UK carriers looking to establish EU subsidiaries for Brexit face less room for manoeuvre after the European Commission (EC) issued plans to bolster the bloc’s financial regulators at the expense of national watchdogs.

The EC’s proposals would give the European Insurance and Occupational Pensions Authority (Eiopa) greater powers to promote “convergence” among national insurance regulators in the way they supervise internal models under Solvency II.

Eiopa and the other so-called European Supervisory Authorities (ESAs) would set EU-wide priorities for their respective sectors and vet how national watchdogs fulfil that remit.

The plans, part of the EU’s three-year-old Capital Markets Union project, elicited some accusations of a regulatory power grab, while Insurance Europe called for clarification of the proposed “material increases” in both Eiopa’s scope of activities and the new regime’s oversight mechanisms.

Mazars partner Sarah Ouarbya said that the proposed strengthening of central powers “should level the playing field even more across the EU”.

“Insurers that have chosen a country because they perceive the national regulator as being more pragmatic than others may find that advantage is lost over time,” she added.

Ouarbya also noted that references in the EC documentation to the delegation and outsourcing of business functions to non-EU countries could stymie some UK groups’ plans.

“Many banks and insurance companies are working on the basis that they will be able to delegate or outsource business functions back to the UK from their new EU hub,” she added. “These plans may be disrupted if additional barriers are put in the way and there is a distinction between EU and non-EU outsourcing.”

Herbert Smiths Freehill partner Geoffrey Maddock concurred.

“From firms’ point of view, the clear concern will be that once Eiopa has exerted greater control over this area, it will be able to make life increasingly difficult for groups who wish to retain most activities in the UK by means of reinsurance/outsourcing,” he said. “So the key will really be what actual behaviour follows from Eiopa, and whether it is reasonably based on legitimate financial stability/policyholder protection grounds or is more motivated by protectionist anti-third country objectives.”

Last week’s proposals follow edicts from the European Securities and Markets Authority (Esma) and Eiopa designed to stamp out the creation of “letterbox” entities within the EU to house UK subsidiaries.

Under the latest proposals, the ESAs would take decisions more independently from national interests, with newly created executive boards speeding up the decision-making process.

Funding of the ESAs would also be separate from the national supervisors to ensure independence.

The EC said there would be a mechanism for interested parties to appeal to the EC if a majority think the ESAs have overstepped the mark.

In issuing the proposals the EU executive abandoned the prospect of a merger of the European Banking Authority and Eiopa – a concession that Insurance Europe welcomed.

Also on the positive side, Ouarbya said that UK insurers would generally welcome more consistency in the way that internal models are validated across the EU, given the Prudential Regulation Authority’s tough reputation in this regard.

The proposals take the form of an omnibus text, which amends existing legislation.

They will now be discussed by the European Parliament and the European Council.

The EU securities and markets regulator has warned national watchdogs against companies hoping to set up thinly staffed “brass plaque” entities ahead of Brexit.

In an advisory statement aimed at national EU regulators, the European Securities and Markets Authority (ESMA) issued guidelines for avoiding “regulatory arbitrage” between the 27 countries that will be left in the EU after the UK leaves the bloc.

ESMA said local regulators in the EU should “reject any relocation request creating letterbox entities”.

This would include a company looking to set up an EU operation to gain passporting rights while “essentially performing all substantial activities or functions outside the EU27″, ESMA said.

Paris-based ESMA works with the European Insurance and Occupational Pensions Authority and the European Banking Authority to promote “supervisory convergence” across the EU.

In its document, ESMA chairman Steven Maijoor said: “The UK plays a prominent role in EU financial markets and the relocation of entities, activities and functions to the EU27 creates a unique situation requiring a common effort, at EU level.

“Firms need to be subject to the same standards of authorisation and ongoing supervision across the EU27 in order to avoid competition on regulatory and supervisory practices between member states.”

The watchdog said it expects senior executives in newly established EU units to be actual decision-makers. ESMA noted that even when the entity is part of a bigger corporation, local board members and senior managers must be employed in the country they move to.

ESMA also urged financial services firms to hurry up with Brexit relocation plans.

“The authorisation process takes time,” the watchdog noted. To ensure efficiency, ESMA recommended companies approach local regulators “as early as possible”.

ESMA’s intervention comes as carriers weigh their post-Brexit location options, and it could curtail the benefits of shopping around.

