FIG Top 5 at 5 - 11/04/2024

1. Supreme Court issues its decision on the Personal Injury Guidelines

On 9 April 2024, the Supreme Court of Ireland issued a judgment on the legality of the Personal Injuries Guidelines ("Guidelines"), which were reviewed and passed by the Judicial Council and became operational in April 2021.

The Supreme Court found that the Guidelines are a form of law and consequently amounted to an impermissible delegation of the Oireachtas' legislative power, to the judiciary. The Supreme Court found that s.7(2)(g) of the Judicial Council Act 2019, which required the Judicial Council to adopt the Guidelines, was unconstitutional as it interfered with the independence of the judiciary which is guaranteed in Article 35.2 of the Constitution.

However, the majority of the Supreme Court subsequently found that the Guidelines were in force in law as they had been independently ratified by the Oireachtas and given legal effect, following the enactment of the Family Leave and Miscellaneous Provisions Act 2021. This ratification meant that the Guidelines are in force "as a matter of law, and have thereby been given legal effect".

Charleton J noted that this decision is of systemic importance as it will influence the outcome of thousands of cases currently awaiting judicial analysis and many more into the future. This decision established that the Guidelines are legally binding and should only be departed from where there is "no reasonable proportion between the guidelines and the damages award". The Guidelines will continue to have affect following the ratification by the Oireachtas, however the Supreme Court also stated that any further changes to the Guidelines will require legislative intervention by the Oireachtas.

Response

In a joint statement, Minister for Financial Services, Credit Unions and Insurance, Jennifer Carroll MacNeill (as she was at the time) and Minister for Trade Promotion, Digital and Company Regulation, Dara Calleary welcomed the judgment, and its significance for the Guidelines. They noted that the introduction of the Guidelines was a key element of the Government's insurance reform programme. They stressed that in light of the judgment, all stakeholders have a responsibility to take stock of the judgment.

Insurance Ireland also welcomed the judgment and the welcome clarity that it brings. It also noted that the judgment should encourage new entrants into the market, which would be welcome, particularly in the employer's liability and public liability markets. 

2. Central Bank of Ireland expectations for authorisation of Payment and E-Money Institutions and Registration of Account Information Service Providers

On 9 April 2024, the Central Bank of Ireland ("Central Bank") published its expectations regarding authorisation of payment and electronic money institutions ("PIEMI") and registration of account information service providers ("AISP") ("Expectations"). The Expectations build on previous industry communication and guidance, and the Central Bank aims to ensure clarity, transparency and predictability for applicant firms seeking to operate in the Irish market. The Expectations aim to support firms in understanding their obligations and producing complete applications with the hope of leading to quicker assessment by authorisation staff. It also noted that delays occur where there are "poorly thought through" applications or where firms are unsure of their regulatory obligations. The Central Bank's approach to authorisation is "risk-based and framed in the context of legislation" and firms must also comply with the standards expected of all entities authorised in the EU. The Central Bank emphasised that it did not intend to crystallise risks, given the nature and extent of the both opportunities and risks that are involved.

Authorisation Assessment Process

The Central Bank explains that in line with the Authorisation Service Standards Clock, it seeks to compete its assessment within 90 business days of the receipt of the application or the receipt of all information required, for at least 90% of cases. The authorisation process consists of 3 stages:

• the exploratory stage: this stage allows for constructive engagement with the Central Bank by the firms, and includes (i) an initial meeting with the applicant firm to outline its proposal and the submission of a pre-application Key Facts Document in advance of that meeting, and (ii) the submission of all required documentation and initial assessment as to whether the firm is likely to meet the Central Bank's expectations;
• the assessment stage: this stage is where the Authorisation Standards Services Clock Standards commences,  and includes detailed assessment meetings where firms should provide prompt and comprehensive responses to any queries. Should an application become dormant, the Central Bank may require the firm to recommence the application process depending on the materiality of the changes made to the application. If a firm is unable to address matters raised, as a last resort the Central Bank may deem the application incomplete and discontinue the assessment. At the end of the process the Central Bank will inform the applicant firm of the outcome of the assessment and issue either a "Minded to Authorise/Register" with requirements to be addressed before a final decision is taken, conditions to be addressed post-authorisation and the proposed level of capital to be held; or a "Minded to Refuse" letter with reasons given, and a period in which submissions in writing relating to the proposed refusal can be made; and
• the authorisation or registration decision stage: at this stage, where a "Minded to Authorise" letter has been issued and the requirements set out in the letter are met and no new adverse information is brought to the Central Bank's attention, a letter granting authorisation will issue.

