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The New Insurance Core Principles: How do they operate in practice? Round Table: Implications for the Supervisory Body I CPs, EIOPA & Solvency II. Manuela Zweimueller EIOPA External Relations ASSAL Conference, Guayaquil, Ecuador 24 April 2012. Outline. - PowerPoint PPT Presentation
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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
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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
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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
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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
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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).
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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
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• 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
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