THE CENTRAL BANK has fined the European life assurance and pensions arm of the AXA group €3,640,000 and reprimanded the insurance company for failures in handling conflicts of interest, corporate governance and risk management.
The Central Bank started an investigation into AXA Life Europe DAC (ALE) as it became aware in 2018 that the firm may not have updated 30,000 German policies to disclose the conditional nature of an agreement with its parent company intended to ensure the firm had the resources to pay all outstanding policy holder claims.
ALE’s German branch was established in 2006 to sell the TwinStar insurance product, but ALE stopped underwriting new TwinStar policies in 2012, and closed the branch in 2014.
The agreement between the parent company, AXA S.A, and ALE was a Parental Claims Guarantee that was made as ALE could not participate in the insolvency protection scheme that covered its German counterparts.
It was never called upon, and a replacement guarantee has since been put in place.
However, in 2006 the German Federal Financial Supervisory Authority (BaFin) wrote to ALE’s German branch to express their concern that references to the PCG in some policy documentation provided to customers suggested greater security than what was really being provided.
In reality, the agreement was conditional and could terminate automatically if certain conditions were met.
Although this was made clear when policies were sold from 2008 onwards, the customers who purchased policies in 2006 and 2007 may have not been updated to make this disclosure, despite the letter from BaFin, the Central Bank found.
In the course of its investigation the Central Bank discovered that the firm had not put into place a process to manage and report risks arising from from 30,000 TwinStar policies that were sold in Germany in 2006 to 2007.
They further found that in 80% of those policies, it was not made clear that the PCG was subject to conditions.
Further investigation revealed that ALE failed to establish effective conflict of interest policies and procedures and that it failed to conduct an adequate assessment of potential conflicts of interest when the board considered issues related to the PCG in 2018.
The Central Bank initially imposed a fine of €5,200,000 which was reduced in accordance with an early settlement discount scheme.
The Central Bank’s Director of Enforcement and Anti-Money Laundering, Seána Cunningham said that it is important that firms assess and manage the risk they are exposed to so they can fulfil the commitments they have made to consumers.
“ALE’s weak internal control framework meant that it failed to identify and monitor a cohort of policies in relation to which policy related documentation was unclear, despite having been made aware of concerns in this regard. This failure meant that ALE was unable to inform its policyholders of information which was relevant to them,” she further stated.
Cunningham also said it is crucial that conflicts of interest are identified and dealt with appropriately to maintain a firm’s integrity on the market.
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