EU publications Online survey for assessment of insurance based investment products Page 2

Insurance Regulatory Update October 2016 European regulatory developments of interest to insurers, reinsurers, asset managers and other market participants Summary EU publications Online survey for assessment of insurance based investment products Page 2 European Commission publishes ITS on procedures for the application of the transitional measu re for the equity risk sub-module published in the Official Journal (2016/1630) Page 2 EIOPA speech on implementation of Solvency II Page 2 EIOPA updates reporting Q&As Page 2 UK publications Treasury Committee launches inquiry into Solvency II Page 5 PRA publishes Policy and Supervisory Statement on the External Audit of the SFCR (PS24/16 & SS11/16) Page 5 ABI publishes checklist for implementing counter fraud practices Page 6 PRA publishes Supervisory Statement on changes to internal models Page 6 PRA publishes Consultation on GI market turning event (CP32/16) Page 7 Lloyd s publishes newsletter No. 7 on Conduct Standards Page 8 Ireland publications Central Bank publishes Issue 2 of its Insurance Quarterly Newsletter Page 9 Netherlands publications DNB discloses new Solvency II industry statistics Page 10

EU - Publications from EU institutions 5 September EIOPA Online survey for developing assessment of insurance based investment products Guidelines EIOPA launches an online survey to help its development of Guidelines on the assessment of complex (which by their nature are difficult for the policyholders to understand) insurance based investment products, due under Article 30(7) of the Insurance Distribution Directive (IDD). The deadline for responses was 25 September 2016. EIOPA is required to publish final Guidelines by 23 August 2017. 10 September European Commission European Commission publishes ITS on procedures for the application of the transitional measure for the equity risk sub-module published in the Official Journal (2016/1630) European Commission publishes ITS on procedures for the application of the transitional measure for the equity risk sub-module published in the Official Journal (2016/1630) in the Official Journal. The ITS states that no procedures are needed when undertakings decide against using the transitional measure set out in Article 308b (13) of Solvency II Directive. The requirement to identify the purchasing date for equities indirectly held through collective investment funds can be simplified with a transitional arrangement available through the amended Delegated Regulation where revised Article 173 allows an insurer to estimate the proportion of equities in accordance with the target underlying asset allocation on 1 January 2016. The proportion to which the transitional is applied shall each year be reduced in proportion to the asset turnover ratio of the fund. The Implementing regulation entered into force on 30 September 2016. 6 September EIOPA EIOPA speech on implementation of Solvency II EIOPA published a Speech by EIOPA Head of Regulations Dr Manuela Zweimueller on the implementation of Solvency II. In a section looking ahead to future reviews of Solvency II, Dr Zweimueller indicated that: until 2020, EIOPA will perform a yearly assessment of the implementation of the long-term guarantee measures; and by 2018, EIOPA is to review the solvency capital requirement standard formula including the calibration of different asset classes under Solvency II, including sovereign bonds; These reviews will take into account the developing international insurance capital standards.

26 September EIOPA EIOPA publishes updated reporting Q&A responses 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 298 (25/7/16) S.10.01 Securities lending and repos reporting threshold EIOPA confirms that the aggregate securities lending and repo exposures should be considered for the 5% threshold i.e. if both were at 3%, the template wold be required as in aggregate the exposures are above the 5% threshold. Question 759 (30/8/16) sensitivity to shock concept EIOPA clarifies its meaning of sensitive to shock for allocation of pre - and post-shock asset and liability amounts in SCR QRTs: Sensitivity to shock should be understood as a riskincreasing effect not necessarily in SCR terms but in terms of the real risk exposure. For example, European government bonds are exposed to spread and concentration risk although the SCR is 0 (the value of this assets should be reported in S.26.01 before and after shock with the same amount, i.e. they are sensitive to the risk but the shock is zero). However, contracts, whose Technical Provisions decreases when mortality increases are not sensitive to mortality risk and thus this Technical Provisions should not be entered in S.26.03.C0030/R0100, but most probably in the cell for longevity risk. Question 785 (30/8/16) S.22.01 mistakes in validations and LOG guidance EIOPA confirm the following mistakes and corrections in S.22.01 validations and guidance: o In the Instructions of S.22.01.C0050 the text should have read: "It shall be the difference between the technical provisions without transitional on interest rate and the and the technical provisions reported under C0020" (as there are scenarios, with group reporting, where the transitional on TP is applied in one subsidiary ad transitional on RFR is applied in another subsidiary) o Regarding C0070 and C0090, the MAX function should also not apply. A detailed assessment of the different items allowed us to conclude that when it comes to TP, amounts before transitionals are higher than amounts after transitionals, but this is no longer true for other items in the template, like OF, as you stated. OF before transitionals are generally lower than after transitionals, so it should be "min" instead of "max". However, in some cases, like Tier III available OF, the amount after transitionals can be higher (because of new deferred tax assets) or lower (because of the limits in the Directive (1/3 of total OF) which might apply for undertakings breaching the SCR) than the amount before transitionals. The validations that relate to these corrections (BV64 and BV67) have been disabled for 2.0.1 and corrected for 2.1.0 taxonomy. We have corrected the validations in all return variants and these are in place in the latest Tabular data update

