4. Target level of the Funding

Target level of the Funding

When considering the proposed contribution under the Proposed Regulations, it is necessary to consider (i) whether any funds collected on an ex-ante basis should accrue until the amount reaches a specified target level; and (ii) if so, what that target level should be.

Basis for setting a target level of funding

Where an ex-ante financial contribution requirement is established, the Department takes the view that a target level of funding should be set for such a financial contribution requirement so that sufficient funds are specifically available for the purposes of providing compensation under the Act, relating to motor third party liability insurance carried on by “insurers (domestic)” in other EU/EEA Member States.

In determining the target level of funding required to cover cross-border MTPL risks under the Proposed Regulations, the Minister for Finance will have regard to a number of factors (including those set out under section 2A(3) of the 1964 Act). Certain key considerations include (i) the potential exposure of the sub-fund in the event of an insolvency or failure of an insurer (domestic) carrying on MTPL business on a cross-border basis; and (ii) previous experience in documented cases of insurance failures.

Accordingly, although TPs are not an estimate of the likely call on external funds, such as the ICF and the proposed sub-fund, but rather a measure of the current size of a company’s exposure to risk, the Department takes the view that TPs provide an reasonable objective basis on which to base any target level of funding under the Proposed Regulations.[2]

Ongoing review

The “home-based” regime under the Act is no longer confined to Irish risk business (and includes business carried on by Irish-authorised insurers on a cross-border basis). Accordingly, the Department is currently considering a mechanism to facilitate an annual review of the levy and target to accommodate any potential variation of the risk exposure from year to year, subject to an overall minimum target funding level. This reflects the open and dynamic nature of the internationally-traded insurance sector.