Solvency ii Association1200 G Street NW Suite 800 Washington, DC 20005-6705 USA Tel: 202-449-9750 www.solvency-ii-associa

tion.com

Solvency I I News, February 2012

Dear member,

There is an interesting development.

For years, the United Kingdom was leading the Solvency I I developments in many aspects. After the veto of David Cameron some weeks ago, UK looks isolated and unable to influence the EU rules, putting its insurance industry at a competitive disadvantage.

Britain really wants to relax the capital treatment under Solvency I I of long-term life insurance contracts such as annuities that are mostly sold in the UK than in any other EU country. This has become really difficult now, as there is a “tit for tat” (equivalent retaliation) approach in the EU.

From the game theory, we know the rules: Unless provoked, always cooperate. I f provoked, retaliate.

Politicians…

EIOPA - the European Insurance and Occupational Pensions Authority has a hard time to decide what to do with the more than 3,000 comments that make clear the pension industry’s response to the challenge that a Solvency I I type regime should be applied to funded defined benefit pensions.

Pensions professionals try hard to avoid a regime designed for insurance companies.

There is another problem… there would not be enough actuaries in Europe to deal with the workload.

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The same time, Fitch Ratings believes that Solvency I I may significantly increase the capital and compliance burden of the European captive market.

Captives in the EU need better risk management and governance functions, better quality and / or additional etc.

The same time, we are expecting the report (ordered by the Dodd-Frank Act) from the US Federal Insurance Office (FIO) within the U.S. Department of Treasury, that will explain how the United States will modernize and improve insurance regulation.

The US insurance and reinsurance industry is concerned that the regulatory systems in other countries will put firms in the States at a disadvantage.

Dear member,

Today we must also remember the changes after the Omnibus 2 draft Directive. I t is time to understand better some important parts.

The Omnibus I I draft Directive amends important parts of the Solvency I I Directive:

1. The Omnibus I I draft Directive changes the implementation datefrom the 31st of October 2012 to the 1st of January 2013.

2. The Omnibus I I draft Directive replaces the “implementing measures” with the “delegated acts” and the “implementing technical standards”. Some months before, we were expecting Level 2 implementing measures that would take the form of either a Directive or a Regulation. After the Omnibus I I draft Directive we are expecting delegated acts and implementing technical standards.

3. The Omnibus I I draft Directive replaces all references to CEIOPS with references to EIOPA

4. The Omnibus I I draft Directive introduces new powers for EIOPA

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5. The Omnibus I I draft Directive gives to the European Commission the (discretionary) powers to defer the implementation of significant features of Solvency I I .

Experience of the financial crisis has exposed important failures in financial supervision. President Barroso therefore requested a group of high level experts, chaired by Mr Jacques de Larosière, to make proposals to strengthen European supervisory arrangements.

The Group presented its report on 25 February 2009.

Building on its recommendations, the Commission set out proposals for a new European financial supervisory architecture in its Communication to the Spring European Council of March 2009.

The Commission presented its ideas in more detail in its Communication of May 2009 which proposed:

-Establishing a European System of Financial Supervisors (ESFS), consisting of a network of national financial supervisors working in tandem with new European Supervisory Authorities (ESAs), created by transforming the existing European supervisory committees into a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a European Securities and Markets Authority (ESMA), thereby combining the advantages of an overarching European framework for financial supervision with the expertise of local micro-prudential supervisory bodies that are closest to the institutions operating in their jurisdictions; and

-Establishing a European Systemic Risk Board (ESRB), to monitor and assess potential threats to financial stability that arise from macro- economic developments and from developments within the financial system as a whole.

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To this end, the ESRB would provide an early warning of system-wide risks that may be building up and, where necessary, issue recommendations for action to deal with these risks.