  Where a "Minded to Refuse" letter has been issued the Central Bank will review any submission received. If the Central Bank is satisfied that concerns have been allayed, an applicant firm may be authorised/registered. If the Central Bank is not satisfied that the concerns have been addressed, then it will issue a letter of refusal.

Pausing of the Service Standard Clock

The Central Bank highlighted that where it issues an information request to the applicant, the Service Standard Clock for the Assessment Stage will be paused until the applicant provides a satisfactory response. It also outlined the circumstances where the clock will be switched off entirely:

• another regulatory authority has to be contacted;
• persons are subject to interviews;
• significant legal issues arise;
• significant fitness and probity issues arise;
• the business model is complex or novel in nature;
• significant changes to the business model, the applicant's shareholder structure or other key aspects of an application arise during the review process, or where the application becomes dormant; or
• the Central Bank is minded to refuse an application.

Challenges

The Central Bank highlighted the top 5 challenges that it has experienced with authorisation applications:

• inadequate preparation and application completeness: inadequate preparation was seen both prior to engagement with the Central Bank and at the time of submitting an application. Applicant firms which have appointed the requisite senior positions early in the process tend to submit a more thorough application and progress through the process quicker;
• lack of clarity/changing business models: firms which cannot describe the proposed business model and customer offering in a clear understandable manner experience longer application processes;
• delay in responding: many cases saw inordinate delays in responding to queries or providing clarification to the Central Bank;
• localised risk framework: the Central Bank expects local risk frameworks to be in place, and group risk frameworks do not ensure that local risks are effectively managed; and
• pre-approval control function ("PCF") suitability: challenges arise from delays in proposing PCF candidates and from unsuitable candidates being proposed, resulting in longer application processes.

Authorisation Objectives

The Central Bank set out 6 key authorisation objectives which it expects firms to achieve:

• protect consumers and safeguard users' funds;
• be financially and operationally resilient;
• have sustainable and viable business models;
• demonstrate an appropriate level of "substance" in Ireland to ensure firms are well governed, have appropriate cultures, and effective risk management and control arrangements in place;
• be able to recover critical or important business services from a significant unplanned disruption and minimise impact and ensure the protection of consumers and the integrity of the financial system; and
• if the firm cannot recover, that they are able to exit the market in a safe and orderly manner.

Expectations

The Central Bank also set out 6 general expectations for PI and EMI firms:

• the Central Bank encourages firms to engage early in relation to their business proposal through the Central Bank's Innovation Hub;
• once the firm has a concrete authorisation proposal, it should engage with the PIEMI authorisation team;
• applicant firms must assess whether the proposed business model requires more than one type of authorisation and take the necessary steps to acquire such authorisations;
• all submissions should be of an appropriate standard, of good quality and have obtained the requisite approvals prior to submission, and be provided in a timely manner;
• before engaging with the Central Bank, applicant firms must have a comprehensive understanding of (where relevant):
• Regulatory Requirements and Guidance for Electronic Money Institutions
• Regulatory Requirements and Guidance for Payment Institutions; and
• MiCA; and
• firms which propose significant levels of passporting or outsourcing must provide detailed rationale for seeking authorisation in Ireland.

3. Central Bank of Ireland publishes tenth edition of the Financial Conditions of Credit Unions Report

On 8 April 2024, the Central Bank of Ireland ("Central Bank") published its tenth edition of the Financial Conditions of Credit Unions Report ("Report"). The Report provides an update on the financial performance and position of credit unions for the financial year ended 30 September 2023 and includes sectoral data and commentary. The Central Bank notes that the Report's aim is to inform credit union boards in carrying out their own strategic analysis and decision-making.

