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21 June 2016
The EU Solvency II Directive (2009/138/EC) was transposed into domestic Irish law by the European Union (Insurance and Reinsurance) Regulations 2015.(1) The Solvency II regime provides welcome clarity regarding the functions that an insurer may outsource and the requirements which must be complied with before outsourcing. This is particularly welcome news for those insurers which rely heavily on outsource service providers.
Where a critical or important function or activity is being outsourced, prior notification must be made to the Central Bank in a timely manner (at least six weeks before the outsourcing is due to come into effect). Notification must also be made where there are subsequent material developments with respect to the outsourced functions or activities. In determining whether an outsourced function or activity is critical or important, the undertaking should assess whether it is essential to its operation and whether it would be unable to deliver its services to policyholders without it.
Under the Solvency II regime, any outsourcing must not:
Insurers intending to engage in outsourcing must ensure that they have written outsourcing policies in place. These policies must be reviewed at least on an annual basis and adapted in view of any significant changes. The policies and any amendments thereto must be subject to prior approval by the insurer's board of directors.
Where critical or important functions or activities are to be outsourced, a written outsourcing agreement must be entered into with the outsource service provider. This written agreement will provide the requisite evidence to the Central Bank that all key factors have been taken into account. The insurer must also provide evidence that it has carried out a fitness and probity assessment and appropriate due diligence in respect of the outsource service provider.
Key factors which should be contained in a written outsourcing agreement include:
The certainty provided by the Solvency II regime is good news for insurers. It clarifies the requirements for outsourcing and any factors which must be considered before entering into an outsourcing agreement. However, it is vital for insurers to check their existing outsourcing agreements to confirm that these meet all relevant Solvency II requirements and include the required key provisions.
For further information on this topic please contact Darren Maher at Matheson by telephone (+353 1 232 2000) or email (email@example.com). The Matheson website can be accessed at www.matheson.com.
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