06.08.2018 | KPMG Law Insights

Insurance Legal | Issue 01/2018

Dear Readers,

Welcome to the first issue of our newsletter “Insurance Legal”. We – the Legal FS Insurance Team of KPMG Law – would like to inform you with this newsletter in cooperation with the KPMG Regulatory Center Insurance (ReCI) at regular intervals about current legal innovations and regulatory developments on a national and European level.

The regulatory web of standards is becoming visibly denser and regulation does not seem to know any summer recreational breaks. Just this July, for example, the VAIT have been published by BaFin. IT and related risks have obviously become a strong focus of supervision. The regulatory depth of VAIT also melts away the lead of bank regulation at this point and once again shows parallel development patterns of the financial industry.

We wish you insightful and stimulating reading – and a loyal readership for this newsletter!


Dr. Ulrich Keunecke and Frank Fischer

European Commission

Facilitated investment in securitization instruments for insurance companies

On June 1, 2018, the European Commission adopted a draft Delegated Regulation entitled “Commission delegated regulation amending Delegated Regulation (EU) 2015/35 as regards the calculation of regulatory capital requirements for securitisations and simple, transparent and standardized securitisations held by insurance and reinsurance undertakings.”

The amending regulation to Regulation (EU) 2015/35 is intended to make it easier for insurance companies to invest in simple and transparent securitization instruments. At the same time, this aligns the Solvency II framework with the harmonized EU securitization rules and makes the treatment for insurance companies consistent with that in the banking sector.

The new rules are to be applied as of January 1, 2019.

Further information can be found here.

European Commission

Implementing Regulation on the Determination of Technical Information for the Calculation of Technical Provisions and Basic Own Funds

The “Commission Implementing Regulation (EU) 2018/730 of 4 May 2018 laying down technical information for the calculation of technical provisions and basic own funds for notifications with cut-off dates from 31 March 2018 to 29 June 2018 in accordance with Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of insurance and reinsurance” has been published in the Official Journal of the European Union of 18 May 2018. The Regulation entered into force on the day following its publication. It has been in effect since March 31, 2018.

The implementing regulation can be found here.

European Council

Bilateral agreement between the EU and the U.S. on supervisory measures for insurance and reinsurance

The Official Journal of the European Union of April 6, 2018 published “Council Decision (EU) 2018/539 of March 20, 2018 on the conclusion of the Bilateral Agreement between the European Union and the United States of America on insurance and reinsurance supervision measures.” The conclusion of the agreement is intended to increase legal certainty in the application of the regulatory framework for insurers and reinsurers in the Union and the United States of America and to strengthen the protection of policyholders and other consumers through cooperation between supervisory authorities in the exchange of information.

You can find the resolution here.

European Parliament and European Council

Postponement of the application of the IDD to October 1, 2018

The European legislator has postponed the date by which the Insurance Distribution Directive (IDD) must be implemented or applied at the latest. A corresponding amending directive has been adopted by the European Parliament and the Council. Accordingly, member states do not have to implement the regulations until July 1, 2018, and must apply them no later than October 1, 2018; the original deadline for both was February 23, 2018. The postponement came about at the request of a number of Member States that would not have been able to transpose and apply it on time, in particular because of the delay in adopting the associated Delegated Regulations.

However, Germany has already implemented the regulations as of February 23, 2018, so they are already applicable law in the Federal Republic.

You can find further information here.

Federal Government

Regulation on the implementation of the IDD

The German government has presented the regulation implementing Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution. In particular, the provisions on the granting of licenses for insurance sales, the rules on professional liability, and the further training of insurance agents have been revised.

You can find further information here.


Questions and answers on the application of the IDD

On July 11, 2018, EIOPA published the first Q&A’s with practical recommendations on the application of the Insurance Distribution Directive and its implementing legislation.

You can find further information here.


Statement on “Brexit

On May 18, 2018, EIOPA published an opinion regarding the regulatory impact on the solvency positions of insurance companies when the United Kingdom becomes a third country as a result of leaving the European Union.

You can find further information here.


Consultation on the Regulatory Technical Standard on the adjustment of the minimum amount for professional liability.

EIOPA has issued for consultation a Regulatory Technical Standard on the adjustment of the minimum amount for professional indemnity of insurance intermediaries under Article 10 IDD. The draft was open for comments until April 27, 2018. Deadline for submission of the standard to the European Commission is June 30, 2018.

You can find the consultation here.


Stress test for institutions for occupational retirement provision

EIOPA has published its report on the 2017 pan-European stress test for institutions for occupational retirement provision (IORPs). The result of the stress test is that the European IORPs offer defined benefit plans which, when aggregated, do not have enough investments to cover their obligations. For some of the employers who use IORPs for their employees’ occupational pensions, it could be a major burden to fill these gaps. This could possibly have a negative impact on the real economy.

