Insurance Regulatory Insight Newsletter Sep/Oct 2015 · INSURANCE NEWSLETTER SEPTEMBER/OCTOBER 20 15 . ENTERPRISE RISK SOLUTIONS Regulatory Insight . Key Developments at a Glance

INSURANCE NEWSLETTER

SEPTEMBER/OCTOBER 2015

ENTERPRISE RISK SOLUTIONS

Regulatory Insight

Key Developments at a Glance

This newsletter provides information about key developments in insurance regulations worldwide. New articles are sorted by country and associated with keywords. Hyperlinks provide direct access to the information sources.

KEY DEVELOPMENTS

This month the OECD produced a report on the different regulation frameworks applied to the investment process of insurance companies and pension funds. The report concentrates on quantitative limits on portfolio allocation and considers the regulatory frameworks of over 60 countries (albeit containing multiple instances of the Solvency II framework from across the EU). The trend towards principles-based regulation for insurers is clearly evident, less so for the pension funds. The report is an interesting read. With the Solvency II implementation date of 1st January 2016 approaching Gabriel Bernardino, Chairman of EIOPA, has given two interviews. Whilst maintaining that successfully implementing Solvency II is EIOPA’s top priority he does discuss some of the challenges of the future, namely a post-implementation evaluation of Solvency II and ensuring convergence of supervisory practices. He also describes the Centre of Expertise in internal models that EIOPA has created and that is developing new tools and practices in the area of internal models. This month’s PRA Directors’ Letter suggests there may be more pressing matters, particularly for national regulators. The feedback on the asset data submitted as part of the recent preparatory exercise for the Solvency II regulatory reporting package states that approximately 40% of submissions did not use the required prefix for financial instruments and approximately 40% of submissions used an incorrect prefix. Hopefully these are just teething troubles and can be quickly fixed; indeed the PRA regards the exercise to have been an overall success. The FIO published its 2015 report on the US insurance industry. The report highlights the large value of 2014’s merger and acquisition transactions and charts the continued rise in alternative risk transfer transactions, possibly at the expense of traditional insurance. The report also records the effect of the current low interest rates on the life insurers and the efforts to encourage insurers into high-quality infrastructure assets – mirrored in Europe with the publication this month of proposals from EIOPA to look favorably on insurers holding infrastructure assets.

Managing Editor Sandy Sharp Director-Advisory Services [email protected]

Contact Us Americas +1.212.553.1653 [email protected]

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Japan +81.3.5408.4100 [email protected]

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2 SEPTEMBER/OCTOBER 2015


Table of Contents

International 3

Europe 8 European Union 8 Norway 12 United Kingdom 14

Middle East & Africa 16 Saudi Arabia 16

Americas 17 United States of America 17

Glossary 20



International

Key Developments

Meeting of the Financial Stability Board in London

- FSB

September 25, 2015

Type of Information: Statement

The Financial Stability Board (FSB) met in London to discuss progress on its ongoing workplan. The key remaining policies to help end too-big-to-fail were also discussed.

The FSB has been working, based on the workplan agreed upon in March, to identify risks associated with market liquidity and asset management activities. The FSB and International Organization of Securities Commissions (IOSCO) will continue to conduct detailed analyses in these areas and, as necessary, develop policy recommendations in the first half of 2016.

Additionally, the total loss-absorbing capacity (TLAC) standard and its timelines will be finalized by the time of the G20 Summit in November. The FSB reviewed the findings from the first round of the Resolvability Assessment Process for global systemically important banks (G-SIBs) and the actions to address remaining impediments to resolvability. The FSB also endorsed the first version of the Higher Loss Absorbency (HLA) requirement for Global Systemically Important Insurers (G-SIIs) developed by the International Association of Insurance Supervisors (IAIS). The HLA standard will be revised before its implementation in 2019 to reflect further work by the IAIS on the G-SII assessment methodology and insurance capital requirements. The Plenary:

» Approved Phase 3 of its initiative to collect data on G-SIB exposures and funding through a common data template. Phase 3 involves the collection of more granular data, thus expanding the availability of consistent information for supervisory, financial stability, and policy purposes.