Previous communications from the Central Bank, including its Regulatory and Supervisory Outlook Report, has noted that the macro environment for credit unions, and other regulated entities, is shaped by the global economy's adjustment to high interest rates, and tighter financial conditions, and thus remains uncertain.

The Report highlighted key findings on lending; investments; savings; asset maturity profile; reserves; and return on assets ("ROA"). The following captures some of those findings:

• Lending: loans issued during the year amounted to €3 billion, bringing total loans outstanding to €6.3billion, up 12% from the previous year. House loans saw the greatest increase at 53%, while business loans increased by 11%, although significant capital existed as of September 2023 for further lending in these areas;
• Investments: total investments grew to €13.8 billion in 2023, and the average level of return increased to 1.2%, from 0.7%. The proportion of total investments held in bank bonds increased from 14% in September 2018 to 25% in 2023;
• Savings: members' savings increased by €0.5 billion in 2023, an increase of 2.6%;
• Asset Maturity Profile: average loan maturities have increased since 2021, while average investment maturities have decreased since 2022;
• Reserves: the average sector total realised reserves as a percentage of assets ratio increased by 0.2%; and
• ROA: the average ROA increased from 0.3% to 0.7%, although a few credit unions reported a negative ROA.

Elaine Byrne, Registrar of Credit Unions, commented that the Report indicates that it is "time for credit unions to pay particular attention to proactive asset and liability management", and ensure that sufficient liquid assets are maintained to "meet business requirements and withstand liquidity stress scenarios". She also noted the significance of the Credit Union Amendment Act 2023, in providing new business opportunities for credit unions.

4. NCID Report on Employers' Liability, Public Liability and Commercial Property Insurance

On 4 April 2024, the Central Bank of Ireland ("Central Bank") published the third Employers' Liability ("EL"), Public Liability ("PL") and Commercial Property Insurance Report of the National Claims Information Database. Some of the key findings are outlined below.

Premiums

Market overview

• in 2022, 86% of EL, PL and Commercial Property insurance were purchased as part of a package policy, accounting for 59% of the gross earned premium;
• in 2022 14% of EL, PL and Commercial Property insurance were purchased as standalone policies, accounting for 41% of earned premium;
• average premiums decreased by 16% to €2,223 between 2009-2013; and
• average premiums increased to €2,781 in 2022.

Types of policies

• between 2009-2022 EL amounted to 29% of insurance covers and 25% of gross earned premium;
• between 2009-2022 PL amounted to 39% of insurance covers and 36% of gross earned premium;
• between 2009-2022 Commercial Property amounted to 33% of insurance covers and 39% of gross earned premium; and
• in 2022 80% of package policies included EL insurance; 97% included PL insurance; and 84% included Commercial Property insurance.

Size of policies

• 54% of package policies and 71% of standalone policies had a premium of less than €1,000;
• 90% of all policies had a premium of less than €5,000;
• 2% of package policies and 5% of standalone policies had a premium greater than €25,000; and
• 2% of all policies had a premium greater that €25,000 which accounted for 57% of all premium.

Claims

• total claims for 2022 are expected to be €517 million across 27,350 claims;
• there were 15,743 Commercial Property claims; 4,375 EL claims; and 7,232 PL claims;
• the average cost of EL claims increased by 3%, PL claims increased by 8%, and Commercial Property claims increased by 18%; and
• the average claim for EL was €38,446, for PL was €20,979 and for Commercial Property was €12,523.

Income and expenditure

• insurers made an operating profit of 14% in 2022;
• 2021 and 2022 are the first years since 2011 that insurers recorded a material profit; and
• profitability dropped to -6% between 2015-2019 and increased to +4.2% between 2020-2022.

Personal Injury

• 24% of all injury claimants that settled in 2022 settled under the Personal Injuries Guidelines ("Guidelines");
• only 4% of litigated claims settled under the Guidelines;
• 83% of injury claims settled via PIAB were settled under the Guidelines. The average costs of claims settled under the Guidelines in 2022 was 34% lower than those settled under the Book of Quantum in 2020;
• 74% of injury claims settled directly before PIAB were settled under the Guidelines. The average costs of claims settled under the Guidelines in 2022 was 29% lower than those settled under the Book of Quantum in 2020; and
• 67% of injury claims settled directly after PIAB settled under the Guidelines. The average costs of claims settled under the Guidelines in 2022 was 30% lower than those settled under the Book of Quantum in 2020.

