Legal and regulatory updates

1. Interlocking ban criteria updated – 19 February 2024

On 16 February 2024 the Italian Insurance Supervisory Authority (IVASS), the Bank of Italy and the National Commission for Companies and the Stock Exchange (CONSOB), in agreement with the Italian Competition and Market Authority (AGCM), published a notice on their respective websites updating the application criteria (Criteria), first issued in 2012 and updated in 2018. The criteria relate to the application of the interlocking ban, pursuant to Article 36 of Law-Decree No. 201/2022 (Law-Decree).

The interlocking ban is the prohibition on taking up or holding office between competing companies or groups of companies operating in the credit, insurance or financial markets. The Criteria specify that the prohibition operates whenever one of the companies (or groups of companies) in which a person holds offices, has a total turnover, achieved at national level by the company or group to which it belongs, of at least EUR47 million. In 2018 this figure was reduced to EUR30 million.

To date, the revision of the Criteria is necessary to incorporate the new calculation method of the turnover of the undertakings, as amended by Article 16, paragraph, 2 of Law No. 287/1990 (Competition Law), to ensure that it continues to respond to logics consistent with those set forth in the competition rules, which the interlocking ban aims to protect.

Through this notice, the legislator has decided to replace the previous calculation method for banks and financial intermediaries based on the size of the intermediaries' assets with a new method based on operating income. With reference to these parties, the turnover is the sum of the income statement items listed and no longer one-tenth of the total assets of the balance sheet.

With regard to insurance undertakings, Article 16 paragraph 2 of the Competition Law specifies, in substantial continuity with the previous situation, that turnover is replaced by the value of gross premiums written. This includes all amounts collected or receivable in respect of insurance contracts entered into directly by the undertakings or on its behalf, including premiums ceded to underwriters, after deduction of any parafiscal taxes or levies collected on the amount of premiums or on the total volume.

All the amendments introduced to the Criteria are relevant for posts taken up or renewed after the date the update was published.

 

2. IVASS further reminder on new RUI web portal – 5 March 2024

On 5 March 2024 the Italian Insurance Regulatory Authority (IVASS) published a new reminder on its website reiterating that from the beginning of June, the new RUI portal will be operational. The portal allows intermediaries and insurance companies to enter and update data; for example, applications for registration, directly in the Register.

To access the new portal, IVASS states that it will be possible to use, at one's discretion, the digital identity (SPID), the national services card (CNS) or the electronic identity card (CIE), according to the methods indicated in the technical instructions that will be published on the Authority's website.

Intermediaries who are natural persons, on the other hand, even if they operate as sole proprietorships/businesses, do not have to proceed with prior accreditation on the Delegation Portal but will be able to access the new RUI Portal directly.

IVASS also informs that, to allow the transition from the old to the new Portal, as from 30 April 2024, it will no longer be possible to send applications by means of electronic form transmission (intelligent PDF) and the dedicated PEC box will be deactivated, and that, in addition, all requests for data entry and updating that reach the Institute by 30 April will be processed using the current method. After this date, it will be necessary to wait for the launch of the new Portal.

Finally, the manual for the use of the new RUI Portal will be made available close to its launch.

 

3. New thresholds for professional indemnity insurance for Intermediaries – 22 March 2024

On 21 March 2024 the Italian Insurance Regulatory Authority (IVASS) published on its website the Delegated Regulation (EU) no. 2024/896 (Delegated Regulation) of December 2023 issued by the European Parliament which amends IDD as regards to the base amounts for professional indemnity insurance and for financial capacity of insurance, reinsurance and ancillary insurance intermediaries.

Specifically, article 10, para. 4, of the IDD is modified as follows:

“4. Insurance and reinsurance intermediaries shall hold professional indemnity insurance covering the whole territory of the Union or some other comparable guarantee against liability arising from professional negligence, for at least EUR1,564,610 applying to each claim and in aggregate EUR2,315 610 per year for all claims, […]”; while paragraph 6, second subparagraph, point (b) of the same article as above is replaced by the following: “(b) a requirement for the intermediary to have financial capacity amounting, on a permanent basis, to 4 % of the sum of annual premiums received, subject to a minimum of EUR23,480”.

The new thresholds will be effective starting from 9 October 2024.