» Agreed on the approach for applying the FSB framework of numerical haircut floors to non-bank-to-non-bank securities financing transactions. The final framework will be published shortly with an implementation date by the end of 2018.

» Reviewed progress in implementing over-the-counter (OTC) derivative market reforms.

» Discussed the findings of a thematic peer review of OTC derivatives trade reporting, with the final report of this review scheduled to be published next month.

» Discussed the draft of its first annual report on implementation and effects of reforms that will be presented to the Antalya G20 Summit.

Regarding the auditing, accounting, and disclosure issues, the Plenary reiterated its support for the objective of achieving a single set of high-quality global accounting standards and called on the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to continue efforts to achieve this. The Plenary supported the work of the International Forum of Independent Audit Regulators (IFIAR) to enhance audit quality and encouraged IFIAR to continue working with the big six audit firms to promote greater consistency of audit quality in global systemically important firms. The FSB noted ongoing work to promote consistent and comparable application of the new accounting standards for expected loss, including work by the Enhanced Disclosure Task Force on disclosures and work by the Basel Committee on Banking Supervision (BCBS) to develop guidance to support International Financial Reporting Standards (IFRS 9). It called on the International Auditing and Assurance Standards Board to develop further audit guidance on this standard. The Plenary noted the importance of IASB completing its standard for insurance contracts as a high priority.

Link: Press Release Keywords: G20, Roadmap

Comments on Consultation on Revision of Insurance Core Principles

- IAIS

September 18, 2015


The IAIS published a compilation of comments received on its consultation for the revision of glossary terms and the following insurance core principles (ICPs):

» ICP 4 Licensing

» ICP 5 Suitability of Persons

» ICP 7 Corporate Governance

» ICP 8 Risk Management and Internal Controls

» ICP 23 Group-Wide Supervision

» ICP 25 Supervisory Cooperation and Coordination

Keywords: IAIS Glossary, ICP, ICP 4/5/7/8/23/25

http://www.financialstabilityboard.org/wp-content/uploads/September-Plenary-press-release.pdf



Monthly Newsletter

- IAIS

September 17, 2015

Type of Information: Report

This month’s IAIS newsletter contains an article that offers a global perspective on the state of regulation and supervision supporting inclusive insurance markets, with focus on microinsurance. This article captures the significant progress made through the unique partnership of the IAIS and other development organizations. In a bid to make their insurance markets more inclusive, at least 15 jurisdictions have already adopted a microinsurance-specific regulatory framework, although some are yet to be implemented. In addition, at least 18 countries have proposed some form of microinsurance-specific regulation.

The Capital Development Working Group (CDWG)/Field Testing Working Group (FTWG) meetings were held in Basel from August 31 to September 04, where the group provided a proposal on the Higher Loss Absorbency (HLA) design. This proposal was expected to be discussed during September 16-18 in Basel. The next step is endorsement by FSB prior to the G20 leaders’ summit in mid-November 2015.

The Phase 2 data on the Insurance Capital Standard (ICS) started coming in from the end of August through to early September. The FTWG has also finalized a report on Phase 1 of qualitative field testing and the results of the report will be an input into further consultations on those elements of Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) in 2016.

Keywords: ComFrame, HLA, ICS, Microinsurance

Thematic Self -Assessment and Peer Review on Solvency and Solvency Related Issues

- IAIS

September 08, 2015


The IAIS launched a thematic self-assessment and peer review on Solvency and Solvency-related issues, particularly those on:

» ICP 14 Valuation

» ICP 15 Investment

» ICP 16 Enterprise Risk Management for Solvency Purposes

» ICP 17 Capital Adequacy

» ICP 20 Public Disclosure

The deadline for submission is October 06, 2015.

