S.I. No. 380/2006 - European Communities (Reinsurance) Regulations 2006

• (a) if a natural person, to a fine not exceeding €3,000 or to imprisonment for a term of not more than 12 months, or to both, or

• (b) if not a natural person, to a fine not exceeding €5,000.

Prosecution of offences under these Regulations

• (2) A prosecution for an offence under these Regulations may be taken only by the Bank or by some other person who is authorised by law to prosecute offences.

• (3) Summary proceedings for an offence under these Regulations may be started at any time within 12 months after the date on which the offence is alleged to have been committed, despite section 10(4) of the Petty Sessions (Ireland) Act 1854.

Power of the Court to make enforcement orders

• (2) On making an application under paragraph (1), the Bank shall serve a copy of the application on the person to whom the application relates. On being served with the notice, that person becomes the respondent to the application.

• (3) On the hearing of an application made under paragraph (1), the Court may make an order directing the respondent to cease contravening, or failing to comply with the provision, direction or requirement specified in the application, provided it is satisfied that the respondent is contravening or failing to comply with the provision, direction or requirement.

• (4) The Court may make an order under paragraph (3) whether or not a contravention of, or failure to comply with, the provision, direction or requirement is an offence and, if it is an offence, whether or not any person alleged to have committed the offence has been prosecuted for it.

• (5) If the Court decides to make an order under paragraph (3), it may also make such ancillary orders as it thinks fit.

• (6) Pending the hearing of an application made under paragraph (1), the Court may make such interim or interlocutory orders as it thinks fit.

PART 17 MISCELLANEOUS PROVISIONS

Power to amend or revoke rules

• (2) If the Bank has made rules under a Regulation that authorises it to do so, it may from time to time amend or revoke those rules.

• (3) In this Regulation, “amend” means amend by inserting or adding new text substituting new text for existing text, or omitting existing text.

Publication of rules, etc.

• (2) Rules made under these Regulations, and any amendment to, or revocation of those rules, take effect on the date on which they are published in accordance with paragraph (1) or, if a later date is specified in the rules, amendment or revocation, on that later date.

• (3) Subject to this Part, the Interpretation Act 2005 applies to rules made under these Regulations as if they were a statutory instrument.

Consequences of certain reinsurance undertakings and SPRVs being wound up

• (2) If an authorised reinsurance undertaking established in the State is wound up commitments arising from contracts underwritten by the undertaking in the course of carrying on reinsurance business in another Member State are to be met in the same way as those arising under the undertaking's other reinsurance contracts, without distinction of nationality or place of establishment of the other parties to those contracts.

• (3) If a SPRV established in another Member State is wound up, commitments arising from contracts underwritten by the SPRV while operating in the State are to be met in the same way as those arising under the SPRV's other contracts, without distinction of nationality or place of establishment of the other parties to those contracts.

• (4) If a SPRV established in the State is wound up, commitments arising from contracts underwritten by the SPRV while operating in another Member State are to be met in the same way as those arising under the SPRV's other contracts, without distinction of nationality or place of establishment of the other parties to those contracts.

Consequential amendment of Central Bank Act 1942

• (a) in paragraph (h) of the definition of “Supervisory Directives” in subsection (10), by substituting “2005),” for “2005);” and

• (b) by inserting the following paragraph after paragraph (h) of that definition:

• “(i) Directive 2005/68/EC of 16 November 2005;”.

• (2) Part 2 of Schedule 2 to the Central Bank Act 1942 (as substituted by section 31 of the Central Bank and Financial Services Authority of Ireland Act 2003 ) is amended by inserting the following item at the end of the Part:

“ S.I. No. 380 of 2006	European Communities (Reinsurance) Regulations 2006	The whole instrument”

Consequential amendment of Insurance Act 1989

• “(4) On and after the commencement of the European Communities (Reinsurance) Regulations 2006, this section ceases to apply to those undertakings that are reinsurance undertakings or special purpose reinsurance vehicles to which those Regulations apply.”.