 

4. Withholding tax applicable on commissions paid to Intermediaries from 1 April 2024 – 26 March 2024

As of 1 April 2024, the provision of the fifth paragraph of Article 25 bis of Presidential Decree No. 600 of 29 September 1973 (“Common Provisions on Income Tax Assessment”), which exempted commissions paid to insurance agents, insurance brokers and general agents of insurance companies, from the application of withholding tax, will be repealed as a result of paragraphs 89 and 90 of Article 1 of Law No. 213 of 30 December 2023 (“Estimated budget of the State for the financial year 2024 and multi-year budget for the three-year period 2024-2026,” (Budget Law)).

ANIA (the National Association of Insurance Companies) has provided some preliminary clarifications on this matter with its own circular, No. 80 published on last 12 March (the Circular). Based on the Circular, all commissions paid during the insurance distribution relationship and originating from the relationship, including reimbursements of expenses related to the activity exercised, should be subject to withholding tax.

It would appear that the scope of application of the provisions in question would also extend to the commissions due to banks, financial intermediaries, payment institutions and bancoposta, when they distribute insurance products, as well as, presumably, also to individuals registered in Sections E and F of the Single Register of Insurance Intermediaries (RUI), when they intermediate insurance policies.

Some uncertainty would seem to persist with regard to subjects who, in addition to their typical principal activity, also engage in insurance distribution operating as insurance intermediaries on an ancillary basis. According to ANIA, similar uncertainties would not seem to exist for travel and tourism agencies subject to the withholding tax when they market insurance policies.

With respect to co-assurance relationships, the Association would seem to conclude that the party responsible for applying the withholding tax is the company responsible for paying commissions to the intermediary.

Again, according to the Association, the amount of commissions, however denominated, resulting from the accounting systems of insurance undertakings would be the basis for quantifying the taxable amount to be withheld.

In the case of commissions paid in foreign currency, the insurance company that has paid the commission in foreign currency will only make the payment once the currency conversion has taken place.

With regard to the methods of payment of the withholding tax, when commissions are directly withheld from the amount of the sums collected, the recipients have to remit to the commissioners the amount corresponding to the withholding tax and that, to calculate the terms by which the commissioners remit the sums to the Treasury, the withholding tax is deemed to have been paid in the month following the one in which the commissions were withheld by the commissioners. In other words, the withholding made on commissions in month one is deemed to have been made in month two and must be paid by the 16th day of month three.

Intermediaries, who distribute for insurance companies operating in Italy under the freedom to provide services, would seem to be excluded from all the above, since a prerequisite for the application of the rules is the existence of a territorial link with the state.

Finally, on the starting date of the repeal, ANIA emphasized that, in the absence of a specific transitional regime, commissions reported from April 2024 should be taken into account. Nevertheless, it suggests that companies adhere to the cash criterion, according to which the withholding tax should be applied to commissions paid as of 1 April next, given the revenue expectations resulting from the adoption of the Budget Law.

With recent circular dated 21 March 2024, the Inland Revenue Agency confirmed that:

• subjects registered under section D of the RUI are captured by the provisions of the Budget Law;
• all commissions perceived by intermediaries, including subjects registered in sections E and F of the RUI, are captured by the scope of application of the above said provisions;
• withholding tax must be applied by insurance companies at the time the payment of the commissions is made;
• all payments made starting from 1 April 2024 are captured by the provisions of the Budget Law;
• the rate of the withholding tax applicable is 50% of the commissions paid, save for the cases where the intermediaries declare to the insurance companies that they avail themselves of the services of employees and/or third parties: in this latter case, the rate applicable is 20% of the amount of the commissions.

 

5. IVASS news – 28 March 2024

The Italian Insurance Regulatory Authority (IVASS) published the following:

• Consultation Document no. 2/2024 on unit linked contracts (Consultation Document 2);
• Consultation Document no. 3/2024 amending and integrating ISVAP Regulation no. 38/2011 in matter of separately managed accounts (gestioni separate) for life insurance undertakings (Consultation Document 3);
• Letter to the Market of 27 March 2024 – IVASS expectations concerning product oversight and governance of insurance products (POG) (Letter).

Here we summarise IVASS’ publications.

Consultation Document 2

On 11 March 2022, IVASS launched a public consultation laying down provisions relating to linked contracts according to art. 41, paragraphs 1 and 2 of the Code of Private Insurances. During the consultation, closed on 9 June 2022, IVASS received a high number of comments and observations from stakeholders.

Based also on the comments received by stakeholders, IVASS decided to modify, integrate and confirm the provisions of the consultation document published in 2022.

With Consultation Document 2, which contains a draft regulation (Draft Regulation), IVASS intends to regulate linked policies, updating, in line with regulatory changes that have occurred at an European and national level, the provisions contained in Circular No. 474 of Feb. 21, 2002 and Regulation No. 32 of June 11, 2009. The provisions contain the regulation of insurance products linked to internal funds or UCITS and policies with benefits directly linked to a stock index or other reference values.