Question 800 (30/8/16) S.30.03 c0370 (XL rate 2) mistake in LOG guidance EIOPA confirm that the guidance requiring NA to be entered if not applicable is not valid as the taxonomy will only allow numeric values. Question 803 (30/8/16) S.33.02 Requirements for completion EIOPA confirm that If a group uses method 1 and has no non EEA insurance and reinsurance undertakings in the group, template S.33.01 is not due and option "0" should be chosen. Question 809 (30/8/16) S.06.02 & S.08.01 Closed list of rating agencies EIOPA confirm that it expects to only see the name (Name of CRA) as published by ESMA in the "List of registered and authorised CRAs" This closed list of rating agencies will be added to all applicable QRTs to the 2.2.0.0 release for 31/12/2106 and later filings. Question 751 (30/8/16) S.21.01 definition of claims incurred EIOPA clarify an earlier question (Q606) which it admitted was misleading : o Template S.21.01 does not require historical data to be reported. Please see also Q416. The examples should have read: Please note that only the RBNS part of the best estimate is included in template S.21.01 (the incurred but not reported (IBNR) part of the best estimate is not included in S.21.01). Consider a single claim that occurred in 2006, say, for which during 2016 paid = 20 and RBNS = 100. It might be that for this claim during 2017 paid =10 and RBNS =80. Thus the total claims incurred for the claim in question was 120 in the at end 2016 and 90 at the end 2017, the claim in question has been revised down by 10 during 2017 but thus revision is not explicitly shown. In the example given, 2006 is the accident year (AY) and 2016, 2017 are considered development years (DY). Then claims_incurred_ay2006_dy2016=100+20=120 and claims_incurred_ay2006_dy2017=10+80=90. Note that both amounts should be captured in the column for total claims incurred in accident year 2006. SFCR reporting templates (note, often questions appear in the SFCR Q&A document that relate to RSR templates i.e. those which are not reported publicly): Question 747 (4/8/16) S.21.01 Treatment of claims incurred at zero cost EIOPA confirm that the loss distribution profile (predefined) brackets precludes the reporting of claims incurred during the reporting year, therefore claims with 0 incurred losses should not be considered. Question 653 (5/8/16) Recognition approach on group acquisition of another insurer EIOPA confirm that the reporting of the acquired solo submission is unaffected by its acquisition. For the group submission, EIOPA gives some general guidance on the accounting and recognition approaches to be used in this scenario: by default the date of acquisition of the

