On the 24th May 2004 the Irish Financial Services Regulatory Authority published its response to Consultation Paper No.1 on the subject of IFSRA’s funding. This note highlights those areas of the response which may be of interest to cross-border insurers.
Overview of funding costs
IFSRA have indicated that budgeted costs for 2004 are €38.5m. IFSRA plans to fund 50% of its budget from the industry, with the remaining 50% being funded by the government. Therefore IFSRA proposes to raise €19.6 million from industry in 2004. The insurance industry has been asked to fund €3.8m of this total. This is lower than the figure of €4.6m that had been anticipated.
The 50:50 split is in line with submissions made by industry bodies such as Financial Services Ireland and IBEC. IFSRA has indicated that to provide the industry with some certainty of future cost levels it intends to maintain this split at approximately 50:50 for 2005 and 2006.
During the consultation process of particular interest to cross-border insurers has been the question of who should and should not fund IFSRA’s costs associated with protecting the Irish consumer. In relation to this IFSRA commented that the costs associated with “public good” work, such as consumer education, are significantly less than the 50% of the overall budget and it is only if a decision is taken to move from 50% industry funding that this issue arises. Hmmm.
Split of funding costs between sectors
Broadly speaking the percentage splits reflect each sector’s share of the costs IFSRA expects to incur in regulating that particular sector. The breakdown of funding requirements by sector for 2004 are shown in the table below.
|
Description |
Total |
Total |
|
Credit Institutions |
6,000 |
30.6 |
|
Insurance Undertakings |
3,800 |
19.4 |
|
Intermediary Firms |
2,650 |
13.5 |
|
Securities & Investment Firms |
2,145 |
10.9 |
|
Collective Investment Schemes (CIS) & Service Providers to CIS |
3,690 |
18.9 |
|
Credit Unions |
1,000 |
5.1 |
|
Moneylenders |
125 |
0.6 |
|
Approved Professional Bodies |
80 |
0.4 |
|
Exchanges |
90 |
0.5 |
|
Bureaux de Change |
20 |
0.1 |
|
Total |
19,600 |
100.0 |
IFSRA have stated a desire to split costs according to the sectoral cost of regulation rather than on ability to pay. Only time will tell what the implication of this will be on cross-border insurers however the principle should be broadly welcomed as it should help to avoid cross-border insurers funding the regulation of, say, domestic intermediaries and other sectors.
Calculation of Costs for each Insurance Company
IFSRA have stated that it is not their intention to differentiate companies within a sector. However IFSRA have made a special dispensation to the insurance sector and has proposed splitting the calculation of levies between life and non-life insurers. IFSRA have provided no information on how the total levy in insurers of €3.8m will be split between the life and non life insurers.
There will be no differentiation in calculation approach between domestic and cross border insurers.
The general approach being proposed is to differentiate between firms in a sector according to “measures of activity” e.g. turnover, regulatory capital. For the insurance sector IFSRA have stated that they are positively disposed to a premium income measure being used, and that this might perhaps be an Annual Premium Equivalent (APE) measure. However confusingly for the cross-border companies this is refered to as Irish risk business APE.
Other measures submitted by the industry including policy case count, and type of distribution were dismissed by IFSRA.
As had been expected, IFSRA have indicated that there will be no cap on the levy. However there will be a scaled structure to the the levy in an attempt to ensure that the increase in the charge reflects the increase in regulatory work. This will be bad news by the larger insurers who benefit from the current cap.
IFSRA have indicated that there will be minimum levies applied to each regulated entity, and that the minimum charge will be set at a level which is proportionate to the levy being charged across the range of entities in that sector and is appropriate to that type of firm. No explicit statement has been made on what level this minimum charge might be set at.
IFSRA have indicated that they will be discontinuing the requirement for an application fee for start-up authorisations. This means that the costs to IFSRA of processing insurance company applications will need to be funded out of levies on existing insurance companies.
Impact on International Competitiveness
Within its response, IFSRA has acknowledged the need to ensure that levies imposed by the regulator do not damage Ireland’s international competitiveness and mentioned that they did not believe that the size of levies would make Ireland any less competitive that Ireland’s main European competitors such as Luxembourg.
Transparency and accountability
A common theme made within submissions from the industry was for transparency and accountability within the IFSRA budget. Within their response IFSRA appear to have set out a reasonable number of steps to help address this concern - annual reporting, industry surveys, consultative panels etc. These should go so some way in meeting the need but concerns will no doubt remain amongst the industry that these are passive rather intrusive means of addressing accountability.
Duncan Robertson
Director and Actuary
Boal & Co
26th May, 2004
About Boal & Co
Boal & Co (Ireland) is the Irish member firm of Milliman Global, an international organisation of actuarial and consulting firms represented in major countries and principal cities worldwide (www.millimanglobal.com). Milliman Global employs more than 2,600 people, with over 100 offices in 33 countries. Milliman Global is composed of consulting firms recognised as leaders in their respective countries, providing international resources and capability suited to international client needs.
Boal & Co have been providing specialist actuarial consultancy services to the international life assurance industry since 1995. Our team comprises qualified actuaries with extensive experience of the offshore business world. We operate out of offices in Dublin and the Isle of Man, and additionally advise life companies in other offshore centres, including Luxembourg and the Channel Islands. We currently provide appointed actuary services to three companies in Ireland, and also to a number of companies in the UK and Isle of Man. Our three Irish Appointed Actuary clients are subsidiaries of Italian, Swiss and Swedish parent companies. Our client companies transact business in:
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