Keywords: ICP, ICP 14-17, ICP 20

Consultation on Collecting Data on Direct and Ultimate Parents of Legal Entities in the Global Legal Entity Identifier System

- LEIROC

September 07, 2015

Type of Information: Regulation

Regulatory Status: Proposed Rule

The Legal Entity Identifier Regulatory Oversight Committee’s (LEIROC) consultation document seeks input into the design of a process for collecting data on direct and ultimate parents of legal entities within the Global Legal Entity Identifier System (GLEIS).

Entities that have or acquire a Legal Entity Identifier (LEI) would report their “ultimate accounting consolidating parent,” defined as the highest level legal entity preparing consolidated financial statements, as well as their “direct accounting consolidating parent.” The identification of the consolidating entity would be based on the local accounting definition of control or consolidation. Accounting definitions were chosen as a starting point because

» They are applicable to both financial and non-financial companies

» Their international comparability has increased, following greater convergence between IFRS and U.S. Generally Accepted Accounting Principles (GAAP) on the scope of consolidation

» They are widely used and publicly available and their implementation is periodically reviewed by external auditors

Comments Due Date: October 19, 2015 Effective Date: N/A First Reporting Date: N/A Link: LEI ROC Website Keywords: GLEIS, LEI, ROC

http://www.leiroc.org/



Release of Report on Corporate Funding Structures and Incentives, at G20 in Ankara

- G20

September 05, 2015


In the post-crisis period, there has been a noteworthy increase in nonfinancial corporate debt, particularly in some emerging economies. This has taken the form both of bond issuance and bank borrowing and has led to higher levels of corporate leverage, as measured by the ratio of nonfinancial corporate debt to Gross Domestic Product (GDP). Questions have been raised about the incentives that have led to this increase and whether the trend represents a risk to financial stability.

This report responds to the request of G20 Finance Ministers and Governors in their February 2015 communique for “the FSB, coordinating the inputs of the IMF [International Monetary Fund], OECD [Organization for Economic Co-operation and Development], BIS [Bank for International Settlements], IOSCO, and World Bank Group to prepare a report by our [FSB] meeting in September preceded by an interim report to the June Deputies meeting to examine the factors that shape the liability structure of corporates focusing on its implications for financial stability.” The report has been prepared by the FSB Secretariat, based on contributions by staff of the six international organizations. It describes:

» Growth in nonfinancial corporate debt since the crisis, including differences across countries and regions (section 1)

» Insights into the incentives, including structural and regulatory factors, influencing these trends (section 2)

» Possible related financial stability concerns (section 3)

» The potential role of macro-prudential policies (section 4)

» Possible next steps (section 5)

The report also focuses on developments and issues for publicly traded nonfinancial companies and highlights that the corporate funding markets and corporate liability structures may be relevant for financial stability.

Link: Final Report Keywords: FSB Key Standard, G20, Governance

Release of G20/OECD Principles of Corporate Governance at G20 in Ankara

- G20

September 05, 2015


The OECD report, to G20 finance ministers and central bank governors, on Principles of Corporate Governance has been published.

The principles have a proven record as the international reference point and as an effective tool for implementation. They have been adopted as one of the FSB’s Key Standards for Sound Financial Systems serving FSB, G20, and OECD members. They have also been used by the World Bank Group in more than 60 country reviews and serve as the basis for the guidelines on corporate governance of banks issued by the BCBS, as the OECD guidelines on Insurer and Pension Fund Governance, and as a reference for reform in individual countries. The Principles provide guidance through recommendations and annotations across six chapters:

» Ensuring the basis for an effective corporate governance framework (Chapter I)

» The rights and equitable treatment of shareholders and key ownership functions (Chapter II)

» Institutional investors, stock markets, and other intermediaries(Chapter III)

» The role of stakeholders in corporate governance (Chapter IV)

» Disclosure and transparency (Chapter V)