The Communication also concluded that in order for the ESFS to work effectively, changes to the financial services legislation would be necessary, in particular to provide an appropriate scope to the more general powers provided for in the individual regulations establishing the authorities, ensuring a more harmonised set of financial rules through the possibility to develop draft technical standards and facilitate the sharing, where necessary, of micro-prudential information.

Consultation of the interested parties

Two open consultations were conducted in the development of these proposals.

Firstly, following the report of the high-level group chaired by Jacques de Larosière and the publication of the 4 March 2009 Commission Communication, the Commission organised a first consultation from 10 March to 10 April 2009 as input to its Communication on Financial Supervision in Europe published on 27 May 2009.

A summary of the public submissions received can be found at:

http://ec.europa.eu/internal_market/consultations/docs/2009/fin_sup ervision/summary_en.pdf

Secondly, from 27 May to 15 July 2009, the Commission organised another consultation, inviting all interested parties to comment on the more detailed reforms presented in the Communication on Financial Supervision in Europe of 27 May 2009.

The responses received were for the greater part supportive of the suggested reforms, with comments on detailed aspects of the proposed ESRB and ESFS.

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A summary of the public submissions received can be found at:

http://ec.europa.eu/internal_market/consultations/docs/2009/fin_sup ervision_may/replies_summary_en.pdf

Additionally, a Commission Services Staff Working Paper was published on 23 September 2009 to preview the possible areas where amendments to sectoral legislation may be necessary. The working paper can be found at:

http://ec.europa.eu/internal_market/finances/docs/committees/super vision/20090923/sec2009_1233_en.pdf

IMPACT ASSESSMENT

The May Commission Communication on Financial Supervision in Europe was accompanied by an impact assessment analysing the main policy options for establishing the ESFS and ESRB.

A second impact assessment accompanied the legislative proposals, examining the options in more detail.

The second impact assessment analysed the options for the appropriate powers for the authorities to work towards achieving a single set of harmonised rules and concluded that this capacity would be rightly limited to those areas to be defined in forthcoming sectoral legislation, and identified such potential areas.

Additionally, in developing the draft technical standards themselves, the authorities should undertake appropriate analysis of potential related costs and benefits and consult stakeholders before submitting them to the Commission.

The second impact assessment report is available at:

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http://ec.europa.eu/internal_market/finances/committees/index_en.h tm#package

LEGAL ELEMENTS OF THE PROPOSAL

Given that changes need to be introduced into existing Directives to ensure the development of a single rule book, an amending Directive is the most appropriate instrument. This amending Directive should have the same legal basis as the Directives it amends.

Transposition

Member States shall adopt and publish the laws, regulations and administrative provisions by 31 December 2012 at the latest.

They shall forthwith communicate to the Commission the text of those provisions and a correlation table between those provisions and this Directive.

They shall apply those provisions from 1 January 2013.

When Member States adopt those provisions, they shall contain a reference to this Directive or shall be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made.

Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive.

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Consultation Paper on the Proposal for Quantitative Reporting Templates for Financial Stability Purposes EIOPA_CP_11/ 011, 21 December 2011

EIOPA welcomes comments on the Consultation Paper on this proposal for quantitative reporting templates for financial stability purposes.

The consultation includes:- this Consultation Paper;- accompanying Spreadsheets, and LOGs;- a Template for Comments.

Publication of responses

All contributions received will be published following the close of the consultation, unless you request otherwise in the respective field in the template for comments.

A standard confidentiality statement in an email message will not be treated as a request for non disclosure.

A confidential response may be requested from us in accordance with EIOPA’s rules on public access to documents. We may consult you if we receive such a request. Any decision we make not to disclose the response is reviewable by EIOPA’s Board of Appeal and the European Ombudsman.

General Reporting Requirements for Financial Stability Analysis PurposesApplicability of financial stability add+on templates

The following entities shall submit the information contained in the quantitative reporting templates for financial stability:

1) Undertakings with more than EUR 6 bn in balance sheet total;

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2) Groups with assets with more than EUR 6 bn in balance sheet

total. In order to keep the sample composition more stable over

time,admission to and deletion from the sample shall be phased in andphased out. This would mean that groups/undertakings whose total balance sheet is close to the threshold (EUR 6 bn ) shall not switch inand out every other year.

