Alain Degroide Head of Unit Insurance Supervision
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Risk Based Supervision Alain Degroide Head of Unit – Insurance Supervision 12-03-2019
Transcript of Alain Degroide Head of Unit Insurance Supervision
Risk Based Supervision
Alain Degroide Head of Unit – Insurance Supervision
12-03-2019
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Content
1. The Belgian insurance market
2. About Solvency II
3. Risk based supervisory approach
4. Prudential supervisory tools
5. On-site inspections
6. Accredited auditors - Belgian specificity
7. Reporting to the NBB
8. Specific point of attention – System of governance
9. Results of actions undertaken
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1. The Belgian insurance market
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Overview (December 31, 2017)
► 68 undertakings
● 11 life, 34 non life, 22 composite insurers and 1
reinsurance company
► Key figures
● Total assets € 321,2 billion
● Total TP € 260,7 billion
● Total eligible amount of own funds € 33,9 billion
Regulatory perspective : cover the solvency
capital requirements (SCR)
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2. About Solvency II
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Major topics
Insurance supervision: solo and groups
Focus on firm’s
responsibility
Convergence of
supervisory practices
Convergence of
supervisory reporting
More pressure from rating
agencies, capital markets
Total balance sheet
approach
Market-consistent
valuation (fair value)
Validation of internal
models
Quantitative requirements
Technical provisions Capital requirements Prudent person principle
(investments)
Own funds
Qualitative
requirements
Internal control and risk
management Supervisory review
process (qualitative & quantitative)
Reporting
Supervisory reporting
Public disclosure
Market discipline
Pillar 1: Pillar 2: Pillar 3:
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► Période transitoire et stress tests 2014
● Toutes les dispositions réglementaires pas encore
connues à ce moment
► Constatations
● Conclusions SI et SII contradictoires
● Pas de confort dans les chiffres
● Granularité
Phase préparatoire - 1ères constatations
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3. Risk based supervisory approach
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Main Objectives
► Macroprudential level
● Safeguard the stability and the proper functioning of the
financial system
► Microprudential level
● Supervision of the insurance or reinsurance undertakings
operating in Belgium
● Ensure the protection of the policyholders, the persons
insured, and the beneficiaries of insurance contracts
Legal framework – law of 13 March 2016 on the legal status and
supervision of insurance or reinsurance companies (transposition of
EU regulation), NBB circulars and guidelines
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► Contrôle des entreprises adapté en fonction
de leurs risques
● First line assessment
● Distinction
Entreprises de type systémique = suivi régulier
Autres entreprises = cycle de contrôle de 3 ans
► Surveillance rapprochée
● Entreprises identifiées « à problèmes majeurs »
Au niveau de la gouvernance
Au niveau de la valorisation
Au niveau du ratio SCR
Principes directeurs
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Framework
Supervisory tools (procedures, scorecard…)
Intensive Care
First Line Assessment (FLA)
International &
Local Companies
Supervision
(ILCS)
Large
Companies
Supervision
(LCS)
Global
Companies
Supervision
(GCS)
Coverage = all undertakings
Ad-hoc
72 undertakings 5 insurance groups 11 undertakings
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Major Topics
► Business model and profitability
► System of governance
● See slide 43
► Risk management
● Risk profile, risk appetite, risk assessment (ORSA)
● Investments and ALM
Prudent person
Regulatory capital consumption
● Capital management
● Business continuity and IT infrastructure
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Major Topics (Cont.)
► Technical provisions (life/non life)
● Adequate, reliable and valuated with appropriate
techniques?
● Data quality
► Solvency position
● Regulatory perspective : OF/SCR ratio
● Appropriate valuation?
● Appropriate risk mitigation techniques?
● Supervisory assessment and capital add-ons
► Group supervision
● Applicability domain
● EU/International college meetings
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Supervisory process
Action plan
Risk based assessment
Scorecard
Prioritization
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Macroeconomic and business environment
• Italy / Hard Brexit
•Trade policies
Fully-fledged materialisation of
economic policy and political risks
•Brutal market corrections
• Increase of risk aversion (e.g. Turkey, EMEs)
•Abrupt increase in (EA) interest rates, or …
•… alternatively: Low for long
Market and interest
rate risks
•Residential: pockets of risks in a context of loosening credit standards
•Commercial Real estate
•Cyclical developments (NFCs)
•Debt level NFCs and Households (see residential) Financial and credit cycle
• IT and Cyber risks
•Shadow banking and Assets under management activities
Business environment financial sector
Uneven and uncertain growth
prospects
Asynchrone normalisation
monetary policy and bumpy spillovers
Gyration financial markets
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Financial
risks
Supervisory
policies &
process Organisational
Interest rate risks
1. Low yield
environment
2. Sudden and sharp
increase in IRR (~ liquidity risk)
1. SII review
3. Spread risk
4. Change to
Business Model
2. NBB Stress Test
2019
3. EIOPA Stress Test
2018 – follow up
4. IAIS ICS
5. IFRS 17
Insurance sector - Annual Risk Review
Implementation FSAP and EIOPA
recommendations
HORIZONTAL ISSUES: Geopolitical risks, AML/CFT , INSURTECH, IT/Cyber risks , Insurance Macro-framework and Quality assurance
5. Re-insurance risk
in context
Brexiteers
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Operational Process
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Operational Process (Cont.)