SCHEDULE 1 DETERMINATION OF REQUIRED SOLVENCY MARGIN

Solvency margin required for reinsurance undertakings

• (2) The undertaking's available solvency margin must consist of its assets, free of all foreseeable liabilities, less any intangible items.

• (3) The amount of the available solvency margin for the undertaking must be based on—

• (a) the undertaking's paid up share capital, and

• (b) those of the undertaking's statutory and free reserves that do not correspond to underwriting liabilities and are not classified as part of the undertaking's equalisation reserve, and

• (c) the undertaking's profit or loss brought forward after deducting dividends that are to be paid to its shareholders.

• (4) With the consent of the Bank and subject to subparagraphs (5) to (7) of this paragraph, cumulative preferential share capital and subordinated loan capital may be included in determining the amount of the available solvency margin for the undertaking but only up to 50 per cent of whichever is the lesser of the available solvency margin and the required solvency margin.

• (5) No more than 25 per cent of the lesser of—

• (a) the available solvency margin, and

• (b) the required solvency margin,

can consist of fixed term cumulative preferential share capital or subordinated loans with a fixed maturity.

• (6) However, should the undertaking become bankrupt or be placed in liquidation cumulative preferential share capital or subordinated loan capital may be taken into account under subparagraph (4) of this paragraph only if binding agreements exist under which the cumulative preferential share capital or subordinated loan capital—

• (a) will rank after the claims of all other creditors, and

• (b) will not be repaid until all other debts outstanding at the relevant time have been settled.

• (7) Subordinated loan capital may be taken into account under subparagraph (4 of this paragraph only if—

• (a) it consists only of fully paid-up funds, and

• (b) subject to paragraph 2 of this Schedule—

• (i) in the case of a loan having a fixed maturity, the original maturity is for not less than 5 years, and

• (ii) in the case of a loan that does not have a fixed maturity, the loan is repayable only subject to 5 years' notice, unless it is no longer considered as a component of the available solvency margin or the Bank's prior consent is specifically required for early repayment and

• (c) the loan agreement does not include any clause providing that in specified circumstances (other than the winding-up of the undertaking the debt will become repayable before the agreed repayment dates, and

• (d) the loan agreement provides that it can be amended only if the Bank is notified of the amendment and has indicated that it does not object to the amendment.

Bank may authorise repayment of certain loans in certain circumstances

• (a) an application is made to it by the issuing undertaking, and

• (b) the undertaking's available solvency margin will not fall below the requisite level.

• (2) In the case of a loan of a kind referred to in paragraph 1 (7)(b)(ii) of this Schedule, the undertaking concerned shall, by notice in writing given to the Bank at least 6 months before the date of the proposed repayment, provide an estimate of—

• (a) the available solvency margin and the required solvency margin before the proposed repayment, and

• (b) assuming the repayment is made, the available solvency margin and the required solvency margin after that repayment.

The Bank may authorise the repayment only if it is satisfied that the undertaking's available solvency margin will not fall below the required level.

Other amounts that may be included in an undertaking's solvency margin

• (a) the available solvency margin, and

• (b) the required solvency margin,

for the total of those securities and the subordinated loan capital referred to in that subparagraph.

• (2) However, the securities or instruments referred to in subparagraph (1) of this paragraph may be included for the purpose of determining the undertaking's available solvency margin only if—

• (a) the securities or instruments may not be repaid on the initiative of the bearer or without the prior consent of the Bank, and

• (b) the contract of issue enables the undertaking to defer the payment of interest on the relevant loan, and

• (c) the lender's claims in respect of that loan rank entirely after those of all non-subordinated creditors, and

• (d) the documents governing the issue of the securities or instruments provide for the loss-absorption capacity of the debt and unpaid interest while enabling the undertaking to continue its business, and

• (e) only fully paid-up amounts are taken into account.