» The responsibilities of the board (Chapter VI)

Links: Corporate Governance Principles, Key Standards for Sound Financial Systems Keywords: FSB Key Standard, G20, Governance

http://www.oecd.org/g20/topics/financial-sector-reform/Corporate-funding-structures-and-incentives-FSB-Report.pdf

http://www.oecd.org/daf/ca/Corporate-Governance-Principles-ENG.pdf

http://www.financialstabilityboard.org/what-we-do/about-the-compendium-of-standards/key_standards/table-of-key-standards-for-sound-financial-systems/



G20 Communiqué: Finance Ministers and Central Bank Governors Meeting in Ankara, Turkey

- G20

September 05, 2015


The G20 published communication regarding highlights of its meeting of Finance Ministers and Central Bank Governors in Ankara, Turkey. The key highlights of the meeting follow.

In recognition of major financing needs for long-term investments, the G20 also focused on examining possible alternative capital market instruments. The policy recommendations by the IMF and the World Bank Group on systematically integrating the features of asset-based financing practices into global finance were highlighted. To help ensure a strong corporate and public governance framework that will promote private investment, G20 also endorsed the G20/OECD Principles on Corporate Governance. It recognized the potential to facilitate financial intermediation for Small and Medium-Size Enterprises (SMEs), including by improving systems for credit reporting, lending against movable collateral, and insolvency reforms. It welcomed the progress on the G20/OECD High Level Principles on SME financing and the establishment of the private sector-led World SME Forum, a new initiative to serve as a global body to drive the contributions of SMEs to growth and employment.

The G20 also reaffirmed its resolve to finalize the remaining core elements of the global financial reform agenda this year. It welcomed the work by the FSB, BIS, and BCBS on rigorous and comprehensive quantitative impact assessments on a total-loss-absorbing-capacity standard or TLAC for G-SIBs and by the BCBS and IOSCO on criteria for identifying simple, transparent, and comparable securitizations. It is also looking forward to the:

» Finalization of the common international standard on the TLAC for G-SIBs and robust higher loss absorbency requirements for G-SIIs by the Antalya Summit

» Completion of the previously agreed work on the extension of the contractual recognition of temporary stays on early termination rights for OTC derivatives contracts to include other instruments and firms, excessive variability in risk-weighted asset (RWA) calculations for bank capital ratios and implementation of the G20 shadow banking roadmap.

» FSB’s first annual report on the implementation and the effects of all reforms, including any material unintended consequences, particularly for Emerging Market and Developing Economies

» Progress, this year, on the agreed work plans regarding central counterparties’ resilience, recovery planning and resolvability, misconduct risk, and withdrawal from correspondent banking and remittances services

G20 will work to address legal barriers to the reporting of OTC derivatives contracts to trade repositories and to the cross-border access of authorities to trade repository data, as well as to improve the usability of that data. It will continue to closely monitor financial stability challenges, including those associated with asset management activities and will ensure that related risks are fully addressed.

Moreover, G20 recognized the potential risks to financial stability arising from liability structure distortions in corporate balance sheets and asked the FSB, in coordination with other international organizations, to continue to explore any systemic risks and consider policy options.

Link: G20 Meeting Overview Keywords: G20, Regulatory Reform

Issues Paper on Conduct of Business Risk and its Management: Publication of Comments

- IAIS

September 04, 2015


In July, the IAIS had launched a public consultation on the issues paper on the conduct of business risk and its management. The compiled comments (received from July 01, 2015 to August 14, 2015) on this consultation document have been published. A public discussion of the comments and proposed resolutions will be organized in early October.

