IIMU newsletterIrish Insurance Market Update

Leading business advisers

Financial Services Industry (FSI)October 2013

Welcome to the October edition of the quarterly Irish Insurance Market Update (IIMU). This update provides you with a summary of the latest accounting, actuarial and regulatory developments in the insurance market. In this edition, you can find out more about the following topics:

Central Bank of Ireland Activity:• Reserving and pricing requirements • Corporate Governance Code changes

Solvency II• EIOPA publishes the final guidelines for the

preparation of Solvency II;• Vote on Omnibus II delayed;• Central Bank of Ireland newsletter;• Peer Review on Internal Models and Long Term

Guarantee Assessment.

Financial Reporting Developments• Financial Reporting Council issues FRED 49;• IFRS IV Phase II Developments.

Tax• iXBRL;• Budget 2014;• FATCA;• Financial Transaction Tax;• Director’s Fees;• Base Erosion and Profit Shifting.

Other Developments• EIOPA calls for inclusion of ORSA and Key

Information Document for pensions;• EIOPA publishes the first EU assessment of the

financial situation of pension funds;• The Financial Stability Board selects nine global

insurance companies as global systemically important insurers;

• Monetary limits of Courts to rise;• Appointment of new Deputy Governor, Financial

Regulation of the Central Bank;• European Market Infrastructure Regulation;• Deloitte upcoming insurance events.

This newsletter was prepared by the Deloitte Irish Insurance Group. We hope you find it informative and would welcome any feedback or suggestions you may have.

Central Bank Activity

Central Bank publishes consultation on requirements for reserving and pricing for non-life insurers and reinsurersOn 19 September 2013, the Central Bank published proposed reserving and pricing requirements for non-life insurers and reinsurers. The objective of the requirements is to provide assurance that non-life insurers and reinsurers are maintaining appropriate reserves by improving the existing regime in areas relating to pricing and reserving.Key proposals address:• Governance requirements • PCF role of the signing actuary • The Statement of Actuarial Opinion • Internal Audit assessments • Risk margin report• Peer review of the Statement of Actuarial

Opinion• Pricing and reserving policiesThe new requirements are proposed to be fully effective for financial years ending 31 December 2014 and thereafter. The consultation is open until 10 December 2013 Central Bank consultation paper

Central Bank review of the Corporate Governance Code for credit institutions and insurance undertakingsIn August 2013, the Central Bank of Ireland published a consultation covering proposed changes to the existing Corporate Governance Code for credit institutions and insurance undertakings (introduced in 2011). Significant proposed amendments include: risk committees, Chief Risk Officer, board meetings, Chairman, Chief Executive Officer, committees of the board, annual compliance statement and board responsibilities. The Central Bank requested specific feedback in relation to directorship limits and the composition of the board / the introduction of board diversity requirements. The consultation closed on 1 October 2013. The Central Bank intends to publish the revised Code in December 2013. Closed Central Bank consultation papers

Solvency II

EIOPA publishes the final guidelines for the preparation of Solvency II The European Insurance and Occupational Pensions Authority (EIOPA) public consultations on guidelines for the preparation of Solvency II closed on the 19 June. Over 4,000 comments were submitted to EIOPA as part of the consultation process.On 27 September, EIOPA published the final guidelines for the preparation of Solvency II with an effective date of 1 January 2014. The final guidelines along with consultation comments and individual feedback can be found on EIOPA’s website. Guidelines on preparing for Solvency II

The European Parliament delays vote on Omnibus IIThe European Parliament vote on amendments to Solvency II – Omnibus II, has been pushed back from 22 October 2013 to 3 February 2014. The new voting date is close to the European elections, which raise further concerns about the actual implementation date for Solvency II. European parliament procedures

Central Bank of Ireland publications – Solvency IIThe Central Bank issued its quarterly newsletter in September - “Solvency II Matters”. The newsletter provides updates on the Guidelines on Preparing for Solvency II, industry events, Long Term Guarantee Assessment, Omnibus II and a survey on Undertaking Specific Parameters. The Central Bank has been drafting guidelines to be implemented in Ireland. The Central Bank intends to include revisions made by EIOPA in the final guidelines. An industry event is planned by the Central Bank for November this year to provide further information in relation to the final Solvency II guidelines. Solvency II matters

EIOPA publishes results of Peer Reviews on Internal ModelsIn July, EIOPA published a final report on Peer Reviews of Internal models. The purpose of the peer reviews was to assess the practices of supervisors and colleges related to the review of internal models during the pre-application process. The results of the review showed that certain differences exist between national authorities and EIOPA has included recommendations on how to address these. EIOPA report