• (3) In relation to an undertaking's life reinsurance activities, an amount equal to 50 per cent of its future profits (but not exceeding 25 per cent of its available solvency margin or required solvency margin, whichever is the smaller) may, until 31 December 2009, be included in the amount of the available solvency margin for the undertaking, but only with the consent of the Bank.

• (4) The amount of the future profits referred to in subparagraph (3) of this paragraph is to be calculated by multiplying the estimated annual profit by a factor that represents the average period left to run on policies. The factor used may not exceed 6 and the estimated annual profit may not exceed the arithmetical average of the profits made by the undertaking, over the last 5 financial years, in the activities specified in Article 2(1) of the Life Assurance Business Directive. The Bank may consent to the inclusion of such an amount as part of the available solvency margin for the undertaking only if—

• (a) an actuarial report is submitted to it that substantiates the likelihood of those profits being realised in the future, and

• (b) the part of future profits realised from hidden net reserves referred to in subparagraph (6)(a) of this paragraph has not already been taken into account.

• (5) If, in relation to an undertaking's life reinsurance activities—

• (a) zillmerizing is not practised, or

• (b) where it is practised, it is less than the loading for acquisition costs included in the premium,

an amount equal to the difference between a non-zillmerized or partially zillmerized mathematical reserve and a mathematical reserve zillmerized at a rate equal to the loading for acquisition costs included in the premium may be included in the amount of the available solvency margin for the undertaking, but only with the consent of the Bank. However, the amount of the difference may not exceed 3.5 per cent of the sum of the differences between the relevant capital sums of life reinsurance activities and the mathematical reserves for all policies for which zillmerizing is possible. In that case, the difference must be reduced by the amount of any undepreciated acquisition costs entered as an asset.

• (6) The following may also be included in the amount of the available solvency margin for the undertaking, but only with the consent of the Bank—

• (a) any hidden net reserves resulting from the under-estimation of assets and over-estimation of liabilities in so far as those reserves are not of an exceptional nature;

• (b) one half of the unpaid share capital or initial fund, once the paid-up part amounts to 25 per cent of that share capital or fund, up to 50 per cent of the lesser of the available and required solvency margin.

Reductions in available solvency margin

• (2) If the Bank, on application by an authorised reinsurance undertaking, has permitted the undertaking to discount or reduce its non-life technical provisions for outstanding claims in order to take account of investment income as permitted by Article 60.1 (g) of the Insurance Accounts Directive, the available solvency margin must be reduced by the difference between—

• (a) the undiscounted technical provisions or technical provisions before deductions as disclosed in the notes on the accounts, and

• (b) the discounted or technical provisions after deductions.

The undertaking must make such an adjustment for all risks listed in point A of the Annex to the Non-life Insurance Business Directive, except for risks listed under classes 1 and 2. For the classes listed in point A of that Annex (other than classes 1 and 2), the undertaking may, with the consent of the Bank, make no adjustment in respect of the discounting of annuities included in its technical provisions.

• (3) The available solvency margin must also be reduced by the following items:

• (a) participations that the reinsurance undertaking holds in—

• (i) insurance undertakings within the meaning of Article 4 of the Life Assurance Business Directive, Article 6 of the Non-life Insurance Business Directive or Article 1(b) of the Supplementary Supervision of Grouped Insurance Undertakings Directive, or

• (ii) reinsurance undertakings, or

• (iii) non-member state reinsurance undertakings within the meaning of Article 1 of the Supplementary Supervision of Grouped Insurance Undertakings Directive, or

• (iv) insurance holding companies within the meaning of Article 1(i) of the Supplementary Supervision of Grouped Insurance Undertakings Directive, or

• (v) credit institutions and financial institutions within the meaning of Article 1(1) and (5) of the Credit Institutions Directive, or

• (vi) investment firms and financial institutions within the meaning of Article 1(2) of the Investment Services Directive and of Article 2(4) and (7) of the Capital Adequacy Directive;

• (b) prescribed interests that the undertaking holds in respect of the entities referred to in sub-subparagraph (a) of this subparagraph in which it holds a participating interest.

