Vol 1 (2004) - Issue 6

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The Irish Insurance Industry: An Evolving Regulatory Landscape

Introduction

Increased regulatory activity and focus on compliance has been a common theme in most areas of the financial sector, and in almost every developed jurisdiction around the globe. The Irish market, and the insurance sector in particular, has been no exception to this and the pace of change has been swift in the last 18 months.

Ireland remains an attractive and popular destination for insurance firms with strong start-up activity across the life and general sectors, with firms serving both the domestic market and those using Ireland as a base to sell services on a cross-border basis into continental Europe. The market for captive insurance and reinsurance operations also remains healthy, with a steady stream of large foreign and multinational companies from diverse sectors locating such operations in Dublin.

Firms are attracted to the Irish market because of its combination of low tax rates, Euro-area membership and its well-educated, English-speaking workforce. In addition, the concentration of financial sector firms established in Dublin’s International Financial Services Centre and its surroundings since its establishment in the late 1980s has built up a significant base of specialized financial sector knowledge.

Unified regulator

May 2003 saw the creation of a new unified financial services regulatory body in Ireland, with the establishment of the Irish Financial Services Regulatory Authority (IFSRA), an autonomous body established within the Central Bank and Financial Services Authority of Ireland. IFSRA takes over responsibility for supervision of both the life and non-life insurance sectors from the Department of Enterprise Trade and Employment (DETE). IFSRA is still developing its regulatory approach and a bill equipping it with enhanced supervisory and enforcement powers has recently been enacted and is expected to come into force in the near future.

However, the regulator is also cognisant of the need for it to balance its regulatory agenda against Ireland’s ongoing competitiveness and the Government’s desire to continue to attract high-profile international business to set up in Ireland. Indeed following the release of the regulator’s annual progress report, a year after its inception, IFSRA Chief Executive Liam O’Reilly reinforced this point by confirming that ‘the financial services industry is an integral component of Irish society and it is therefore in all of our interests that it remains competitive and that we continue to work to maintain public confidence in it’.

The Irish regulatory regime for insurance firms was reviewed by a joint IMF/World Bank team in 2000/01, assessing the regulatory framework and requirements of the then regulator, the DETE, against the standards and guidelines set out in the International Association of Insurance Supervisors (IAIS) Supervisory Principles. The review, whilst noting that the approach to solvency and capital requirements was strong, commented on a lack of general guidance or rules on internal systems, use of derivatives or general compliance with the regulatory regime. The DETE released a number of individual guidelines to address some of the issues raised by the IMF and these continue to form a core part of the regulatory universe for insurance firms operating in Ireland.
Over the past few years most of the regulatory developments in the insurance industry have continued to be driven from the European arena as the implementation of legislation coming out of the EU Financial Services Action Plan continues at pace amongst member states.

The life assurance market

The United Kingdom life assurance market has endured a particularly challenging time over the past few years, with the Penrose report on Equitable Life and the UK Financial Services Authority’s move to a realistic reporting regime for the reporting of liabilities. However, the Irish Regulator has not indicated any plans to introduce such a revised approach to life assurers’ reporting requirements. It would appear that although firms will no doubt be mindful of the troubles in the United Kingdom, it has been acknowledged that the Irish market has not been affected by the same problems to such an extent, as few Irish companies write with-profits business.