EIOPA publishes the results of the Long Term Guarantee AssessmentIn June 2013, EIOPA published the results of the Long Term Guarantee Assessment.EIOPA assessed the impacts of the market consistent approach on long-term guarantee products, collecting information from (re)insurance undertakings and supervisory authorities on the effects of selected Solvency II regulatory measures.The Central Bank has also published a national report for Ireland. The report presents the Central Bank’s key messages based on the results of the impact assessment conducted earlier in the year. EIOPA Report Central Bank national report

Financial Reporting Developments

Financial Reporting Council Issues FRED 49Following on from the issuance of FRS 102 in March, on 29 July 2013 the FRC issued FRED 49; the exposure draft (“ED”) of the new Irish Gaap Insurance accounting standard FRS 103. The ED was issued as part of the FRC’s initiative to bring consistency to financial reporting of Irish & UK Insurance Companies. The standard will be applicable to all insurance and reinsurance entities that choose not to adopt full IFRS or FRS 101. The comment period remains open until 31 October 2013 and the effective date will be 1 January 2015. FRC press release on FRED 49 Future of Irish GAAP

IFRS IV Phase II DevelopmentsOn 20 June 2013, the IASB issued a revised exposure draft of the proposals for the accounting of insurance contracts. The revised draft reflects comments received by the IASB since they initially published the ED back in early 2010.The comment period remains open until 25 October 2013 and it is thought the effective date could be as far out as 1 January 2018. IASB press release IFRS in Focus

Tax

iXBRLAs outlined in earlier newsletters the Revenue Commissioners are implementing Phase 1 of mandatory iXBRL filing of financial statements commencing in respect of returns filed on or after 1 October 2013. This means that corporate taxpayers in the Large Cases Division (LCD) (other than securitization SPVs) must file accounts in iXBRL format from this date.Phase 2 of mandatory iXBRL filing will commence on 1 October 2014. From this date non-LCD corporate taxpayers, which do not meet the criteria for audit exemption (under the Companies Bill 2012), will be required to file financial statements in iXBRL format.This means that companies will not be required to file in iXBRL format in phase 2 where, in respect of the year concerned:• the balance sheet total of the company does not

exceed €4.4 million;• the amount of the turnover of the company does

not exceed €8.8 million; • the average number of persons employed by the

company does not exceed 50.It is proposed that mandatory iXBRL filing will be further extended to other corporate taxpayers in 2015, at a date yet to be decided. Revenue announcement

Budget 2014It has been confirmed that Budget 2014 will be announced on Tuesday, 15 October 2013 in light of the requirements as laid out in the relevant EU Regulations concerning the budgetary surveillance cycle. The Finance Bill is expected to be published on 6 November 2013. It is anticipated that the Finance Bill will pass through all stages of the Oireachtas by the end of December.Our Budget & Finance Bill Briefing will take place on Tuesday evening, 3 December 2013 at The Shelbourne Hotel, Dublin. Meanwhile, as Budget 2014 approaches our senior tax experts have provided their view of potential changes that could impact individuals and businesses, in particular the indigenous sector. To get our perspective on all these issues and more, please consult our pre-Budget 2014 publication “Expected elements”, which can be accessed by clicking the following link: Budget 2014 - News and Analysis from Deloitte Ireland Minister for Finance’s comments

FATCAIn recent FATCA developments, the FFI Registration Portal was opened on 19 August 2013, a little over a month later than previously planned. The IRS indicated in Notice 2013-43 that the opening will be a soft launch, when FFIs will get the chance to start setting up their profiles and adding entities without actually committing to signing or registering, until 1 January 2014. The IRS also extended other compliance deadlines including withholding, on-boarding, and pre-existing account remediation by six months. This extension will be applied to current and future FATCA Intergovernmental Agreements (“IGAs”). IRS Delays FATCA Deadlines and the Opening of the FFI Registration Portal IRS Opens FATCA Registration System

Financial Transaction Tax (FTT)The European Commission has recently made the first indication that the EU FTT will be delayed beyond the 1 January 2014 intended implementation date. The EU FTT, which seeks to tax financial transactions entered into with financial institutions where either party is “established” in the FTT zone, was proposed for introduction in January 2014. An update posted on the European Commission Taxation and Customs Union website states the following:

“If agreement is found before the end of 2013, and there is a speedy transposition into national law by participating Member States, this common framework for an FTT could still enter into force towards the middle of 2014”. While a delay will not come as a surprise, this does reveal that the European Commission is beginning to acknowledge publicly that the 1 January 2014 start date will not be achieved.Additionally the EU Council Legal Service has issued an Opinion on 6 September 2013 calling into question the territorial scope of the tax, in particular its application to financial institutions based outside of one of the Participating Member States where they transact with counterparties which are located within a Participating Member State. The Opinion does not comment on the legality of any other aspects of the Proposed Directive.On 26 June 2013, a webcast was held entitled “The Changing Face of the EU FTT” in which our experts from the UK, France, Italy, Germany and Luxembourg presented on FTT developments, commenting on the direction in which the FTT will develop. For more information on the EU FTT, to view the webcast or to sign up for our newsletter, please visit: Financial Transaction Tax

Director’s feesThe last number of years has seen significant developments in employer’s obligations in the area of payroll withholding. These developments have been complemented by a number of Revenue initiatives aimed at increasing compliance levels in this area.The latest of these initiatives relates to Directors of companies. Although Revenue’s view is that the application of the tax rules in this area has not changed, it would appear that there has been a change of emphasis. Please refer to our article “Director’s Fees – Where to next?” which covers some recent developments regarding the tax treatment of director’s fees. It sets out the latest thinking as to when and where Directors Fee can now be paid without deduction on PAYE/USC/PRSI and outlines some of the typical issues which may need to be considered.For more information on additional Employment tax updates, please visit: Deloitte employment tax update

Base Erosion and Profit Shifting (BEPS)The OECD has recently presented its Action Plan on BEPS to the G20. The Action Plan identifies 15 specific actions intended to be delivered in the coming 18/24 months, to address a wide range of international tax issues affecting multinational enterprises. The OECD says that the actions “should provide countries with domestic and international instruments that will better align rights to tax with economic activity”.The outcome of the actions will include changes to international tax rules and principles, as well as recommendations for domestic legislation that can be adopted by countries.Further background information on BEPS, together with more detail on the 15 areas for further action is available in our Tax alert.Additionally Deloitte hosted two webcasts on the OECD BEPS Action Plan on Wednesday 24 July, which can be accessed from: EMEA Dbriefs

Other developments

EIOPA calls for inclusion of ORSA, KID tools in revised IORP DirectiveOn 5 September 2013, EIOPA’s chairman recommended the introduction of an Own Risk and Solvency Assessment (ORSA) tool, as well as a Key Information Document (KID) of the revised IORP Directive, as the Commission is expected to release a legislative proposal for these second and third pillars (governance and transparency respectively) this autumn.No details on the recommendation have yet been released. It should be noted however that few Institutions for Occupational Retirement Provision (IORPs) have processes anywhere close to a Solvency II-style ORSA. Should the recommendation go ahead and the ORSA tool is introduced, considerable time and cost associated with developing and implementing such a process will be required. Investment & Pensions Europe news story

EIOPA publishes the first EU assessment of the financial situation of pension fundsEarlier in the year, EIOPA published a report and consultation paper on the results of the quantitative impact study (QIS) on Institutions for Occupational Retirement Provision. The consultation paper is open until 31 October 2013. EIOPA QIS report

Open consultations

Financial Stability BoardThe Financial Stability Board (FSB) designated in July nine global insurance companies as global systemically important insurers (G-SIIs). These firms will be subject to increased supervision and regulatory requirements in the areas of recovery, resolution planning and capital. The implementation deadlines for these requirements start as early as July 2014 and extend to 2019 (for additional capital requirements). The FSB identified the following nine insurance groups as systemically important:• In the UK: Aviva and Prudential• In the US: AIG, MetLife and Prudential Financial• In Germany: Allianz• In France: Axa • In Italy: Assicurazioni Generali• In China: Ping An Insurance (Group) Company of

China.

Financial Stability Board publication

Monetary limits of Circuit and District Courts to riseNew legislation was passed in July that will increase the monetary limits of the Circuit and District Courts: • The limit of the District Court will rise from

€6,384 to €15,000;• The limit of the Circuit Court will rise from

€38,092 to €75,000 (limiting this to €60,000 for personal injuries).

