The New Insurance Core Principles: How do they operate in practice?Round Table: Implications for the Supervisory Body

ICPs, EIOPA & Solvency II

Manuela ZweimuellerEIOPA External Relations

ASSAL Conference, Guayaquil, Ecuador24 April 2012

2

Outline

1. Current regulatory environment in Europe The ESAs: New regulatory and supervisory landscape – New

responsibilities, new challenges ESRB – Ensuring financial stability From SI to SII – The final countdown

2. SII as the practical implementation of the new ICPs Selected examples Implementation challenges

24 April 2012

3

Legal Status

• European Union body with legal personality as well as administrative/financial autonomy

• Autonomous budget - revenues from national authorities and EU Budget

• Accountable to EU institutions

• First Chairman: Gabriel Bernardino (1 March)

• First Executive Director: Carlos Montalvo (1 April)

24 April 2012

4

EIOPA’s Mission

“Protect the public interest by contributing

to the short, medium and long–term stability and effectiveness of the financial system, for

the Union economy, its citizens and businesses.”

24 April 2012

Improve functioning of financial markets, incl. a sound effective and consistent level of regulation and supervision

Ensure integrity, transparency, efficiency and orderly functioning of financial markets

Ensure a stable & effective financial system

Strengthen international supervisory coordination

Prevent regulatory arbitrage and promote equal conditions of competition

Ensure appropriate & sound regulation and supervision of risk taking by the (re)insurance and occupational pension industry

Enhanced customer protection

EIOPA’s key objectives

524 April 2012

6

EIOPA’s Powers Art 8 (2)

Develop draft regulatory technical & implementing standards

Issue guidelines/recommendations regarding consistent, efficient and effective supervisory practices

Take individual decisions addressed to CAs or financial institutions Issue opinions to the European Parliament/Council/Commission Collect necessary information concerning financial institutions Develop common methodologies for assessing the effect of product

characteristics/distribution processes on the financial position of institutions and on consumer protection

Provide a centrally accessible data base of registered financial institutions

24 April 2012

7

Tools• Member in Colleges of supervisors

• Expert groups and committees• Insurance/reinsurance and occupational pensions

stakeholder groups• Peer Reviews• Impact Assessment/Consultation• Stress Testing• Monitor and assess market development/Economic

analyses of markets

• Sectoral and cross-sectoral training programmes

24 April 2012

8

Working Groups

BOS

National supervision

ED

Chair

Staff

European and national activity

24 April 2012

EIOPA and national supervisors as part of …

European System of Financial Supervision

ECB Council (with insurance and

securities alternates where necessary)

Chairs of EBA, EIOPA & ESMA

European Commission

European Systemic Risk Board (ESRB) – macro view

European Banking Authority

(EBA)

European Securities and Markets Authority(ESMA)

National BankingSupervisors

National Insurance and Pension Supervisors

National SecuritiesSupervisors

European Insurance and Occupational Pensions Authority (EIOPA)

Non-voting:Representative of the

national supervisor(s) per Member State + EFC

President + + +

European Supervisory Authorities and National Supervision – micro view

924 April 2012

Solvency ISolvency I• Framework dates from the

1970s• 14 Directives• ‘Prudent’ valuation of

liabilities reflect local accounting practices, non-harmonised valuation of TP

• Simple ‘volume-based’ capital requirements

• Asset risk managed by quantitative restrictions

• Diverging supervisory practices

Solvency IISolvency II• Three pillar structure• A risk-based approach• Unified legislative basis for pruden-

tial regulation of insurers & r/i• Employs Lamfalussy arrangements• Non-zero failure regime (explicit

ruin probability)• Two capital requirements• Market consistent valuation• Importance of risk management• Streamlined group supervision

Developing the regulatory framework for Solvency II

1024 April 2012

EIOPA is currently working on +/- 50 sets of draft guidelines and standards

• Areas of standards and guidelines: Valuation of assets and liabilities including technical provisions Solvency capital requirements Own funds Internal models Group supervision Supervisory transparency and accountability Supervisory reporting and public disclosure Governance ORSA Supervisory review process Capital add-ons Extension of recovery period (“Pillar 2 dampener”) Finite reinsurance Special purpose vehicles Repackaged loan investments

12

Single rulebook

24 April 2012

ECON vote on OMDII 21/03/12

Vote EU Parliament on OMDIIJuly (Sept.)

Trialogue on OMDII (April- June)

“Level 1”

Draft COM proposal forimplementing measures

Draft standards and guidelines by EIOPA

“Level 2”

“Level 3”

Solvency will enter into force in 2014 (“phase-in” in 2013)

14

Outline

1. Current regulatory environment in Europe The ESAs: New regulatory and supervisory landscape – New

responsibilities, new challenges ESRB – Ensuring financial stability From SI to SII – The final countdown

2. SII as the practical implementation of the new ICPs Selected examples Implementation challenges

24 April 2012

15

New ICPs: Implications for the Supervisor - Scope

24 April 2012

17

New ICPs: Implications for the Supervisor - Scope

24 April 2012

EIOPA Financial Stability Report

21

New ICPs: Implications for the Supervisor

24 April 2012

23

New ICPs: Implications for the Supervisor - Scope

International aspect:

ComFrame

24 April 2012

25

Rights and duties of the Group Supervisor in SII (Art. 248)(a) coordination of the gathering and dissemination of [...] information for going concern and emergency situations, including the dissemination of information which is of importance for the supervisory task of a supervisory authority;

Facilitation of group supervision tasks through establishment of a college, chaired by the GS

(b) supervisory review and assessment of the financial situation of the group;(c) assessment of compliance of the group with the rules on solvency and of risk concentration and intra-group transactions [...];(d) assessment of the system of governance of the group, [...] and of whether the members of the administrative, management or supervisory body of the participating [...] (are fit and proper);(e) planning and coordination, [...] of supervisory activities in going-concern as well as in emergency situations, in cooperation with the supervisory authorities concerned [...];(f) other tasks, measures and decisions assigned to the group supervisor by this Directive or deriving from the application of this Directive, in particular leading the process for validation of any internal model at group level [...] and leading the process for permitting the application of the regime established in Articles 237 to 240 (groups with centralized risk management).

24 April 2012

30

Implementation challenges (1)SII as the practical implementation of the new ICPs

• Implementation: Task of the national supervisor• Several elements of SII not yet fully available but FSAP

assessments already focus on new ICPsExamples of national implementation of some of the SII elements:oUK enhancements („handbook“) such as on Resilience Capital, ICAS, Risk Management, ARROW, Realistic balance SheetsoBaFin circular on MaRisk

• Best to reflect ICPs when considering enhancements of the current system

• In EU/EEA, limited implementation flexibility as SII strives for a harmonized regime in the internal marketoProportionality principle contained in both systems

24 April 2012

31

• ICPs: Major enhancements on o Corporate Governanceo Risk Management o Group-wide Supervisiono Macroprudential Surveillance

• Well reflected in SII so that this should not cause any problems in implementation of the new ICPs

• For companies & supervisors alike: Time needed to understand the SII requirements and their operational implementationo Pillar II and Pillar III (ORSA, Governance, disclosure) o Training, Human resources (supervisory skill and experience)o IT, Data collection

Implementation challenges (1)SII as the practical implementation of the new ICPs

24 April 2012

Thank you

For additional questions please contact:Dr. Manuela Zweimueller, External Relationsexternal.relations@eiopa.europa.euphone: +49-69-95111946