On the 20th of November 2015, the Insurance Business Act (the “Act”) was amended by Act No. XXXIII of 2015 to transpose Directive 2009/138/EC of the European Parliament and of the Council of November 25, 2009 on the taking up and pursuit of the business of Insurance and Reinsurance (Solvency II Recast) (hereinafter referred to as the “Directive”).
The Directive codifies and harmonizes EU insurance regulation, introducing a new regulatory framework for insurance and reinsurance undertakings (hereinafter referred to as the “undertakings”) with the main objective of providing adequate protection for policyholders and beneficiaries. The solvency regime it lays down is expected to result in better protection for policyholders. The Directive will enable supervisory authorities to form a more solid judgment on their financial situation through the college of supervisors. This is being done through a new Chapter on the supervision of the Undertakings in a group.
The new solvency framework will be made up of three pillars of regulation.
The first pillar deals with the quantitative requirements. These include rules on the valuation of assets and liabilities; technical provisions; own funds; the Solvency Capital Requirement; the Minimum Capital Requirement; and Investment Rules. The new requirements’ sophistication allows for a better coverage of the real risks faced by the Undertakings.
The second pillar establishes an effective system of governance in order to ensure the adequate management of the Undertakings. It allocates responsibilities and lays down effective reporting lines, as well as identifies different functions which the Undertakings will be required to have in place. These include the risk management function, the actuarial function, and internal controls and internal audit functions.
The third pillar focuses on matters of transparency. Reporting to supervisory authorities and public disclosure will not only enhance market discipline and increase comparability, but will also lead to more fair competition.
Part of the transposition process of the Directive into the Maltese Legal Framework will include amendments to the subsidiary legislation issued under the Act in order to have them aligned with the requirements and terminology of the Directive. Supplementary Insurance Rules will be issued under the Act, consolidated in a single rulebook. Current insurance rules are being retained, aligned and updated as part of the transposition.
The Malta Financial Services Authority held meetings with license holders as part of the consultation process with the insurance market for the preparation of the implementation of the Directive.
The amendments relating to the Act are to come into force on January 1st , 2016.