The change in limits is meant to reduce the number of cases being put before the High Court and reduce legal fees for both parties. The Bill was passed despite warnings from the insurance industry of unintended increases in insurance costs. The new legislation is pending commencement. Courts and Civil Law (Miscellaneous Provisions) Bill 2013

New Deputy Governor, Financial Regulation appointed The Central Bank has appointed Cyril Roux as Deputy Governor, Financial Regulation. In the announcement, Governor Patrick Honohan said:”I am pleased to welcome Cyril Roux to the Central Bank. His very extensive relevant experience and skills are particularly suited to this challenging role. I look forward to working with him, along with the rest of the regulatory team, as we continue to develop the financial regulatory system in Ireland.”Cyril Roux started in his new position on 1 October 2013. Central Bank news story

European Market Infrastructure Regulation (EMIR)EMIR, which came into force in August 2012, provides a framework for implementing requirements regarding over the counter derivatives (OTCs) within Europe. The regulations apply to financial counterparties to OTC derivative contracts authorised and/or regulated in the EU (banks, funds, insurance companies, etc.) and non-financial counterparties established in the EU. The deadline for the trade repository reporting requirement with respect to credit and interest rate derivatives was July 2013 (for existing trade repositories, otherwise it was 90 days from the date of registration). The deadline for all other types of derivatives is January 2014. The reporting requirements relate to all derivative contracts in place on or after 16 August 2012. In addition, where applicable, firms will have to start clearing OTC derivatives through central counterparties or clearing members (CCPs) as early as quarter one 2014.To keep up-to date with the latest developments, please visit European Commission.

Deloitte upcoming insurance eventsOn 18 October 2013, Deloitte will host an event to discuss the final version of the guidelines for the preparation of Solvency II. At the briefing we will: • highlight any changes from the previous

guidelines issued;• outline key points for consideration from the

final guidelines; and• provide suggestions on how to begin the process

of implementing the guidelines.Deloitte will be continuing its insurance breakfast briefing series on 24 October 2013. Our briefing will focus on issues facing CFOs including accounting, compliance, regulatory and tax updates. In November, Deloitte will again be running its annual Motor Insurance Seminar for which invites will be issued during October.

A new format is being introduced this year to the Budget and Finance Bill events following the changes in the government time lines this year. The two sessions are amalgamated into a single event to deliver real substance and perspective on the changes introduced throughout the Budget 2014 process. It is being held on 3 December and Robbie Kelleher of Davys will be our key note speaker this year, along with a number of the tax partners.If you would like to register to receive an invite to our insurance events please contact Clodagh Galway.For more information on upcoming events please visit our insurance events webpage. Insurance upcoming events

About this newsletterThis publication is designed to keep readers abreast of current developments, but it is a general guide only and is not intended to be a comprehensive statement of the law or regulations and not an exhaustive treatment of those current developments. Accordingly, the information in this publication is not intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. It therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte & Touche would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. If you would like to discuss any of the issues set out in this newsletter please contact your usual Deloitte contact or any of the Deloitte insurance contacts listed on the following page and they will be able to help you.For information, please visit:

Deloitte Ireland Insurance website

For more details please contact:

Glenn Gillard Partner, Insurance T: +353 1 417 2802 E: ggillard@deloitte.ie

Ciara Regan Director, Life Actuarial T: +353 1 407 4856 E: cregan@deloitte.ie

Sinead Kiernan Director, Non-Life Actuarial T: +353 1 417 2897 E: sikiernan@deloitte.ie

Richard (Dick) Tulloch Director, Non-Life Actuarial T: +353 1 417 2576 E: ritulloch@deloitte.ie

Sinead Ovenden Director, Regulatory Compliance Services T: +353 1 417 2545 E: sovenden@deloitte.ie

Conor Hynes Partner, Insurance Taxation T: +353 1 417 2205 E: chynes@deloitte.ie

Donal Lehane Partner, Consulting - Financial Services T: +353 1 417 2807 E: dlehane@deloitte.ie

Stephen Nolan Senior Manager, Insurance Corporate Finance T: +353 1 417 3821 E: snolan@deloitte.ie

Naomi Reville Senior Manager, Total Rewards and Benefits T: +353 1 417 2418 E: nreville@deloitte.ie

Patrick Cosgrave Director - Deloitte Total Reward & Benefits T: +353 1 417 2422 E: pcosgrave@deloitte.ie

ContactsDublinDeloitte & ToucheDeloitte & Touche HouseEarlsfort Terrace Dublin 2 T: +353 1 417 2200 F: +353 1 417 2300

CorkDeloitte & ToucheNo.6 Lapp’s QuayCorkT: +353 21 490 7000 F: +353 21 490 7001

LimerickDeloitte & ToucheDeloitte & Touche HouseCharlotte Quay Limerick T: +353 61 435500 F: +353 61 418310

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