Although all EU member states are bound by the same Solvency II requirements, national jurisdictions have diverged on staffing requirements, carriers have said.

Lloyd’s has already decided to set up an EU subsidiary in Belgium, while AIG is setting up a new European headquarters in Luxembourg, as are FM Global and Hiscox.

No major carrier has yet announced plans to relocate to Dublin, where staffing requirements are perceived to be more stringent.

The ESMA document called for local regulators to dismiss applications for licences from financial services companies looking for a laissez-faire regulatory regime.

Regulators should veto applications “where the activity carried out indicates clearly that the entity has opted for the legal system of a member state for the purpose of evading the stricter standards in force in another member state”.

AM Best has said it will not directly use Solvency II results in its rating assessments over concerns the regime does not provide an accurate picture of carriers’ balance sheets.

In a statement released today to coincide with the first solvency and financial condition reports under the new regulations, the rating agency said while Solvency II represented the European regulatory position and is intended to be risk-based, it would instead continue to use its internal Best’s Capital Adequacy Ratio (BCAR) model.

It said: “It is AM Best’s opinion that [Solvency II] may not provide a reliable picture of the underlying economics of an insurer’s balance sheet at either the detailed or corporate level, and neither does it provide comparisons across insurers on a global basis.”

The agency added that it did not believe the quantitative data of the entire regime gave a “complete picture of a company’s credit risk”, much less a single ratio.

However, it noted that data from the regulations could influence the inputs into the BCAR model, particularly information related to available capital in life insurance operations for European carriers.

While the regime has led to an increased burden for all European (re)insurance subsectors, life insurers are set to be the most heavily impacted by the changes, AM Best said.

Fellow ratings agency Fitch said in early 2016 it would also opt not to use Solvency II metrics in its ratings as it said the data was not comparable between insurers because of the varied calculations in use.

This role will be supporting the Solvency II team in accounting policy and the completion of the implementation of Solvency II Pillar 3 for a major London based insurance business.

Working within a highly specialised Solvency II team to ensure the completion of the implementation of the Solvency II Pillar 3 (supervisory reporting and disclosure) regime across Lloyd’s syndicates.  This includes ensuring that the business meets its Pillar 3 reporting requirements as the insurance industry moves into ‘live’ Solvency II from 2016.

• Qualified Accountant
• Good understanding of insurance and Lloyd’s market financial and regulatory reporting, including Solvency II Pillar 3
• Good Understanding of Solvency II
• Good technical knowledge or UK GAAP/IFRS
• Knowledge /experience of Lloyd’s returns
• Advanced knowledge of Excel and Access

• Lloyd’s existing “business as usual “reporting – QMA, QMB QMC, etc
• Strong excel
• Demonstrable experience of improvements to processes and systems.
• Staff management preferable
• Offshoring
• Lloyd’s future Solvency II pillar 3 (participation in dry-runs for pillar 3 preferred)

Qualified Accountant (ACA/ACCA/ CIMA) with 5+ years PQE

Job Summary:
To assist in the production of SII reporting to both Lloyd’s and the CBI for managed syndicates and group companies. To help with the implementation and testing of solvency II related systems and reports.

Key Responsibilities:

Project
* Contribute to the identification and design of processes to meet the QRT reporting requirements as efficiently as possible.
* Assist in the definition and documentation of the data mapping between the existing finance systems and solvency II systems.
* Assist in the documentation of the processes and controls to ensure the methodologies can be communicated and explained across the finance team.
* Support the execution of the end user testing of solvency II reporting systems.

Reporting
* Production of pillar 3 reports for all entities required to report
* Preparation of standard formula capital reports as required
* Execution of the designed controls over the reporting process

Other
* Support the Head of Global Financial Reporting on other finance reporting requirements/projects as required.

Education and Qualifications
* Graduate equivalent education and/or qualifications
* Professional accountancy qualification, preference for ACA/ACCA

Skills and Abilities
* Understanding of Solvency II reporting requirements
* Strong technical accountancy skills, especially UK GAAP and IFRS
* Insurance and Lloyd’s specific knowledge preferable
* Strong analytical skills with attention to detail
* Advanced excel skills
* Able to communicate effectively with others, both verbally and in writing
* Able to work on own initiative
* Strong team working
* The ability to manage time, meet deadlines and prioritise

Knowledge and Experience
* Proven experience in financial services, ideally gained in the Insurance sector
* Experience of Financial Reporting
* Experience of designing processes and managing controls

Part Qualified Accountant studying ACCA / CIMA with insurance experience required by market leading City based insurance company.