insurer should be considered as the general principle of consolidation states that only the profit/loss after the acquisition date should be considered in the consolidation. If a group buys an entity, all assets and liabilities are revalued. This means: o S.06.02.C0160 - Acquisition value: should reflect the Solvency II value at the date of insurer acquisition. Please note that, if the same asset is held by different entities within the group are subject to consolidation, the acquisition value should be reported as a weighted average. Different acquisition values do not originate additional lines in S.06.02; o S.08.01.C0220 - Initial date; C0150 - Premium paid to date; C0160 - Premium received to date: should reflect the information since the date of insurer acquisition; o S.08.02.C0140 - Premium paid to date; C0150 - Premium received to date; C0160 - Profit and loss to date: should reflect the information since the date of insurer acquisition; o S.09.01: should reflect the information since the date of insurer acquisition. Regarding the scope of trading activity, the contracts closed prior to the insurer acquisition of the company should not be reported." Question 765 (5/8/16) Definition of remaining part (particularly regards SR.02.01 Balance sheet reporting) EIOPA confirm that the definition of the remaining part is consistent across all templates, regardless of whether MAP information is requested. The consequence of this is that, in the specific case of SR.02.01 balance-sheet, the entity level balance sheet, S(E).02.01, will not necessarily reconcile to the reported material RFFs plus remaining part as the MAP related amounts are not reported (and not included in remaining part for the purposes of this template). Question 770 (5/8/16) S(R).27.01 C0910 Reporting Largest liability limit provided when unlimited cover offered EIOPA confirm that the reporting should follow the Delegated Acts Article 133 (3)(c) in the scenario where the insurance or reinsurance undertaking provides unlimited cover in liability risk group i, the number of claims ni is equal to one. In reporting terms, this means that in this case the Number of claims (C0910) is 1 and the Largest liability limit provided (C0900) is not reported. Question 777 (5/8/16) S.23.02/03 Paid in share capital EIOPA confirm that the reporting both S.23.02 and S.23.03 the amount of paid in share capital should be reported gross of own shares. Question 778 (5/8/16) S.31.01 c0100 Reinsurance recoverables: Total reinsurance recoverables EIOPA clarify that c0100 does not necessarily equal c0060 + c0070 + c0080 + c0090 as c0100 represents the result of ceded technical provisions but any Non-Life TP calculated as a whole is not reported in C0060 to C0090. Question 746 (30/8/16) S(E).06.02 c0120 Custodian approach for money accounts and FTD accounts EIOPA confirm that for call money accounts and fixed-term deposit accounts, which fall into CIC category 72 or 73, the account-keeping bank should be reported in C0120.

UK - Publications from the UK 13 September House of Commons Treasury Committee Treasury Committee launches inquiry into Solvency II The House of Commons Treasury Committee has launched an inquiry into the introduction and operation of Solvency II. The inquiry is to assist the Committee s review of relationships that the UK may seek with the EU following Brexit. In its terms of reference, the objective of the inquiry is set out as: consider the options for the UK insurance industry created by the decision to leave the EU; assess the impact of Solvency II on the UK insurance industry; examine the impact of Solvency II on the role of insurance in meeting the needs of UK customers and the wider UK business economy; and assess any learning for both regulators and industry from the introduction of Solvency II. The Treasury Committee s Chair, Andre Tyrie MP, said: "Brexit provides an opportunity for the UK to assume greater control of insurance regulation. The Solvency II Directive came into force in January, only after a heap of concerns had been expressed about it. Among its manifest shortcomings was the failure to secure value for money over its implementation. The Treasury Committee will now take a look at the Brexit inheritance on insurance to see what improvements can be made in the interests of the consumer." 9 September PRA PRA publishes Policy and Supervisory Statement on the External Audit of the SFCR (PS24/16 & SS11/16) The PRA publishes a Policy Statement (PS24/16) on external audit of the Solvency II public disclosure requirements. PS24/16 contains responses to feedback received from Consultation The appendices to PS24/16 set out the final rules and Supervisory Statement (SS11/16) to implement the proposals consulted on in CP23/16. The PRA indicates that it has made only minor amendments in the light of responses received to CP23/16. The rules are applicable to insurers first SFCR returns with financial year ending 15 November 2016 or later. SS11/16 sets out the responsibilities of the Board in assuring the accuracy of information disclosed in the SFCR, including sign-off. It also sets out the level of assurance expected with respect to the external audit requirement on the SFCR and the audit guidance that the PRA expects auditors to follow in auditing a firm s SFCR.