• (4) The following are prescribed interests for the purposes of this paragraph:

• (a) instruments of the kind referred to in paragraph 3 of Article 27 of the Life Assurance Business Directive;

• (b) instruments of the kind referred to in paragraph 3(6) of this Schedule;

• (c) subordinated claims and instruments of the kind referred to in Articles 35 and 36(3) of the Credit Institutions Directive.

• (5) If an authorised reinsurance undertaking temporarily holds shares in a credit institution, investment firm, financial institution, insurance or reinsurance undertaking or insurance holding company for the purpose of providing financial assistance to enable the entity to be reorganised and saved, the Bank may waive the application of paragraphs 1(4) to (7) and 3(1) and (2) of this Schedule

• (6) As an alternative to making the reductions referred to in subparagraph (3) of this paragraph, the Bank may allow the undertaking to apply method 1, 2 or 3 of Schedule 1 to the European Communities (Financial Conglomerates) Regulations 2004 (S.I. No. 727of 2004). However, method 1 (accounting consolidation method) may be applied only if the Bank is satisfied as to the level of integrated management and internal control regarding the entities that would be included within the scope of consolidation. The undertaking must apply the chosen method in a consistent manner over time.

• (7) Subparagraph (8) of this paragraph applies to reinsurance undertakings that are subject to supplementary supervision under—

• (a) the European Communities (Supplementary Supervision of Insurance Undertakings in an Insurance Group) Regulations 1999 ( S.I. No. 399 of 1999 ), or

• (b) the European Communities (Financial Conglomerates) Regulations 2004 ( S.I. No. 727 of 2004 ),

when they are required to calculate solvency margins as provided by these Regulations.

• (8) An undertaking to which this subparagraph applies does not have to make the reductions referred in subparagraph (3) of this paragraph in respect of participations and prescribed instruments that the undertaking holds in credit institutions, investment firms financial institutions, insurance or reinsurance undertakings or insurance holding companies, but only if the Bank in writing so permits. However, the Bank may give such permission only it is satisfied that the entities concerned are subject to supplementary supervision.

• (9) In this paragraph, “participation” has the same meaning as in Article 1(f) of the Supplementary Supervision of Grouped Insurance Undertakings Directive.

Required solvency margin to be determined either on premium basis or claims basis

• (a) the annual amount of premiums or contributions (‘premium basis’), or

• (b) the average burden of claims (‘claims basis’):

• (i) except in the case referred to in sub-sub-subparagraph (ii), for the immediately preceding 3 financial years of the undertaking, or

• (ii) in the case of a reinsurance undertaking whose business consists wholly or mainly of underwriting one or more of the risks of credit, storm, hail, or frost, for the immediately preceding 7 financial years of the undertaking.

• (2) Subject to subparagraph (3) of this paragraph and to Schedule 2, the amount of the solvency margin required for an authorised reinsurance undertaking is to be the higher of the amounts derived from the calculations made under paragraphs 6 and 7 of this Schedule.

• (3) If the amount of the solvency margin is less than the required solvency margin for the immediately preceding year, the required solvency margin for the undertaking must be at least equal to that for that year, multiplied by whichever is the lesser of 1 or the ratio of—

• (a) the amount of the technical provisions for claims outstanding at the end of that preceding financial year, and

• (b) the amount of the technical provisions for claims outstanding at the beginning of that year.

For the purpose of this subparagraph, the technical provisions are to be calculated net of retrocessions.

Determination of solvency margin on premium basis

• (2) The calculation is to be made in accordance with the following steps:

Step 1: Multiply the total amount of premiums or contributions (inclusive of charges ancillary to premiums or contributions) due in respect of reinsurance business in the immediately preceding financial year for classes 11, 12 or 13 listed in Point A of the Annex to the Non-life Insurance Business Directive by 1.5.