Keyword: COB

https://g20.org/wp-content/uploads/2015/09/September-FMCBG-Communique.pdf



Harmonization of key OTC Derivatives Data Elements

- CPMI/IOSCO

September 02, 2015



The Committee on Payments and Market Infrastructures (CPMI)-IOSCO launched a consultation on the harmonization of the key OTC derivatives data elements reported to trade repositories. The purpose of this consultative report is to help develop guidance to authorities on definitions for a first batch of key data elements that are important for the globally consistent and meaningful aggregation of data on OTC derivatives transactions, other than the Unique Transaction Identifier (UTI) and the Unique Product Identifier (UPI).

This first batch of data elements was selected from the list of minimum data reporting requirements set out in Annex 2 of the January 2012 Committee on Payments and Settlement Systems (CPSS)-IOSCO Report on OTC derivatives data reporting and aggregation requirements. Priority was given to data elements common to multiple jurisdictions, applicable across asset classes and forming the basic economic terms of an OTC derivatives transaction. Related data elements were added for harmonization, with a view mainly to more accurately capturing the basic economic terms of OTC derivatives transactions.

A second batch of key data elements is being worked on in parallel to this consultative report. The final list of key data elements, combining the two batches, will be the outcome of a dynamic and iterative process that takes into account industry feedback.

For each of the key data elements in the first batch, individual tables specify the “definitions,” containing the definition, naming convention, standard, format, list of allowable values, and cross-references for identifying interdependencies between data elements. Each data element is also illustrated with at least one example demonstrating how this data element supports authorities’ data needs. The guidance aims to provide consistent “definitions” of data elements with the same characteristics, referencing existing industry standards whenever possible and allowing independent application from the chosen communication protocol. For several data elements of the first batch, multiple harmonization alternatives are proposed and discussed.

Comments Due Date: October 09, 2015 Effective Date: N/A First Reporting Date: N/A Link: Press Release Keywords: Data Elements, OTC Derivatives, Trade Repository

Regulation of Insurance Company and Pension Fund Investment

- OECD

September 01, 2015


The OECD submitted a report to G20 that examines the investment regulations of insurance companies and pension funds, particularly quantitative investment limits on portfolio allocations.

The report draws substantially on existing OECD Insurance and Private Pension Committee (IPPC) and Working Party on Private Pensions work, including information related to investment regulations of insurers and pension funds provided by countries through investment regulation surveys. The IPPC has been collecting data on investment regulations related to insurance over the last year.

The report first presents a conceptual framework to assess the different regulations that exist across countries for pension funds and insurance companies, including quantitative limits, risk-based requirements, and qualitative governance requirements, which also cover behavioral standards. Then, the report looks at the existing investment regulations collected from countries through the above mentioned surveys, describing the regulation for pension funds and insurance companies with respect to quantitative limits, risk-based requirements, and qualitative requirements. Finally, the report provides a preliminary assessment of the implications that these regulations may have on the investment strategies pursued by pension funds and insurance companies.

Link: Report Keywords: Insurance Regulation, Investment Limits, Pension Fund Regulations

http://www.bis.org/cpmi/publ/d132.htm

https://g20.org/wp-content/uploads/2015/09/Regulation-of-Insurance-Company-and-Pension-Fund-Investment.pdf



Europe

European Union

Key Developments

Capital Markets Union: An Action Plan to Boost Business Funding and Investment Financing

- EC

September 30, 2015


The Capital Markets Union is a medium-term project, but with some important early initiatives. The European Commission (EC) is unveiling the first set of measures to re-launch high-quality securitization and to promote long-term investment in infrastructure. In addition, the EC will announce proposed changes to the Prospectus Directive before the end of the year, with a view to making it easier and less expensive for small and medium-sized companies to raise capital.

In addition, the EC has started two consultations on Venture Capital Funds and on Covered Bonds. The EC is also launching a call for evidence on the cumulative impact of financial legislation—to make sure that it is working as intended, without (for example) overlapping reporting requirements or inconsistencies between the various laws.