Ministerial Response

Minister for Financial Services, Credit Unions and Insurance, Jennifer Carroll McNeill (as she was at the time the Report was published), commenting on the Report, noted that "availability of insurance and price of cover remain important features of doing business in Ireland today". She also noted that the changes to duty of care introduced by changes to the Occupiers' Liability Act 1995 are not captured within the Report. The amendments seek to more fairly balance the issue of "slips, trips and falls".

Minister for Trade Promotion, Digital and Company Regulation, Dara Calleary, also welcomed the publication of the Report. Minister Calleary commented that the Report offers "further encouraging evidence that the Injuries Resolution Board….is providing a much-needed, timely and cost-effective service". He also noted the benefits of mediation in resolving claims in a timely and cost efficient manner, and stated that later this year he will "commence further legislation to introduce mediation for public liability injury claims and motor liability claims".

5. EIOPA supervisory statement on supervision of third country reinsurance

On 4 April 2024, the European Insurance and Occupational Pensions Authority ("EIOPA") published a supervisory statement ("Statement") and an impact assessment on the supervision of reinsurance concluded with third country (re)insurance undertakings. Additionally, it also published a feedback statement on comments it received during the public consultation on the topic. For more information on the consultation, please see FIG Top 5 at 5, dated 13 July 2023.

The Statement is addressed to national competent authorities ("NCAs"), and EIOPA noted that it should be applied considering the principle of proportionality and following a risk based approach. The aim of the Statement is to identify and raise awareness of the risks stemming from the use of reinsurance provided by reinsurers operating under regulatory regimes that have not been deemed equivalent under Solvency II. Despite this, EIOPA still acknowledged that reinsurance should remain an international cross-border business which leverages the global diversification of risks and that it offers numerous advantages to insurance undertakings.

EIOPA set out its supervisory expectations for a number of areas:

• assessment of the business rationale for using third-country reinsurance and establishment of an early on-going supervisory dialogue;
• assessment of the insurance undertakings' risk management system regarding the use of third-country reinsurers;
• assessment of the reinsurance agreement; and
• tools to mitigate any additional risks.

Importantly, the Statement also noted that some of its elements would, where explicitly stated, apply to reinsurance arrangements with reinsurers from equivalent third countries also. These include:

• the expectation that an Insurer can demonstrate in the ORSA that material risks associated with third country reinsurance arrangements are appropriately captured by its risk management framework;
• the expectation that an Insurer monitors whether their third country reinsurers have breached their national solvency requirements;
• the expectation that an Insurer assesses the appropriateness of external credit assessments as part of their risk management processes, consequently, they are expected to consider the rating of third country reinsurers.
• the expectation that a detailed assessment is carried out by an Insurer when there is a material exposure towards a single or a few third country reinsurer(s) or third country reinsurers belonging to the same group to address concentration and counterparty risk; and
• if resulting from the assessments of the country, third-country reinsurer and reinsurance agreement, the Insurer has identified increased material risks, amongst the tools which could be considered by the Insurer to address the risks (or be recommended by the NCA as part of the supervisory dialogue with the Insurer) are:
  • to pre-emptively limit exposures in that context; or
  • to make sure that the Insurer has, in the event of a default, insolvency or bankruptcy of a reinsurer or other credit event set out in the reinsurance agreement, a direct claim on that reinsurer.

Ireland

Interestingly, the impact statement detailed the source of reinsurance for insurance undertakings across the EU. In respect of Ireland, the following were the sources of reinsurance measured by market share for 2021:

• EEA: 15% (the lowest across EU Member States);
• Equivalent country reinsurer: 35%; and
• Non-equivalent country reinsurer: 50% (the highest across the EU Member States).

With regards to Ireland's reinsurance exposure to non-equivalent third countries, measured by proportion of recoverables, the following percentages should be noted:

• UK: 85%;
• US: 5%; and
• Barbados: 7%.