20 September ABI ABI publishes checklist for implementing counter fraud practices Association of British Insurers (ABI) publishes a checklist for use by insurers (particularly small insurers) and partners for implementing effective counter fraud practices. The checklist covers 10 areas of possible counter fraud actions. The ABI emphasises that the approach should be action-orientated and evidenced. 21 September PRA PRA publishes Supervisory Statement on changes to internal models (SS12/16) The PRA publishes Supervisory Statement SS12/16, setting out the PRA s expectations in respect of firms applying for approval for a major change to their approved internal models (including an accumulation of minor changes) or an extension of scope to an approved internal model (for example, to cover new business units or risks). The accompanying webpage gives feedback to responses to the PRA s May 2016 Consultation (CP19/16) on the Supervisory Statement, which in summary: clarifies a number of points about the PRA s approach in relation to minor changes, including that, where a minor change causes the model to no longer meet the Solvency II tests and standards, firms must address this issue; clarifies comments relating to the accumulation of minor changes, particularly that minor change accumulations will be reset at the point of receiving a major change application, unless otherwise agreed with the PRA; clarifies the PRA s expectation that firms will be expected to base their Solvency II reporting on the model approval that is in place on or before the last day of a reporting period; and limits duplication with previously published requirements and guidance. 20 September PRA PRA publishes Consultation Supervisory Statement on GI market turning event (CP32/16) The PRA publishes Consultation Paper (CP32/16) with a draft Supervisory Statement setting out the PRA s expectations of Solvency II general insurance firms in relation to significant general insurance loss events (a Market-Turning Event ) which might affect firms solvency and future business plans. The PRA paper defines a Market-Turning Event as a hardening to occur rapidly, as likely claims increase, profits fall, premium rates rise and/or the supply of capital becomes restricted. The draft Supervisory Statement includes expectations on firms preparations for, initial response to the challenges of responding to a large loss-event and uncertainty on exposures, and managing claims and other obligations (such as data collection exercises). The range of topics covered includes: risk management; capital management and financing; governance; reporting and disclosure; PRA data collection;

longer-term lessons. The Appendix contains a draft information request to firms from the PRA for possible use after a market turning event. The consultation period closes 21 December 2016. 26 August Lloyd s of London Lloyd s publishes newsletter No. 7 on Conduct Standards Lloyd s publishes newsletter No. 7 on conduct standards. The newsletter covers: complaints performance metrics; the launch of the coverholder complaints manual; model clauses for damages for late payment; a conduct management information thematic review; the FCA s increased transparency requirement at renewal; and the FCA s concerns on appointed representative appointments and Lloyd s expectations.

Ireland - Publications from Ireland 21 September CBoI Central Bank publishes Issue 2 of its Insurance Quarterly Newsletter The CBoI published its second edition of its lnsurance Quarterly Newsletter for Q3 2016. The Newsletter summarises several development s from the quarter. There are details on the CBoI s implementation of its new engagement model for low impact firms. It is based on an onsite and off-site approach, including: Annual on-site inspections of 10% of the low impact companies by the on-site inspection team; For an additional 10% of undertakings, the supervision team carries out the following: o on-site quarterly targeted reviews involving the examination of relevant documentation as well as meetings with management. o annual off-site desk reviews of a specific topic selected each year. The CBoI set out its high-level feedback to the on-site inspections across a number of low impact (re)insurance undertakings in the first half of 2016. These focused specifically on Corporate Governance, Risk Management, Internal Controls, Claims and Reserving processes, Reinsurance and other risk mitigating techniques annual and quarterly return processes and the ORSA reports. The CBoI summarised its common findings below: Outsourcing In general, the relevant agreements were found to be not fully compliant with Solvency II legislation1. In the majority of the undertakings inspected, there were no agreements in place between the undertaking and the Group, where Group provided a critical or important service to the undertaking. Where agreements were in place, with a third party or with Group, they failed to set out or establish the use of key performance indicators and key risk indicators in their outsourcing arrangements. Risk management In most instances, risk management policies and sub policies were not adequately detailed to reflect the complexity of the undertakings. Specific to the Risk Appetite Statements (RAS), we found that the RAS did not adequately reflect undertakings' appetite for risk. ORSA In general, we found that identified risks were not subjected to a sufficiently wide range of stress tests or scenario analyses in order to provide an adequate basis for the assessment of the overall solvency needs.

Netherlands - Publications from Netherlands 6 September DNB DNB discloses new Solvency II industry statistics The DNB published three new statistical tables of aggregated financial data based on Solvency II submissions: Table 7.7: Balance sheet Table 7.8: Premiums, claims and costs, broken down by insurance sector Table 7.9: Own funds and solvency As per the DNB s commentary, the Initial submissions filed under Solvency II suggest that the aggregated solvency ratio of the Dutch insurance sector, established in accordance with the new supervisory framework, comfortably exceeds the statutory standard of 100%. The quality of actual own funds is also generally high.