Links: Press Release, Capital Markets Union Homepage Keywords: Capital Markets Union, Covered Bonds

Public Consultation on Covered Bonds in the European Union

- EC

September 30, 2015



This consultation paper falls under the scope of the Capital Markets Union project and evaluates signs of weaknesses and vulnerabilities in national covered bond markets as a result of the crisis. The aim is to assess the convenience of a possible future integrated European covered bond framework that could help improve funding conditions throughout the Union and facilitate cross-border investment and issuance in member states currently facing practical or legal challenges in the development of their covered bond markets.

The consultation paper is intended to trigger a debate with stakeholders on the feasibility and potential merits of greater integration between covered bond laws.

Comments Due Date: January 06, 2016 Effective Date: N/A First Reporting Date: N/A Link: Consultation Keywords: Capital Markets Union, Covered Bonds

Advice to Set up a New Asset Class for High-Quality Infrastructure Investments Under Solvency II

- EIOPA

September 29, 2015


The European Insurance and Occupational Pensions Authority (EIOPA) published its advice to the EC on the identification and calibration of infrastructure investments risk categories.

EIOPA has suggested a more granular approach by advising to create a separate asset class under Solvency II standard formula for investments in infrastructure projects. This new asset class seeks to capture high-quality infrastructure, while recognizing the complex and heterogeneous nature of such investments. The proposed approach meaningfully reduces risk charges for qualifying infrastructure project investments in equity and debt. EIOPA also proposes robust risk management requirements including active monitoring of exposures to infrastructure projects as well as sound stress testing of their cash flows.

According to the Advice, qualifying infrastructure investments will need to satisfy conditions relating to the predictability of the cash flows to investors, the robustness of the contractual framework, and their ability to withstand relevant stress scenarios. Regarding calibrations, EIOPA recommends that the spread risk charge within the Solvency II standard formula is amended for qualifying infrastructure debt investments according to a modified credit risk approach (reduction of around 30% in the risk charge for BBB rated qualifying infrastructure). Risk charges for infrastructure equity investments are proposed to be in a range between 30% and 39%.

In terms of risk management, insurers should particularly conduct adequate due diligence prior to the investment, establish written procedures to monitor the performance of their exposures, and regularly perform stress tests on the cash flows and collateral values supporting the infrastructure project.

Links: News Release, EIOPA Submissions to EC Keywords: Infrastructure Projects, Solvency II

http://europa.eu/rapid/press-release_IP-15-5731_en.htm

http://ec.europa.eu/finance/capital-markets-union/index_en.htm

http://ec.europa.eu/finance/consultations/2015/covered-bonds/index_en.htm

https://eiopa.europa.eu/Pages/News/EIOPA-advises-to-set-up-a-new-asset-class-for-high-quality-infrastructure-investments-under-Solvency-II.aspx

https://eiopa.europa.eu/publications/submissions-to-the-ec



Release Notes for the 2.0.1 Candidate Recommendation Release of the Solvency II Data Point Model and eXtensible Business Reporting Language Taxonomy

- EIOPA

September 28, 2015


EIOPA Solvency II Data Point Model (DPM) and eXtensible Business Reporting Language (XBRL) taxonomy package release 2.0.1 Candidate Recommendation (CR) incorporates the latest business changes on the Solvency II requirements, particularly:

» The amendments in the outcome of the public consultation, including all the specific amendments

» The additional validations incorporated in relation to the 2.0.0 version are included for consultation but not yet formally approved by EIOPA. This procedure will happen before the publication of 2.0.1

In addition, it includes fixes to business and technical issues detected in version 2.0.03. Additionally, this release introduces two specific changes, for which EIOPA is seeking feedback from the stakeholders in terms of the business and IT technical implementation:

» All new validations (not included in 2.0.0)

» Change of the data type from Boolean to enumerated values for certain metrics (see Annex 1)

According to EIOPA’s statement, other issues can be reported but it is to be noted that the taxonomy is stable and only bug fixing is planned for the full 2.0.1 release. This EIOPA Solvency II DPM and XBRL taxonomy release is being distributed to the stakeholders for review before publication of the official 2.0.1 release, which is to be used for the first submission obligations.

