Italy: IVASS reviews the regulatory framework for products linked to shares and indices | Hogan Lovells


On March 11, 2022, IVASS launched a public consultation on a draft regulation that would introduce new provisions governing unit-linked and index-linked policies issued by Italian and foreign insurance companies. On the same day, IVASS published a discussion paper on the adoption of regulatory measures to innovate the Italian regulatory framework for life insurance products, in order to obtain observations from market players on certain topics to guide the future actions of IVASS. Both public consultations will be open until June 9, 2022.

On March 11, 2022, IVASS launched a public consultation on a draft Related Products Regulation (the “Draft regulation”), aimed at setting the new rules governing linked insurance contracts by updating – in accordance with new European and national legislation – the provisions contained in ISVAP circular no. 474 of February 21, 2002 and in ISVAP regulation no. 32 of 11 June 2009, respectively governing insurance products whose benefits are directly linked to the value of the assets contained in an internal fund held by the insurance company or to units in a collective investment undertaking (contracts in units of account) or in an equity index or other reference value than those mentioned above (indexed contracts).

  • Goal: a complete overhaul of the current regulatory framework on tied products has been long awaited by the market given that the regulations currently in force are no longer aligned with the Solvency II Directive and the associated implementing rules. In accordance with the principles inspired by Solvency II, including the freedom of investment of insurance companies to be exercised in accordance with the principle of prudence, the IVASS confirms its power to limit by regulation the types of underlying assets or the values benchmark for investment-linked products where the risk is borne by a policyholder who is a natural person.

  • Scope: the draft regulation would apply to (i) Italian insurance companies, (ii) EU insurance companies authorized to operate in Italy under the right of establishment or the freedom to provide services, except for certain obligations related to mandatory internal fund documents, (iii) Italian branches of insurance undertakings having their registered office in a third country and (iv) Italian ultimate parent insurance undertakings.

With regard to EU insurance companies operating in Italy, IVASS considers the identification of the provisions applicable to them as particularly relevant, given the objective of ensuring adequate conditions of competition between Italian players and other Member States who place related products on the national market, these provisions will therefore be included in the list of provisions of general interest for insurance undertakings.

Demographic Risk Requirement Assessment: according to the draft regulation, insurance companies would be required to have a sufficiently structured and adequate internal process for the assessment and determination of demographic risk, to which the key functions in their respective areas of responsibility must contribute. In accordance with the provisions relating to product monitoring and governance, the compliance function would be assigned an important role, being responsible for verifying – within the framework of the summary report to be sent annually to the administrative body, as provided for by the IVASS Implementing Provisions on Corporate Governance – that the demographic risk assessment process has been completed.

  • Insurance contracts linked to internal funds: with regard to the authorized investments and the associated limits, the provisions provided for by the draft regulation require the consistency of the investments of the insurance company with the specific policy concerned, with the adequate control of the risks within the system of risk management and with the need to preserve their liquidity so as not to compromise the company’s obligation to liquidate the insured benefits according to the insurance conditions. The assessment of the liquidity of the financial instruments in which the company’s assets are invested takes on particular importance, taking into account a series of identified parameters (in terms of volume, frequency and entity of exchanges, objectivity prices and actual realization on the market, trend of purchase and sale prices and corresponding comparability, disclosure of prices through reliable and verifiable sources of information). The main interventions of the draft IVASS regulations in this regard relate to: (i) rating, (ii) investment limits, (iii) investment limits of pension policies and (iv) regulation of internal funds.

  • Insurance contracts directly linked to undertakings for collective investment in transferable securities (“UCITS”): in the case of contracts directly linked to UCITS, regulatory interventions aim to ensure equal opportunities with financial sector products, due to the contiguity of the markets, by ensuring overall consistency of the regulations provided for unitary contracts both at level in the case of direct attachment to UCITS and in the case of internal funds. Particular attention is paid to management fees: in this respect, the application of a management fee by the company would be authorized if an efficient management service is provided on the basis of an investment strategy, consistent with predefined risk/return objectives. It is also expected that the management service – which includes at least the backup and control activity – is indicated in the general conditions of the insurance policy according to predetermined and verifiable methodologies and parameters and that it is carried out , in any event, under the best conditions in the interest of the insured. IVASS also considers it important that the company ensures, with a view to protecting the interests of the insured, that the costs are contained and that the commissions applied are such that they do not compromise the expected returns of the investment product. insurance based.

  • Indexed contracts: the existing regulatory provisions concerning index-linked contracts would be adapted taking into account the changes made with the national implementation of the Solvency II framework. The category of eligible indices would also be expanded to include financial indices governed by the Bank of Italy Collective Investment Management Regulation, to ensure consistency with this regulatory framework. In particular, with regard to financial indices, attention should be paid to: (i) their adequate diversification; (ii) if they represent an adequate reference for the market to which they refer; (iii) the frequency with which the index is rebalanced; (iv) methodologies for selecting and rebalancing individual components; and (v) the applicable publication regime.

In accordance with the draft regulation, the new provisions would apply to unit-linked and index-linked contracts entered into after the date of entry into force of the draft regulation, regardless of the form of the insurance investment product (for example, multiline or hybrid). Companies would be required to adapt the rules for pre-existing internal funds to the new provisions within six months of the entry into force of the draft rules. The current regulatory provisions concerning unit and index contracts would also be repealed by the draft regulation.

In addition to the above, on the same day, IVASS published a Discussion Paper on Preliminary Considerations for Future Regulatory Actions by IVASS on Life Insurance Products (the “Discussion Paper“), aimed at obtaining feedback from market participants (including professors and consultants) on the following aspects: (i) the development of proposals for regulatory interventions for the development of new life insurance products, also on the basis of the experiences of other European countries in the insurance markets; (ii) determine the modalities according to which insurance companies could propose to policyholders modifications to the rule for determining the average rate of return of the segregated fund (Separate Management) to which the contracts are linked, providing for the application of the profit fund (Fondo Utili) and (iii) how to establish demographic risk coverage in class III insurance products.

Next steps

Public consultations on the draft regulation and on the working document will be open until June 9, 2022 and we are examining them in detail with the aim of submitting comments to the Italian regulator.

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