Swift Regulatory Change Could Make Ireland Global Insurance Hub

May 18, 2010 Updated: May 18, 2010

Speaking to the Irish Insurance Federation at their annual lunch last week, Mr Matthew Elderfield, the Head of Financial Regulation at the Central Bank of Ireland, outlined his priorities for insurance regulation for the coming year.Speaking to the Irish Insurance Federation at their annual lunch last week, Mr Matthew Elderfield, the Head of Financial Regulation at the Central Bank of Ireland, outlined his priorities for insurance regulation for the coming year.

Before embarking on his current role as Financial Regulator in Ireland, Mr Elderfield was familiar with the insurance sector in Ireland and how it was an integral part of what made this country a successful international financial services centre. According to Mr Elderfield, Insurance companies with head offices and branches in Ireland employ some 15,000 people and contributed almost €36 billion of gross written premiums.

It is because of the importance of the Insurance sector to the Irish economy that the Regulator has decided to focus his efforts in this area. "Getting the balance right so that Ireland can continue to thrive as an Insurance centre while also maintaining high standards of regulation – getting that balance right is a high priority to me in my new role," said Mr Elderfield.

Mr Elderfield acknowledged that there are seismic changes occurring in the Insurance sector as well as other sectors both domestically and internationally. He was taking the opportunity at the Irish Insurance Federation event, to discuss with the key stake holders in this sector three areas where he would focus his efforts in the year ahead: Solvency II implementation, risk-based supervision, and corporate governance standards.

Solvency II implementation

According to Mr Elderfield, Solvency II implementation is the number one regulatory priority for the insurance market in Europe and across the world. "I say across the world, because the lack of definitive international solvency standards means that Europe is setting the pace globally in insurance regulation," said Mr Elderfield. It was the regulators opinion that European standards are being "exported internationally" through the 'equivalence provisions of the directive'.

That is to say that non-EU countries must match the requirements of the directive if companies from that jurisdiction want to have access to EU markets on the same basis as EU firms. This means that Solvency II will directly affect companies all over the world who wish to avail of the directive.

The regulator said that one of the advantages of Solvency II relates to optimal organisational structure, and he believes that this will result in more non-EU companies choosing Ireland as a base of operations and for more EU companies deciding to centralise their operations here. There are however some deciding factors, such as Ireland having the right resources and supervisory approach, and we need to be ready for the policy changes required by the directive.

"Solvency II implementation is a very high priority for the Financial Regulator and we are on track for implementation of the Directive. For example, we are gearing up our resources and remain highly engaged in the work of CEIOPS, the EU committee of insurance regulators."

"But when I say “we” must be ready, I also mean that the companies that are members of the Federation need to be well prepared for the directive," said Mr Elderfield as he emphasised Solvency II implementation as his principal message to the Irish Insurance Federation.

"I encourage you to make Solvency II implementation a top priority for your Board, your management team and your company. Please don’t underestimate the impact of the directive," reiterated Mr Elderfield.

The regulator warned that changes to solvency standards would impact in ways that are "both dramatic and subtle", and that the new disclosure requirements will create "public metrics" to measure health and risk profiles of insurance companies.

"The scale of change that is coming means that this is not just a regulatory challenge but a profound commercial one too," said Mr Elderfield.

Risk-based supervision

The second priority that the regulator discussed was with respect to developing systems of risk-based supervision "underpinned by the credible threat of enforcement." Which according to Mr Elderfield boiled down to the Financial Regulator needing the following changes: The right quantity and quality of resources to do supervision effectively, supervisors making a more systematic assessment of risk at the higher impact firms and an “assertive” approach when dealing with risk-based supervision.

"Broadly speaking, this is about encouraging our supervisory teams to be more challenging and sceptical," said Mr Elderfield.

Corporate governance

The Regulator has recently published a consultation paper setting out proposals for corporate governance standards for banks and insurance companies. "Strong and effective corporate governance in an insurance company is not only important for commercial success but is a hugely important source of regulatory comfort," and it is the Regulators judgement that now is the right time to set some "exacting minimum requirements" for Boards, to raise the bar at those companies where corporate governance practices are lagging.

"I hope these brief remarks today have given you some insight into the immediate priorities on our regulatory agenda for the insurance industry," concluded Mr Elderfield.