A Guide To Insurance And Reinsurance In Ireland 2013

MARKET TRENDS AND REGULATORY FRAMEWORK

1. What were the main trends in the insurance and reinsurance markets over the last 12 months?

   Ireland has a thriving domestic and international insurance industry, which includes life, non-life, captive, reinsurance and intermediary activities. It is a leading jurisdiction for domiciling head office insurers targeting the EU/European Economic Area (EEA) markets. Since 2008, several overseas insurance and reinsurance groups have relocated to Ireland, including Beazley Group plc, XL Capital Limited, Willis Group Holdings Limited and Zurich. Others have restructured to underwrite their "Europe ex-UK" business from Ireland. These groups have been motivated by a number of reasons, including Ireland's low corporation tax rate of 12.5% and well-established prudential regulation.

   Insurers and reinsurers (where applicable) have spent the last 12 months taking steps to ensure compliance with the various codes of conduct and regimes recently introduced by the Central Bank of Ireland (Central Bank), including the Corporate Governance Code for Credit Institutions and Insurance Undertakings, the Fitness and Probity Regime, the Minimum Competency Code and the Consumer Protection Code. These are some of a number of measures introduced by the Central Bank in response to the recent financial crisis and in preparation for the implementation of Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Framework Directive). In addition, many insurers and reinsurers have undergone corporate restructurings, with an increased number of cross-border mergers, schemes of arrangement and portfolio transfers.

   The decision of the ECJ in the Test Achats case (C-236/09) has had a significant impact on the European insurance industry. The effect of the ruling is to prohibit the selling of private insurance products which differentiate by gender on price or benefits, where such provisions are in force on or before 21 December 2012. The ruling is binding on all EU member states.

2. What is the regulatory framework for insurance/reinsurance activities?

   Regulatory framework

   The Central Bank has responsibility for the authorisation and ongoing supervision of insurance and reinsurance undertakings and intermediaries. The Central Bank's powers are set out in laws and regulations derived from EU directives and domestic legislation, including the:

   European Communities (Life Assurance) Framework Regulations 1994 (Life Assurance Framework Regulations). European Communities (Non-Life Insurance) Framework Regulations 1994 (Non-Life Insurance Framework Regulations). European Communities (Reinsurance) Regulations 2006 (Reinsurance Regulations). European Communities (Insurance Mediation) Regulations 2005 (Mediation Regulations). Insurance Acts 1909 to 2011. The Central Bank also issues guidance in relation to the authorisation and ongoing requirements applicable to firms. These include the Corporate Governance Code for Credit Institutions and Insurance Undertakings, the Minimum Competency Code and the Consumer Protection Code 2012.

   Regulatory bodies

   The Central Bank's supervisory role involves overseeing an undertaking's corporate governance, risk management and internal control systems. It requires that insurance and reinsurance undertakings submit annual and quarterly returns on solvency margins and technical reserves. In addition, the Central Bank conducts regular themed inspections across the insurance and reinsurance industries.

   The Central Bank is responsible for assessing the fitness and probity of the proposed directors, management and significant shareholders of authorised firms and for the prudential assessment of any change in their control.

   The Central Bank also has responsibility for consumer protection issues.

   Also of importance is the Irish Insurance Industry Federation Code of Practice (IIF Code), a voluntary code of conduct adopted by members of the Insurance Industry Federation, a trade body representing insurance undertakings in Ireland. The IIF Code protects policyholders resident in Ireland and insured in their private capacity.

   REGULATION OF INSURANCE AND REINSURANCE CONTRACTS

3. What is a contract of insurance for the purposes of the law and regulation? How does it differ from a contract of reinsurance?

   Contract of insurance

   There is no statutory definition of a contract of insurance under Irish law, nor are there specific rules for the formation of an insurance contract beyond the general principles of contract law and the duty of utmost good faith (see Question 20, Utmost good faith). Irish legislation does not specify the essential legal elements of an insurance contract and the courts have considered it on a case-by-case basis.

   The common law definition of an insurance contract is of persuasive authority in Ireland (Prudential Assurance v Inland Revenue [1904] 2 KB 658). The leading Irish authority, International Commercial Bank plc v Insurance Corporation of Ireland plc [1991] ILRM 726, in distinguishing an insurance contract from a guarantee, listed the main characteristics of an insurance contract as follows:

   Generally the insured must have an insurable interest in the subject matter of the insurance policy. There is a payment of premium. The insurer undertakes to pay the insured party in the event of the happening of the insured risk. The risk must be clearly specified. The insurer will indemnify the insured against any actual loss (indemnification). The principle of subrogation is applied, where appropriate. This is generally not appropriate in relation to life assurance or personal injury policies. Contract of reinsurance

   There is no legal difference under Irish law between an insurance contract and a reinsurance contract (see above, Contract of insurance).

4. Are all contracts of insurance/reinsurance regulated?

   The Central Bank regulates the carrying on of insurance business in Ireland (and not contracts of insurance). The Central Bank regulates the classes of insurance business annexed to the Non- Life Insurance Framework Regulations and the Life Assurance Framework Regulations. There are two main categories:

   Life business. Broadly, this consists of: life assurance; pensions insurance; permanent health insurance; and pension fund management. Non-life business. This comprises the remainder, including: property insurance; accident and sickness insurance; and travel and liability insurance. Reinsurance business is not covered by these regulations but is covered by the Reinsurance Regulations.

   CORPORATE STRUCTURE

5. What form of corporate organisation can insurers take?

   Under the Life Assurance Framework Regulations, an insurance undertaking must be one of the following:

   An incorporated company limited by shares or by guarantee or an unlimited company. A society registered under the Industrial and Provident Societies Acts. A society registered under the Friendly Societies Acts 1896 to 1977. Under the Non-Life Insurance Framework Regulations, an insurance undertaking must be one of the following (as defined by the Companies Acts 1963 to 2009):

   A company limited by shares or by guarantee. An unlimited company. A European Company (SE). REGULATION OF INSURERS AND REINSURERS

6. Are all insurers and reinsurers regulated? Are they all regulated in the same way?

   Although insurance and reinsurance undertakings are governed by separate legislation, the Central Bank adopts a consistent approach to the regulation of insurance and reinsurance undertakings, particularly in relation to the authorisation, ongoing supervision and sanction procedures that it adopts.

   However, there are some notable differences in how insurers and reinsurers are regulated, including:

   An insurance company, unlike a reinsurance company, cannot simultaneously be authorised to carry on both life and non-life reinsurance business (see Question 7). The Reinsurance Regulations permit the establishment of special purpose reinsurance vehicles (SPRVs), providing a quicker and simpler route to authorisation and reducing the extent of supervision by comparison with fully regulated reinsurers (see Question 9, Insurance/reinsurance providers). Traditionally, the Central Bank's "80/20 Rule" restricted Irish-authorised insurance companies from writing more than 20% (and subsequently 50%) gross written premiums relating to reinsurance...