Dublin Investor Protection
Security & Regulation
Customers need reassurances about the safety of their investment and in relation to the controls that safeguard them. Customers may be concerned about the impact on Dublin based life assurance companies in case of a failure of external banks and counterparty risk.
Insurance companies are structured and work in fundamentally different ways to other financial institutions for three main reasons:
- Financial aspects of a life company work very differently to other financial services businesses:
- The life assurance company business model incorporates certain safeguards:
- Oversight of a life company is also very different to other business.
Policyholder assets are invested, ring fenced and protected.
The insurance company is liable to pay out the total value of the assets relating to the clients’ policies in accordance with the Terms & Conditions for the individual policies. These assets are recorded by the insurance company in a specific register, which is updated every working day. In the event that the insurance company becomes insolvent (which is highly unlikely) the policyholders have first right to the value of the assets recorded in the register. The significance of this is that the assets cannot be used by the insurance company for payment to anyone other than the policyholders. The current regulatory framework thus protects the total value of the assets relating to clients’ policies should the insurance company become insolvent.
Oversight of Life Insurance Companies
All Irish based life assurance companies are tightly regulated by the Central Bank of Ireland is a member of the European Union (EU) and the Irish regulatory system is fully in line with EU requirements.
The primary layers of oversight are the Board of Directors and the Central Bank of Ireland. However, insurance companies also have an extra layer of governance over and above other financial institutions – the Appointed Actuary. The Appointed Actuary must comply with strict professional standards and legally acts independently of the insurance company. The Appointed Actuary certifies reserves and solvency margins independently, monitors the company at all times and must report to the Regulator any material known issues.
Detailed financial reports must be submitted to the Central Bank of Ireland periodically. Technical reserves must be maintained that match the total value of all liabilities to policyholders. A solvency margin over and above technical reserves must be held in respect of product lines.
Insurance Companies are structured and work in different ways to other financial institutions. The safeguards and oversight for investors are important for the protection of investors.
Regulatory safeguards for our Policyholders
There are a range of protections afforded to policyholders of life companies through the regulatory system. A life insurance company incorporates important safeguards and protections afforded to policyholders through the regulatory systems. They are required to submit detailed returns on an annual basis to the Central Bank of Ireland to demonstrate solvency as well as the amount of excess assets over the minimum solvency margin.
Solvency requirement for Life Companies v. Banks
A key difference between an insurance company and a bank from a regulatory standpoint is that a bank is not required to hold the full amount of its deposits at all times (but can use these funds to lend out to other customers). In other words a bank’s deposit liability (to repay its depositors their money on demand) is not 100% matched with assets. Conversely, a life insurance company is required to hold all the assets underlying its unit-linked policies at all times plus an additional amount for solvency margin (as outlined above). As a result there is no equivalent concept of a ‘run on the bank’ for an insurance company since insurance companies hold matching assets at all times.
Luxembourg Investor Protection
Luxembourg offers the strongest investor protection scheme in Europe via a unique regulatory regime referred to as the “tripartite agreement”.
The Luxembourg tripartite agreement offers complete segregation of clients’ assets from either the creditors of the insurance company or any of its custodian banks.
All assets must be held by a custodian bank approved by the regulator – the Commissariat Aux Assurances (CAA). This ensures the segregation of policyholder assets from corporate assets, and prevents exposure to the insurance company’s credit risk.
The custodian bank must also hold all these assets in separate custodian accounts, so they do not form part of the bank’s balance sheet and therefore are not exposed to its credit risk.
The CAA performs quarterly audits on insurance company accounts in addition to making ad hoc visits. It has binding legal authority over both the custodian bank and the insurance company. It has binding legal authority over both the custodian bank and the insurance company. The CAA’s principal objective is the protection of client assets whist ensuring Luxembourg’s strict confidentiality laws are adhere to.
*Cash deposits are potentially at risk as these are not separated from the banks assets.