The Draft Regulation contained in Consultation Document 2 provides for the following:

• Part I: contains the general provisions, the sources of law and definitions, as well as its scope of application. In respect to the latter, the Draft Regulation, except for the provisions that provide otherwise, also applies to EU insurance undertakings operating in Italy under the freedom to provide services or the right of establishment regimes (articles 1, 2 and 3). Article 4 describes the characteristics of unit and index linked contracts, while article 5 provides for the evaluation of the demographic risk.
  
  
• Part II focuses entirely on unit linked products:
• In Chapter I, in particular, reference is made to Chapters III, IV and IV-bis and to Chapter V for the identification, respectively, of the characteristics of the assets contained in internal funds held by the insurance company and UCITS in the case of policies whose benefits are directly linked to them.
• Chapter II contains the provisions pertaining to the manner in which internal funds are established and the criteria for drafting the relevant regulations (Article 7), the minimal content of the regulations containing the criteria for the management of the fund or individual sub-funds (Art. 8), the manner and frequency of calculation of the value of the unit (art. 9), the criteria for the representation of expenses, direct and indirect, borne by the internal fund or individual sub-fund (art. 10). With particular regard to the overperformance commissions (art. 11), reference is made to the European guidelines on performance commissions of UCITS issued by ESMA and their transposition into the national framework. Article 12 also provides for the amendments to fund regulations, while articles 13 and 14, respectively, regulate the relationships between intermediaries and undertakings for the purposes of valuation of premiums paid and the payment of insurance benefits, and the accounting of the assets of each internal fund and of each individual sub-fund separate from that relating to the insurance company's other activities.
• Chapter III: provides for the types and for the limits on investments of the assets comprising the internal fund or individual sub-funds and refers, where relevant, to the instructions contained in the regulation on collective asset management issued by the Bank of Italy. Without prejudice to the need to ensure an adequate distribution of risks, the internal fund is allowed, for a maximum period of six months from the date of start of operations, to derogate from the investment limits indicated in the Draft Regulation (art. 15). The subsequent articles regulate in more detail the investment criteria to use with reference to listed financial instruments (art. 16), unlisted money market instruments (art. 17), listed derivative financial instruments (art. 18), unlisted derivative financial instruments (art. 19), unlisted financial instruments – for which the company is required to evaluate the degree of liquidity using specific parameters (art. 20) – investments in AIFs and UCITS (art. 21) and, finally, to other eligible assets (art. 22).
• Chapter IV: provides for limits on management of investments and concentration of risks, providing for general limits (art. 23) and specific limits, such as concentration limits for issuers (art. 24), bank deposits (art. 25), OTC derivative financial instruments (art. 26), overall investment limits (art. 27), investments in parts of open-ended UCITS (art. 28), limits on investments in unlisted financial instruments (art. 29), assets underlying derivative financial instruments (art. 30) and overall exposure in derivatives (art. 31).
• Chapter IV-bis: provides for exceptions to investment limits upon the occurrence of conditions specifically identified by regulatory provisions (Art. 31-bis) and indicates also specific safeguards for risk management of the undertaking (article 31-ter).
• Chapter V: regulates the investments of insurance contracts whose performance are directly linked to the value of UCITS units. In the event that the value of the insurance performance is directly linked to the units of more than one UCITS, the conditions of insurance will clearly define the composition, predefined or variable, of the basket of UCITS, the method of determining its value for the purpose of determining the insurance performance, as well as the type of risk that can occur with the basket (Art. 32). Furthermore, management commissions charged by insurance companies are allowed only if an effective management service is provided on the basis of an investment strategy, consistent with predefined risk-return objectives and will be identified in the conditions of insurance (art. 33).
• Chapter VI: provides for the asset and financial separation regime of the assets that are part of each internal fund or external UCITS (art. 34).
  
  
• Part III focuses on index linked products:
• Chapter I: sets out the requirements for financial indexes and other reference values to which the performance or surrender values relating to index-linked contracts can be linked (Art. 35) and the manner of indexing (Art. 36).
• Chapter II: contains the regulation of assets covering technical provisions (Art. 37).
  
  
• Part IV indicates that the new Draft Regulation applies only to the linked contracts concluded after its entry into force.

If the Draft Regulation enters into force, all insurance undertakings have to gradually comply with its provision within 12 months after its entry into force.