Explanatory textApplicability of templates

Undertakings and groups with total balance sheet in excess of EUR 6 bn shall submit the information contained in the quantitative reporting template for financial stability.

Solo insurance undertakings and groups beyond the EUR 6 bn balance sheet total threshold shall submit the same information, on the highest possible level of consolidation, for financial stability purposes.

Any solo undertaking being member of a group which reports for financial stability analysis purposes in a consolidated manner (therefore including this very solo undertaking), shall not report (i.e. no double reporting from both a group and a solo undertaking).

For phasing in and out due the EUR 6 bn threshold the 6 months notice is a minimum. As the principle shall be transparent, candidates will have more time to prepare.

Overview on templates, applicability and frequency

QFS= applicable Quarterly financial stability information: AFS= applicable Annual financial stability informationR means that red and yellow marked part of the template is applicable S= applicable annually for solo undertakingsG = applicable annually for groupsQS = applicable quarterly for solo undertakings

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QG = applicable quarterly for groupsDS = publicly disclosed templates (annually), for solo undertakings DG = publicly disclosed templates (annually), for groupsRFF = applicable annually to each material ring_fenced fund, for soloundertakingsX means that the template is applicableE means that the template is applicable with possible exemptions

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To find more:https://eiopa.europa.eu/consultations/consultation-papers/index.html

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Solvency I I Speakers Bureau

The Solvency I I Association has established the Solvency I I Speakers Bureau for firms and organizations that want to access the expertise of Certified Solvency ii Professionals (CSiiPs) and Certified Solvency ii Equivalence Professionals (CSiiEPs).

The Solvency I I Association will be the liaison between our certified professionals and these organizations, at no cost. We strongly believe that this can be a great opportunity for both, our certified professionals and the organizers.

To learn more:www.solvency-ii-association.com/Solvency_II_Speakers_Bureau.html

Course TitleCertified Solvency ii Professional (CSiiP):

Preparing for the Solvency ii Directive of the EU (3 days)

Objectives:This course has been designed to provide with the

knowledge and skills needed to understand and support compliance with the Solvency ii

Directive of the European Union.

Target Audience:This course is intended for decision makers, managers,

professionals and consultants that:

A. Work in Insurance or Reinsurance firms of EEA countries.

B. Work in Groups - Financial Conglomerates (FC), Financial Holding Companies (FHC), Mixed Financial Holding Companies (MFHC), Insurance Holding Companies (IH C) - providing insurance and/ or reinsurance services in the EEA, whose parent is located in a country of

the EEA. Solvency ii Association

www.solvency-ii-association.com

C.Want to understand the challenges and the opportunities after the Solvency ii Directive.

This course is highly recommended for supervisors of EEA countries that want to understand how countries see Solvency I I as a Competitive Advantage.

This course is also recommended for all decision makers, managers, professionals and consultants of insurance and/ or reinsurance firms involved in risk and compliance management.

About the Course

INTRODUCTION The

European Union’s Legislative Process

Directives and Regulations

The Financial Services Action Plan (FSAP) of the EU

Extraterritorial Application of European Law

Extraterritorial Application of the Solvency I I Directive

Solvency ii and the Lamfalussy Process

Level 1: Framework Principles

Level 2: Detailed Technical MeasuresLevel 3: Strengthening Cooperation Among Regulators

Level 4: Enforcement Weaknesses of Solvency I From Solvency I to Solvency I I Solvency ii Players Solvency ii Objectives

THE SOLVENCY I I DIRECTIVE A Unified Legislative Basis for Prudential Regulation of

