where multiple subsidiary entities are present within the group (presumably not applicable).