EIOPA seeks feedback by October 12, 2015 and the release of the official 2.0.1 for submission is scheduled to be published on October 21, 2015.

Link: Release Notes Keywords: DPM, Solvency II, XBRL

Opinion on Group Solvency Calculation in the Context of Equivalence

- EIOPA

September 25, 2015


EIOPA published its opinion on group Solvency calculation in the context of equivalence. This opinion is of relevance for insurance groups that operate outside the European Economic Area in third countries whose solvency regimes are considered equivalent to Solvency II.

The opinion aims to provide consistency on the group supervisors’ approach toward the third countries’ capital requirement to be used for the calculation of the solvency position of such groups and to ensure that the supervisory assessment of the availability of third‑country undertakings' eligible own funds is carried out in a convergent manner. Gabriel Bernardino, Chairman of EIOPA, said: "Supervisory convergence is an essential element in the implementation of Solvency II and is a high priority on EIOPA's agenda. With this Opinion, EIOPA intends to achieve a level playing field for the EU [European Union] insurance groups by securing consistent practices by national competent authorities."

In its opinion, EIOPA recommends national competent authorities to apply the highest level of capital requirement in the third country for calculating the group solvency position. Own funds should be deemed unavailable in case they are below the threshold triggering intervention by the third country supervisory authority. Furthermore, groups should form an economic view of the risks inherent in the business conducted in the third country. This economic view and intra-group transactions should be monitored by the group supervisor, for instance, as part of the Own Risk and Solvency Assessment (ORSA) of insurance groups. EIOPA is going to monitor the development of the issues addressed in the opinion.

Links: News Release, Opinion Keywords: Group Solvency Calculation, Solvency II, Solvency II Equivalence

Regulation Concerning Statistics on the Money Markets

- ECB

September 24, 2015


Regulatory Status: Final Rule

The ECB’s a final rule (ECB/2015/30), amending Regulation 1333/2014 on statistics on the money markets, has been published in the Official Journal of the European Union. The amendments as stated in Article 1 are:

» Annex I to Regulation (EU) No. 1333/2014 (ECB/2014/48) is replaced by Annex I to this regulation.

» Annexes II and III to Regulation (EU) No 1333/2014 (ECB/2014/48) are amended in accordance with Annex II to this regulation.

This regulation shall be binding in its entirety and directly applicable in the member states in accordance with the treaties.

Comments Due Date: N/A Effective Date: October 14, 2015 First Reporting Date: N/A Link: Final Rule Keywords: MFI, Money Markets, Statistics

https://dev.eiopa.europa.eu/Taxonomy/Full/2.0.1RC/EIOPA_Solvency_II_2.0.1CR_Release_Notes.pdf

https://eiopa.europa.eu/Pages/News/EIOPA-publishes-Opinion-on-group-solvency-calculation-in-the-context-of-equivalence.aspx

https://eiopa.europa.eu/Publications/Opinions/Opinion%20on%20group%20solvency%20calculation%20in%20the%20context%20of%20equivalence.pdf

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL_2015_248_R_0012&from=EN



Enhanced Statistics on Loans to the Euro Area Private Sector, Adjusted for Sales and Securitization

- ECB

September 21, 2015


The ECB published new statistical series on loans adjusted for sales and securitization, based on an enhanced adjustment method. The new method enables a more comprehensive view of developments in loans originated by euro area banks by taking into account, on an ongoing basis, stocks and repayments of loans that are no longer recorded on banks’ balance sheets (that is, derecognized loans) as a result of a securitization or other transfer.

Previously, statistical series on loans adjusted for sales and securitization published by the ECB took into account only the one-off impact of transactions resulting from (net) loan transfers, off or on balance sheet, in the period during which the transfer took place. The refined adjustment method also uses data on repayments and stocks of securitized loans that have been derecognized and are serviced by monetary financial institutions (MFIs).