Step 2: Add to the total obtained under step 1 the total amount of premiums or contributions (inclusive of charges ancillary to premiums or contributions) due in respect of reinsurance business in the immediately preceding financial year in respect of other classes listed in Point A of the Annex to the Non-life Insurance Business Directive.

(Note: For specific kinds of reinsurance activities and contracts premiums or contributions in respect of classes (other than classes 11, 12 and 13) listed in point A of the Annex to the Non-life Insurance Business Directive can, in accordance with the procedure referred to in Article 55.2 of the Reinsurance Directive be enhanced by up to 50 per cent in order to take account of the specificities of those kinds of activities or contracts.)

Step 3: Deduct from the amount obtained under step 2—

• (a) the total amount of premiums or contributions cancelled by the undertaking during its immediately preceding financial year, and

• (b) the total amount of taxes and levies relating to the premiums or contributions included in the calculation.

Step 4: (a) Divide the amount obtained under step 3 into 2 parts, with the first part comprising up to €50,000,000 or, if the amount so obtained is less than €50,000,000, that amount, and the second part comprising the balance (if any), and

• (b) Multiply the first part by 0.18 and the second part (if any) by 0.16, and

• (c) Add together the amounts obtained as a result of multiplying those parts.

Step 5: Multiply the amount obtained under step 4 by the higher of the following factors:

• (a) 0.5, and

• (b) the ratio between—

• (i) the total amount of claims remaining to be borne by the undertaking in respect of claims made to it during the immediately preceding 3 years, after deducting amounts recoverable under retrocessions and amounts recoverable from authorised SPRVs, but only with the authorisation of the Bank, granted following an application with supporting evidence, and

• (ii) the gross amount of all claims made to the undertaking during that period.

• (3) When applying this paragraph, statistical methods can be used to allocate the premiums or contributions, but only with the prior authorisation of the Bank.

Determination of solvency margin on claims basis

Step 1: For classes 11, 12 or 13 listed in Point A of the Annex to the Non-life Insurance Business Directive, multiply by 1.5 the amount representing claims, provisions and recoveries referred to in the following steps.

(Note: For specific kinds of reinsurance activities and contracts claims provisions and recoveries in respect of classes (other than classes 11, 12, and 13 listed in Point A of the Annex to the Non-life Insurance Business Directive) can, in accordance with the procedure referred to in Article 55.2 of the Reinsurance Directive be enhanced by up to 50 per cent in order to take account of the specificities of those kinds of activities or contracts.)

Step 2: Add together the amounts of claims paid during the periods specified in paragraph 5 of this Schedule (without deducting claims borne by retrocessionaires).

Step 3: Add to the amount obtained under step 2 the amount of provisions made for established claims outstanding at the end of the immediately preceding financial year of the undertaking.

Step 4: Deduct from the amount obtained under step 3 the amounts of recoveries made by the undertaking during the periods referred to in paragraph 5 of this Schedule.

Step 5: Deduct from the amount obtained under step 4 the total amount provided for established claims outstanding—

• (a) at the beginning of the second financial year preceding the last financial year of the undertaking for which a statement of accounts has been prepared, or

• (b) if the period of reference established in paragraph 5(1) of this Schedule equals 7 years, at the beginning of the sixth financial year preceding the last financial year for which such a statement has been prepared.

Step 6: (a) Ascertain one-third or one-seventh of the amount obtained under step 5 (according to whether the period of reference is 3 years or 7 years), and

• (b) Divide the amount ascertained into 2 parts, with the first part comprising the lesser of €35,000,000 or the result of the amount ascertained and the second part comprising the balance (if any) of that amount, and

• (c) Multiply the first part by 0.26 and the second part (if any) by 0.23, and

• (d) Add together the amounts obtained as a result of multiplying those parts.