In addition, all the previous regulations in matter of unit and index linked are repealed once the Draft Regulation enters into force.

IVASS Circular no. 474/2002, which continues to produce effects only to contracts concluded before the entry into force of the Draft Regulation, is repealed as well.

Any comment or proposal may be sent to IVASS, by 27 May 2024, by mail, using the word table attached to Consultation Document 2.

Consultation Document 2 is available, in Italian, here.

Consultation Document 3

ISVAP Regulation No. 38/2011 (Regulation 38) provides for the constitution and management of separately managed accounts of life insurance undertakings. Its original wording indicates that the average rate of return of separately managed accounts will be determined based on a calculation criterion which provides for the allocation of all realized capital gains and losses to the return of the separately managed accounts in the same year of realization.

The economic and financial situation determined by a progressive and significant reduction of returns recorded over the years led IVASS to modify Regulation 38 and to introduce additional criteria for calculating the return rate of separately managed accounts. It allows undertakings to set aside net capital gains realized in favourable economic periods and allocate them in less favourable periods.

IVASS Order no. 68/2018 introduced amendments to allow insurance undertakings to provide for ways to determine the average rate of return of separately managed accounts that take into account the allocation of the net capital gains realized – following the sale of securities held in the separately managed accounts – in a special "profit fund," having the nature of a mathematical reserve.

The net capital gains set aside are fully allocated to insurance obligations provided for in the contracts within the maximum period of eight years from their realization. This produces an effect of stabilization of the returns over time.

The Order applies only for new contracts. The calculation methods of returns are indicated in the separately managed account regulation, which cannot be modified unilaterally by insurance undertakings, unless certain conditions occur (ie art. 6, para. 1, lett. g) of Regulation 38).

Based on the new provisions introduced in 2018, in the same separately managed account contracts may coexist to which two different criteria for determining the average rate of return apply (depending on whether in the respective contractual terms and conditions is provided for the profit fund or not).

Following a specific request from stakeholders, IVASS has focused on the possibility of extending profit funds to ongoing contracts, when specific conditions occur, to allow insurance companies to propose to policyholders of existing contracts to modify, on a consensual basis, the criteria for the calculation of the average rate of return, to introduce a profit fund.

With Consultation Document 3, which is a draft Order, IVASS intends to modify Regulation 38 introducing new provisions that will allow insurance companies, when specific conditions occur, to use the profit fund and the consequent methods of calculating the average rate of return of separately managed accounts even for ongoing contracts.

In particular, the draft Order contained in Consultation Document 3:

• modifies para. 3 of art. 14-bis of Regulation 38, extending to existing contracts the possibility to adopt the rules for the determination of the average rate of return linked to the presence of the profit fund, making reference to the newly introduced art. 14-sexies of the same regulation. This latter provides for the modalities and conditions that insurance companies must comply with when they intend to propose to policyholders an amendment to the regulation of the separately managed account and part of the policy’s condition to introduce the profit fund for existing contracts;
• introduces a new paragraph in article 14-ter of Regulation 38, to provide for the applicability of the information provided with respect to policyholders of insurance contracts with re-valuable benefits who have not consented to the modification of the rule for determining the average rate of return proposed by the company pursuant to the newly introduced article 14-sexies.

Any comment or proposal can be sent to IVASS, by 27 May 2024, to mail, using the word table attached to Consultation Document 3.

Letter to the Market

The Letter is the outcome of the public consultation started in 2023 by consultation document no. 8/2023.

This Letter aims to outline IVASS's POG expectations directed at insurance companies’ and manufacturers’ de facto intermediaries, to facilitate the uniform and correct application of the European and national regulatory framework.

As to the scope of application of the Letter, despite being addressed to insurance companies with legal seat in Italy and to establishments of extra-EU companies, IVASS anticipates that it will represent the content of the Letter to other EU insurance supervisors (home supervisory authorities of the companies operating in Italy under the right of establishment or the freedom to provide services regimes) to give Italian customers the same level of protection.

IVASS clarified that, considering that the expectations are aimed at strengthening the POG process and considering the comments made during the public consultation, the governance profiles of the POG process of companies with registered offices in other EEA states must be considered subject to the regulatory framework of the home authority.