You can find more information here.

EIOPA and European Commission

Editable template for the “Insurance Product Information Document” (IPID)

EIOPA and the European Commission have been working on and have now made available an electronic and editable version of the Insurance Product Information Document (IPID) in all official languages of the European Union.

You can find the template here.


New Sales Circular 11/2018 (VA)

BaFin has fundamentally revised the circular on cooperation with insurance intermediaries and on risk management in sales. The main reason for this was the IDD Implementation Act, which, among other things, created regulations on direct selling, the product approval procedure, the obligation to provide further training, sales remuneration and conflicts of interest. In addition, the prohibition of special remuneration, which includes in particular the prohibition of commission charges, and requirements for the pass-through of a large part of the costs of insurance mediation when insurance advisors are active (pass-through requirement) were added to the Insurance Supervision Act (ISA) as national special features.

The circular, BaFin’s explanations and the sample advisory certificate can be found here.


Interpretative decision on the operation of reinsurance business abroad.

BaFin has summarized the requirements for the operation of reinsurance business by German primary insurers abroad in an interpretative decision. This covers reinsurance business in the EU and the European Economic Area (EEA) as well as in third countries. BaFin had already taken the latter into account in an interpretative decision in 2010. In order to provide primary insurers with a comprehensive picture with regard to reinsurance business abroad, it has now summarized both aspects in a publication.

The interpretation decision can be found here.


Circular on the “Insurance Supervisory Requirements for IT” (VAIT)

BaFin has published the circular on “Insurance Supervisory Requirements for IT” (VAIT) that it consulted on in the spring. In this way, it takes into account the particular importance of information technology (IT) at insurance companies. The circular contains guidance on the interpretation of the provisions on business organization in the Insurance Supervision Act (ISA) insofar as they relate to the technical and organizational equipment of companies. The central objective of VAIT is to provide the management of companies with a flexible and practical framework for the design of IT, in particular for the management of IT resources and for IT risk management.

You can find the circular here.


Interpretative decision on the treatment of infrastructure investment risks under Solvency II

In an interpretative decision, BaFin regulates how insurance companies that invest capital in infrastructure projects should deal with the associated risks under the Solvency II supervisory regime as part of the principle of entrepreneurial prudence. The interpretive decision identifies principles and processes that should be understood as reasonable practices. It is aimed at German insurers and reinsurers covered by Solvency II.

The interpretative decision can be found here.


FAQ about MaGo

On March 2, 2018, BaFin published FAQ on Circular 2/2017 (MaGo – Minimum Requirements for the Business Organization of Insurance Companies). With its answers, BaFin comments on the following topics:

  • Scope of application of MaGo for insurance holding companies
  • Establishment of a process for reviewing the business organization
  • Contents and submission requirements (overall management) of the report of the actuarial function
  • Importance and objective of asset-liability management (ALM) and the need to take the company’s individual risk profile into account in the process.
  • Clarification regarding responsibilities and delimitation of the compliance function in the ICS
  • With regard to spin-offs – in particular for dealing with old contracts – required reporting lines as well as, in the case of the appointment of spin-off officers, their tasks and required reporting lines

In addition, BaFin addresses and explains definitions of terms in the case of reference to “other external requirements” and “standards” in the context of monitoring by the compliance function, using examples.

You can find the FAQ here.


Life insurance before the BGH: Who gets how much?

After many years of paying into a life insurance policy, policyholders experienced disappointment at the end of the term. For some time now, the sum paid out by insurance companies from the so-called valuation reserves has more frequently turned out to be smaller than the customers leaving the company had hoped. This is due in particular to the fact that, due to the current low interest rates, the often high guarantee promises of the past can hardly be generated on the capital market. In this regard, a change in the law came into force in 2014 that allowed insurance companies to distribute price gains from fixed-income securities only to the extent that guaranteed benefits for the remaining policyholders are secure.

The IV. Civil Senate of the German Federal Court of Justice, which is responsible for insurance contract law, among other things, ruled on June 27, 2018. Civil Senate of the Federal Court of Justice ruled on June 27, 2018, that the new regulation on the policyholder’s participation in valuation reserves (so-called hidden reserves) in life insurance pursuant to Section 153 (3) Sentence 3 of the German Insurance Contract Act (VVG) in the version of the Life Insurance Reform Act of August 1, 2014, which entered into force on August 7, 2014, is not unconstitutional.

You can find the ruling of the BGH here.

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Dr. Ulrich Keunecke

Head of Sector Legal FS Insurance

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