► Supervision approach ● Recurrent
● Risk based
● Event driven
► Dedicated teams
● Staff profile for each undertaking
legal,
financial and
actuarial experts
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Operational Process (Cont.)
► Recurrent
● QRT data quality & dissemination & analysis
● Analysis ORSA, RSR, …
● Analysis key figures (dashboard)
● Meetings
Periodical : CEO,CRO/CFO, AF, CO, IA,
accredited auditor
Ad-hoc: Chairman Board, CA, CR, ....
Other : CIO, CUO
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Operational Process (Cont.)
► Risk-based analysis
● Impact analysis spread Govies (VA)
● PPP, LAC DT, EPIFP, ...
● Business model & profitability
● Stress Tests
● Best estimate
Non life
Life (ESG, FDB, Lapse, contract boudaries.…)
● Reinsurance
● InsurTech, IT-risk, Cyber-risk
● Brexit
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Operational Process (Cont.)
► Event driven
● Fit & Proper
● Authorisation & extension of authorisations
● Strategic projects (merger /acquisition,…..)
● FOE/FOS and subsidiaries
● Outsourcing
● Accredited auditors
● ……
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4. Prudential supervisory tools
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Procedures
► Rationale
● Complexity of regulatory framework
National laws
European regulations
Royal decrees
Circulars
● Complexity of prudential supervisory tasks
► Objective
● Clear guidelines for every subject requesting NBB
assessment with respect to
Allocation of tasks/responsibilities among staff member
Link with the specific legal framework (per topic)
Internal process for BoD decision
Specific templates
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Scorecard
► Summarizes the results of the team’s analyse
● Top down
● Qualitative evaluation
● Structured and justified
Tool which objective consists in giving a clear and
unequivocal picture of the risk profile of an entity
based on a justified assessment of experts of the
NBB
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Scorecard (cont.)
► Input for the action plan
● Prioritization of actions (entities to be followed)
● Detection of subjects to be submitted to an
horizontal review
► Output of the analyses
● Follow-up of the entities
● Follow-up of actions taken By modifying the assessment
By adapting the justifications
● Facilitation of dialog with entities and external
auditors
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Scorecard (cont.)
► Similar structure as for the prudential reports ● SFCR (Solvency and Financial Condition Report)
● RSR (Regular Supervisory Report)
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Scorecard (cont.)
Evaluation Signification
At riskThe entity’s situation could lead the NBB to require the entity to
significantly modify its situation within the six months
Risky
The entity’s situation could lead the NBB to require the entity to submit
a recovery program in order to significantly modify its situation within
the year
To keep
watch
The entity’s situation could lead the NBB to require the entity a
significant improvement of its situation within the two following years
Under
control
The entity’s situation doesn’t require any action of the NBB even if the
situation shows the existence of risks
NA Not applicable
To be
analysed
Information available but not yet analysed due to the priorities contained
in the action plan of the NBB
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Scorecard (cont.)
► Source of information
● Analyses performed at Belgian level
Market analysis (on national level)
Analysis of the investment exposures and -vulnerabilities
● Data collected
Forward looking : balance sheet, own funds, detailed
information concerning the assets, premiums, claims,
expenses, open derivatives, interest rate, liquidity, …
Amortized cost approach: financial accounts,
technical/statistical/profitability information by LOB
Quantitative reporting:
Circular NBB_2016_03_FR (liquidity reporting)
Circular NBB_2016_04_FR (interest rate reporting)
Circular NBB_2016_10_FR (regular reporting)
Circular NBB_2016_23_FR (Financial stability reporting)
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Risk Matrix
► Prioritization of supervisory actions
● function of risk profile and impact of the entity on the
market
Impact
Ris
k
F
D
E
H
H L
L
B
C
A
► Risk
● Scorecard output
► Impact
● Clustering output
to be updated at
least annually
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5. On-site inspections
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On-site Inspections – Audit Universe
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On-site Inspections – methodology
PLA
NN
ING
phase
EX
EC
UT
ION
phase
RE
PO
RT
ING
phase
CLO
SIN
G-O
UT
(FO
LLO
W-U
P)
phase
PR
EP
AR
AT
ION
phase
► Circular NBB_2013_15
► NBB methodology
► Audit tool : Vision
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On-site Inspections – Internal Models
► Internal models ● Risk capital calculation for regulatory purposes
● Developed by the undertakings
● Needs to be validated by the regulator
Specific legal framework
Cooperation between home and host regulators (EU
colleges)
► NBB inspection ● Evaluation of model ability to accurately reflect risks
● For possible gaps: capital add-ons and remediation plans
► Internal model supervision ● Follow-up of requested remediation actions
● Approval with terms and conditions
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6. Accredited auditors - Belgian specifity
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Accredited Auditors
► Belgian specificity
● The prudential control framework gives a contributory
role to the appointed auditor
● Close cooperation with the off-site teams -> warning
function (whistle-blower)
► Appointed statutory auditors
● Appointment is subject to NBB approval
● Only auditors or audit firms accredited by the NBB
● Accreditation process regulated by the NBB
● Accreditation period: 6 years with possibility to apply for
a new period
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Accredited Auditors
► Extent of auditing works ● Review of the periodic information provided to the NBB
● Opinion on the data quality, accuracy of financial
statements and compliance to regulation
● Assessment of the internal control framework
● Special report on organisation, activity, financial
structure
► NBB quality review of appointed auditors ● On a yearly basis
● All auditors/audit firms covered
● Possibility to withdraw prior accreditation
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7. Reporting to the NBB
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► Rapports quantitatifs
● Voir slide 28
► Rapports qualitatifs généraux
● Regular Supervisory Report
● Solvency and Financial Condition Report (SFCR)
● Rapport ORSA
Rapports
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► Rapports nationaux complémentaires en matière de
gouvernance
● Rapport CD sur efficacité système de gouvernance
● Rapport d’activités fonction gestion des risques
● Rapport d’activités de la fonction actuarielle
● Rapport d’activités de la fonction audit interne
● Planning d’audit pour l’année suivante
● Rapport d’activités de la fonction de Compliance
● Planning monitoring fonction de Compliance pour
l’année suivante
● Rémunération des Identified Staff
Rapports
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► Rapports nationaux complémentaires en matière
de gouvernance (Cont.)