In a nutshell, IVASS’s 15 expectations reagrding POG are:

1. The POG process is an essential part of the corporate governance of the company, of the system of management and controlling risks. It should be adequately considered in the organization of the company, in the distribution of the tasks and of the responsibilities of the operation structure and of the fundamental functions. In this respect, the administrative body of the company must have an adequate level of knowledge of the POG legislation to define the strategies of the corporate governance of the company and to verify that company implements the strategies.
2. The POG policy must include clear granular indications of the target market and indications on how the product tests have been carried out. In particular, the company’s targets with respect to the value for money of the product for the client must include assessments that the costs and the expenses of the products won’t jeopardize the expected financial performance of the IBIP.
3. The second level key functions of the company (with the exclusion of internal audit function) must evaluate the activities carried out by the operational units involved in the POG process through a complete and autonomous assessment. For the approval process of new products, a specific committee made of the above indicated fundamental functions must be set up.
4. In the company’s risk assessment framework and in the risk management system, the administrative body must consider the market conduct risks related to the POG, also by identifying risk targets and tolerance thresholds, in any case in the light of the need of minimizing compliance risk.
5. The definition of the target market must be carried out with an adequate level of granularity, with respect to both the factors provided by article 5 of Delegated Regulation (EU) 2017/2358 and other reference values considered relevant for the evaluation.
6. The insurance company must identify a sufficiently graduated scale of complexity in which to place IBIPs. The placement of the IBIP in the scale must be carried out by taking into account the IBIPs’ features and its comprehensibility by the client.
7. With respect to MOP (multi-options products), IVASS expects that the number of options is critically evaluated and that the definition of the target market is made through combinations of predefined options which reproduce the segmentation of the target market.
8. The product test must be carried out separately (although consistently with) the sustainability and profitability analysis carried out by the company.
9. The product test must be:
• defined and developed consistently with the granularity of the target market and must be grounded on realistic data in line with the company’s portfolio;
• defined formally in details and contain metrics and thresholds whose unfulfillment is followed by adequate remedial actions (escalation, amendment or not approval of the product); and
• carried out in a traceable way.
10. The profit test from the perspective of the client must be central in the product test process. The profit test must consider jointly the profit, the costs for the client in the development of the product and, where relevant, the impact of inflation. With respect to MOPs, the profit test must be developed considering the combinations of the various investment options.
11. The profit test in the perspective of the client must produce a value which is adequate to the client, ie in line with the target market’s features, the client’s expectations of profits and their insurance needs, lacking which adequate measures must be adopted, including the non-commercialization of the product. The indexes used for the profit test in the perspective of the client must comply with the purposes which are generally attributed to the product test activity.
12. The test product must include a limited weighted qualitative component, in which:
    • only the elements in line with the target market’s needs are considered; and
    • the technical features of the product already considered in the quantitative analysis are disregarded, to avoid a double evaluation of the same component.
13. The product test activity must end with a final assessment determined by an evaluation system which must adequately integrate the findings of the various analysis carried out. In the final assessment, the quantitative analysis must have a significant weight, with the application of the blocking thresholds applied on the most relevant variables.
14. The monitoring and the review of the product must be carried out with a methodology consistent with the one used during the product testing to verify that it meets the features, needs and targets of the target market for which the product was created, by taking into account the experience gained by the product as compared to the evaluations made before its commercialization.
15. The insurance company must periodically review the IBIPs marketed before 1 October 2018 and the products no longer marketed for a number of years exceeding the relevant RHP (Recommended Holding Period).

 

6. IVASS further reminder on the upcoming deadlines for the new RUI web portal – 4 April 2024

On 29 March 2024 the Italian Insurance Regulatory Authority (IVASS) published on its website a reminder concerning the upcoming new RUI portal.

Specifically, IVASS reminded that the new Portal will be operational as of 4 June 2024 and will allow intermediaries and insurance companies, respectively, to directly enter into the Portal:

• their own and their collaborators' requests for registration
• requests for cancellation or transfer from one section to another of the RUI
• changes in personal details and all other communications provided for by IVASS Regulation no. 40/2018
• conferment and terminations of agency appointments or distribution agreements
• registration or cancellation of insurance producers
• the details of the person in charge of distribution

The Authority stated that as of 30 April 2025, it will no longer be possible to transmit requests and communications to IVASS. These PEC boxes will be deactivated:

• istanze.rui@pec.ivass.it used for the transmission of applications for registration and deregistration of intermediaries by means of an electronic template (s.c. intelligent PDF)
• incarichirui@pec.ivass.it used for communications from companies concerning distribution agreements
• domini.intermediari@pec.ivass.it used for communications from intermediaries concerning new websites
• variazioni.domini.intermediari@pec.ivass.it used for communications from intermediaries concerning changes to their websites

IVASS invites all applications and communications to be submitted by 30 April 2024.

From 4 June, then, it will be possible to send applications and communications via the new RUI portal.