Insurers and Reinsurers Risk-Based Capital Allocation

Scope of the Application

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Important Definitions Value-at-Risk in Solvency I I Authorisation Corporate Governance Governance Functions Risk Management Corporate Governance and Risk Management - Level 2 Fit and proper requirements for persons who effectively

run the undertaking or have other key functions Internal Controls Internal Audit Actuarial Function Outsourcing Board of Directors: Role and Solvency ii Responsibilities 12 Principles – System of Governance (Level 2)

PILLAR 2 Supervisory Review Process (SRP) Focus on Risk Management and Operational Risk Own Risk and Solvency Assessment (ORSA) ORSA - The Internal Assessment Process ORSA - The Supervisory Tool ORSA - Not a Third Solvency Capital Requirement Capital add-on

PILLAR 3 Disclosure Requirements The Solvency and Financial Condition Report (SFC)

PILLAR I Valuation Of Assets And Liabilities Technical Provisions The Solvency Capital Requirement (SCR)

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The Value-at-Risk Measure Calibrated to a 99.5% Confidence Level over a 1-year Time Horizon

The Standard Approach The Internal Models The Collection of Additional H istorical Data External Data The Minimum Capital Requirement (MCR) Non-Compliance with the Minimum Capital

Requirement Non-Compliance with the Solvency Capital

Requirement Own Funds Investment Rules

INTERNAL MODEL APPROVAL CEIOPS Level 2 - Tests and Standards for Internal

Model Approval CEIOPS Level 2 - The procedure to be followed for the

approval of an internal model Internal Models Governance Group internal models Statistical quality standards Calibration and validation standards Documentation standards

SOLVENCY I I , GROUP SUPERVISION AND TH IRD COUNTRIES

Solvency I: Solo Plus Approach Group Supervision under Solvency I I Rights and duties of the group supervisor Group Solvency - Methods of calculation Method 1 (Default method): Accounting consolidation-

based method Method 2 (Alternative method): Deduction and

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Parent Undertakings Outside the Community - Verification of Equivalence

Parent Undertakings Outside the Community - Absence of Equivalence

The head of the group is in the EEA and the third country regime is not equivalent

The head of the group is in the EEA and the third country regime is equivalent

The head of the group is outside the EEA and the third country is not equivalent

The head of the group is outside the EEA and the third country regime is equivalent

Small and Medium-Sized Insurers: The Proportionality Principle

Captives and Solvency I I

EQUIVALENCE WITH SOLVENCY I I AROUND THE WORLD Solvency ii and Countries outside the European

Economic Area The International Association of Insurance Supervisors

(IAIS) The Swiss Solvency Test (SST) and Solvency ii: Solvency ii and the Offshore Financial Centers (OFCs) Solvency ii and the USA Solvency ii and the US National Association of Insurance

Commissioners (NAIC) - The Federal Insurance Office created under the Dodd-Frank Wall Street Reform and Consumer Protection Act in the USA, and the ORSA in the USA

FROM THE REINSURANCE DIRECTIVE TO THE SOLVENCY I I DIRECTIVE

Directive 2005/ 68/ EC of 16 November 2005 on Reinsurance - The Reinsurance Directive (RID)

CLOSING The Impact of Solvency ii Outside the EEA Providing Insurance Services to the European Client

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Competing with Banks Learning from the Basel ii Framework Regulatory Arbitrage: A Major Risk for Countries

that see Compliance as an Obligation, not an Opportunity

Basel I I , Basel I I I, Solvency I I and Regulatory Arbitrage

Challenges and Opportunities: What is next Regulatory Shopping after Solvency I I

To learn more about the online exam you may visit: www.solvency-ii- association.com/CSiiP_CSiiEP_Frequently_Asked_Questions.pdf

www.solvency-ii-association.com/CSiiP_CSiiEP_Certification_Steps.pdf

To learn more about the course:www.solvency-ii-association.com/Certified_Solvency_ii_Training.htm

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