Principle responsibilities

• To process the month end technical accounting. Bookkeeping of premiums, claims, IBNR, commissions, and reinsurance.
• To assist design, develop and build mechanisms or loading data into the general ledger, with relevant controls
• To prepare and analyse monthly technical account reconciliations (e.g. GL to core systems) for audit and SOX purposes
• To assist in the preparation of financial results for US GAAP reporting to parent company
• To use, update and modify (where required) the systems/analysis tools/spreadsheets to extract data from underwriting and financial systems for regulatory and compliance returns in accordance with the relevant regulatory timetables.
• To produce and maintain monthly audit files company financial results, balances and key reconciliations
• Assist in production of company and related entity GAAP financial results and annual report.
• To assist in ad-hoc reporting requirements & project work

 Knowledge, skills and experience

• Commercial common sense and understanding of the insurance business
• Advanced Excel / Database skills to be able to build spreadsheets and systems that can manage and manipulate large volumes of data efficiently (V Look ups, Pivot Tables)
• Ability to analyse and self- audit any data, returns, forms, including liaison with underwriting teams to verify data.
• Ability to understand the bigger picture and visualise the end-to-end process of transactions through to reporting analysis
• Good communication skills, ability to interact at all levels within the business and fellow practitioners
• Good project management, prioritisation of tasks and time keeping skills
• Some exposure or knowledge of Statutory and Regulatory reporting (PRA, SII / Solvency II, US GAAP)
• Preferably A level maths qualification and pursuing an accountancy qualification, studying ACCA or CIMA

Prudential Regulation Authority (PRA) CEO Andrew Bailey has said insurers in the UK require more time to comply fully with the new Solvency II capital rules, as the January 2016 deadline approaches.

Speaking at the Reuters Financial Regulation Summit, Bailey said a downward shift in the risk-free interest rate curves was affecting capital requirements, and that more insurers were likely to make use of the transitional relief allowed by the EU as a result.

According to Reuters, Bailey, who is also deputy governor for prudential regulation at the Bank of England, said: “As long as the risk-free curves remain where they are, then firms will be making greater use of the transitional capital structure in Solvency II than they thought they would.”

Under EU rules, regulators can allow insurers to apply a transitional adjustment to a risk-free interest rate term structure for up to 16 years to ensure they are compliant with Solvency II.

The deduction is the difference between the current rate and the Solvency II rate, and decreases in linear fashion over a 16-year period.

While the UK has reliable sterling market rate projections extending up to 50 years in advance, the Eurozone can only project 20 years ahead – after which it uses a rate calculated by the regulators.

Because the rate determined by regulators increases sooner than the sterling rate, Eurozone insurers could have an advantage over their UK counterparts.
“I would prefer it if everybody was done on the same basis, frankly,” commented Bailey.

“We can’t have one set of firms benefiting from one set of treatments and another set benefit from a slightly different set of treatments.”

Bailey also said that the PRA was likely to make a statement on the use of the transitional period before January 2016.

The Prudential Regulation Authority (PRA) has warned that many UK insurance companies still have a “considerable amount of work” to do in preparation for the implementation of Solvency II on 1 January 2016.

According to feedback from internal model commitment panels released last week (22 May), the PRA said that firms had to be realistic about their chances of completing further work in time to submit a viable internal model application.

In particular, the UK regulator said that some firms had decided to make changes to models at a late stage, meaning they would now have to carry out further work to demonstrate that the amendments had been properly incorporated into the model.

In order to do this, firms must ensure that any revised approaches are technically sound, and have been reviewed and agreed by internal governance processes.

The PRA noted that it was not likely to have the opportunity to review any late changes, or give further feedback to firms still seeking model approval for 1 January 2016, before they would have to make a formal application.

Because there was limited opportunity for firms to make changes once a formal application had been submitted, the PRA explained that firms had to be confident that any revisions made at this stage would satisfactorily address any previous feedback.

If firms had to make material changes during the application period, the PRA cautioned that a new formal application could be required. Alternatively, firms have a final option to “stop the clock” on their current application.

The PRA also said that all firms should have a viable contingency plan in the event that they either do not gain model approval, or a dependant Solvency II approval is rejected. It added that individual firms had already been notified about any further progress required.

However, it said that it was encouraged to see that in a number of cases firms had made changes to their models to address weaknesses identified in previous feedback.