New Insurance Law transposes Solvency II Directive

The Cyprus Parliament has approved a new law and regulations on Insurance Services (“The Insurance and Reinsurance Services and Other Related Issues Law of 2016” and “The Insurance and Reinsurance Services and Other Related Issues Regulations of 2016”). The new legislation repeals and replaces the existing legislation of 2002, in line with the EU Directive 2009/138 (“Solvency II” Directive”) as amended by Directive 2014/51/EU (“Omnibus II”) on the taking-up and pursuit of the business of insurance and reinsurance.

The aim of the new legislation, that reflects the structure of the said directive, is to introduce a sound and robust prudential framework for insurance firms in Cyprus, including quantitative, governance and reporting rules, thus ensuring the financial soundness of insurance companies so that they can cover risks in difficult periods.

It is noted that the EU Solvency II framework transposed in Cyprus law, is divided into the following three pillars:

• The first pillar sets out quantitative requirements, including the rules to value assets and liabilities (technical provisions), to calculate capital requirements and to identify eligible own funds to cover those requirements;
• The second pillar sets out requirements for risk management, governance, as well as the details of the supervisory process, thus ensuring that the regulatory framework is combined with each undertaking’s own risk-management system and informs business decisions;
• The third pillar addresses transparency, reporting to the Supervisory Authority (Superintendent of Insurance) and disclosure to the public, thereby enhancing market discipline and increasing comparability, in an effort to promote competition.