Step 7: Multiply the amount obtained under step 6 by the higher of the following factors:

• (a) 0.5, and

• (b) the ratio between—

• (i) the total amount of claims remaining to be borne by the undertaking in respect of claims made to it during the immediately preceding 3 years, after deducting amounts recoverable under retrocessions and amounts recoverable from authorised SPRVs, but only with the authorisation of the Bank, following an application with supporting evidence, and

• (ii) the gross amount of all claims made to the undertaking during that period.

• (2) When applying subparagraph (1) of this paragraph, statistical methods can be used to allocate the claims, provisions and recoveries, but only with the prior authorisation of the Bank.

Reduction of fractions

• (a) the premiums paid are calculated on the basis of sickness tables that accord with the mathematical method applied in insurance, and

• (b) a provision is set up for increasing age, and

• (c) an additional premium is collected in order to establish a safety margin of an appropriate amount, and

• (d) the undertaking may cancel the contract not later than the end of the third year of the insurance, and

• (e) the contract allows for premiums to be increased or payments to be reduced even for current contracts.

Solvency margin for life reinsurance undertakings

• (2) However, the Bank may provide that the required solvency margin is to be determined in accordance with Article 28 of the Life Assurance Business Directive—

• (a) in the case of reinsurance classes of assurance business covered by Article 2 1(a) of that Directive linked to investment funds or participating contracts, and

• (b) in the case of operations referred to in Article 2.1(b), 2.2(b), (c), (d) and (e) of that Directive.

Solvency margin for a reinsurance undertaking conducting simultaneously non-life and life reinsurance

• (2) If the available solvency margin of an authorised reinsurance undertaking conducting both life and non-life reinsurance business falls below the level prescribed in subparagraph (1), the Bank shall apply the measures provided for in Regulation 57 and 58, as appropriate.

SCHEDULE 2 GUARANTEE FUNDS

What a reinsurance undertaking's guarantee fund must contain

• (a) contain funds equivalent to at least one-third of the undertaking's required solvency margin, as calculated in accordance with Schedule 1 and

• (b) comprise—

• (i) the items specified in paragraphs 1(2) to (7), 2, 3(1) and (2) and 4 of Schedule 1, and

• (ii) with the authorisation of the Bank, the item specified in paragraph 3(6)(a) of that Schedule.

Minimum amounts for reinsurance undertaking's guarantee fund

• (a) except as provided by subparagraph (b), not less than €3,000,000 or,

• (b) in the case of a captive reinsurance undertaking, not less than €1,000,000,

• (2) However, if the European Commission has, in accordance with the review procedure set out in Article 41 of the Reinsurance Directive, prescribed a higher amount not less than that higher amount.

	GIVEN under my Official Seal, This 13^th day of July 2006.
	Brian Cowen Minister for Finance.

EXPLANATORY NOTE

(This note is not a legal part of the Instrument and does not purport to be a legal interpretation)

These Regulations give effect to the Reinsurance Directive (2005/68/EC — O. J. No. L 323/1) which institutes a prudential regulatory framework for reinsurance activities in the Community. The Regulations provide the necessary harmonisation to facilitate the mutual recognition of authorisations and prudential control systems, thereby making it possible to grant a single authorisation valid throughout the Community. They apply the principles set out in the Directive to supervision of reinsurance companies by the home Member State.

The Regulations require reinsurance undertakings to establish and maintain technical reserves, solvency margin and guarantee fund and to furnish information and statistical documents necessary for supervision purposes to the Bank. They also provide the Bank with the power to impose, vary and revoke conditions of an authorisation, as well as the power in specified circumstances to cancel an authorisation.

The Regulations set out restrictions on acquiring and disposing of qualifying holdings in reinsurance undertakings, as well as the role of the Bank in this process. They also specify the responsibilities of the Bank under the Regulations, in particular the requirement to collaborate with other competent authorities and the European Commission.

In addition to the regulation of standard reinsurance business, the Regulations are applicable to finite reinsurance activities, and special purpose reinsurance vehicles (SPRVs). A series of mandatory conditions are specified for these types of business.

Appropriate enforcement powers are provided to the Bank under these Regulations.

Footnotes