● Activités, fonctions, tâches opérationnelles
importantes ou critiques sous-traitées
● Prêts / Crédits/ garanties aux membres CA/CD
● Version actualisée des statuts
● Liste actualisée des dirigeants et des
responsables de fonctions de contrôle
indépendantes
● Rapport du CA relatif à l’évaluation du
fonctionnement de la fonction Compliance
● Etat et composition du capital
● Modification état et composition du capital
Rapports
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► Autres rapports
● Plan de participations bénéficiaires Vie
● Minor Model Change reporting
● Schéma standardisé relatif au calcul du SCR
● USP
● Rapport du responsable blanchiment
● Evaluation globale des risques AML
Rapports
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8. Specific point of attention - System of governance
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► 1. Structure de gestion
► 2. Qualités requises dirigeants et responsables de fonctions clé
► 3. Système de gestion des risques et ORSA
► 4. Structure organisationnelle et système de contrôle
► 5. Fonctions de contrôle indépendantes
► 6. Gestion financière
► 7. Sous-traitance
► 8. Rémunération
► 9. Intégrité (whistleblowing, anti-blanchiment, conflits d’intérêts)
► 10. Infrastructure informatique
► 11. Politique de continuité, plans d’urgence et redressement
► 12. Qualités requises des actionnaires et des associés
► 13. Aspects groupe
► 14. Evaluation par le CD efficacité du système de gouvernance
► 15. Reporting en matière de gouvernance
Système de gouvernance
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Concept de proportionnalité
► Critères d’appréciation
● Quantitatifs: taille de l’entreprise
Total de bilan inférieur ou égal à € 3 mds
Chiffre d’affaires (primes brutes d’assurance) < € 1 mrd
Risque opérationnel SCR <inférieur ou égal à € 40 mio
● Qualitatifs: nature et complexité des opérations d’assurance
ainsi que l’évolution attendue de son profil de risque et son
organisation interne
Branches d’assurances pratiquées, type de produits
commercialisés, caractère international des activités, etc.)
► Classification des entreprises et groupes
d’assurance
● Entreprises / groupes d’importance significative
● Entreprises / groupes d’importance moins significative
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Principales implications de la proportionnalité
Cumul de fonction de contrôle indépendante
► Fonctions de contrôle de deuxième ligne (conflits d’intérêts, F&P et disponibilité)
► Membre du CD et responsable d’une fonction de contrôle indépendante (si pas
responsable d’une fonction opérationnelle génératrice de risque)
Sous-traitance fonction de contrôle indépendante hors du
groupe
► Dans entreprises d’importance moins significative, sous-traitance d’une fonction de
contrôle au sein du groupe ou en externe permise en raison de la proportionnalité
► Dans les entreprises d’importance significative, sous-traitance d’une fonction de
contrôle uniquement au sein du groupe dans un objectif d’optimisation des coûts
Répartition des tâches entre membres du CD
► Significative = indépendance opérationnelle et hiérarchique entre fonctions de
contrôle et unités/fonctions opérationnelles => au niveau « N » et « N-1 »
► Moins significative = indépendance opérationnelle entre fonctions de contrôle et
unités/fonctions opérationnelles => niveau « N-1 » et relative liberté au niveau
« N » (CD)
Dérogation à la constitution d’un CD
Dérogation CRO “N-1”
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9. Results of actions undertaken
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► 41 entreprises sur les 79 existantes au 31/12/2015
soumises à des actions de la Banque
Assainissement du secteur
Mesure prise Nombre d’entreprises
Pilier 1
Renforcement des fonds propres 21
De-risking 18
Pilier 2
Comité de direction 10
Conseil d’administration 5
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Questions?