These new requirements were introduced under Regulation ECB/2013/33 concerning the balance sheet of the MFI sector, which was implemented with the data transmission for the reference period December 2014. Data on other derecognized loans are also taken into account, where available.

Link: Press Release Keywords: Derecognized Loans, Statistics

Issuance of the Second Set of Solvency II Guidelines in the Official European Union Languages

- EIOPA

September 15, 2015


EIOPA issued the second set of its Solvency II guidelines in the official languages of the European Union. The guidelines cover different areas from all the three Solvency II pillars (quantitative requirements, governance requirement, and reporting and disclosure).

EIOPA guidelines are addressed to the national competent authorities or financial institutions. Their aim is to ensure common, uniform, and consistent application of Union law as well as to establish consistent, efficient, and effective supervisory practices. The guidelines are drafted by EIOPA in accordance with Article 16 of the regulation establishing EIOPA.

The guidelines are in line with the Solvency II Directive and Commission Delegated Regulation (EU) 2015/35 of October 10, 2014 (Delegated Acts), which the guidelines are aiming to clarify. In accordance with Article 16 (3) of the EIOPA regulation, national competent authorities have to confirm whether they comply or intend to comply with the guidelines within 2 months of the issuance date (November 14, 2015).

Links: News Release, EIOPA Guidelines Keywords: Guidelines, Solvency II

Statement by Gabriel Bernardino, Chairman of EIOPA, at the Annual Hearing of Economic and Monetary Affairs Committee

- EIOPA

September 14, 2015

Type of Information: Speech

Gabriel Bernardino, the Chairman of EIOPA, spoke at the annual hearing of the Economic and Monetary Affairs (ECON) Committee of the European Parliament in Brussels. He discussed the progress toward EIOPA’s objectives and tasks assignments during the last year and highlighted some of the challenges going forward.

The Chairman highlighted that, in the past 12-month period, EIOPA delivered 18 Implementing Technical Standards (ITS), of which six have already been endorsed by the European Commission (EC). It also delivered two sets of guidelines that cover the most relevant areas and elements of the Solvency II framework in summer 2015.

EIOPA published the Tool for Undertakings (T4U) related to XBRL reporting under Solvency II. With this tool, the Authority assists SMEs in creating, editing, and validating XBRL reporting documents. The tool is offered for free and will help firms without knowledge and resources to implement Solvency II harmonized quantitative reporting. Estimations show that approximately 1,200 undertakings will make use of the T4U. The tool is also widely used for quality assurance purposes both at the SME and the national competent authority level.

In the future, he would like to focus on two main challenges:

» The post-evaluation of regulation. EIOPA will be attentive to any material loopholes or unintended consequences of the implementation of Solvency II, especially if they have a negative impact on consumers. Special attention will be given to areas such as the investment behavior of insurers and product availability and suitability for consumers.

» The convergence of supervisory practices. Despite the significant progress in building a common European supervisory culture, the way toward supervisory convergence remains a tremendous challenge. Convergence is a journey and often implies change and movement for each party from their status quo.

Link: Speech Keywords: ITS, Solvency II, T4U

http://www.ecb.europa.eu/press/pr/date/2015/html/pr150921.en.html

https://eiopa.europa.eu/Pages/News/EIOPA-issues-the-second-set-of-its-Solvency-II-Guidelines-in-the-official-EU-languages-.aspx

https://eiopa.europa.eu/regulation-supervision/guidelines

https://eiopa.europa.eu/Publications/Speeches%20and%20presentations/2015-09-14%20Hearing%20at%20the%20ECON%20Committee.pdf



Continued Risks in EU Financial Markets and Need for Rigorous Action on Assets and Liabilities

- ESAs

September 09, 2015


The European Supervisory Authorities (ESAs) for securities (ESMA), banking (EBA), and insurance and occupational pensions (EIOPA) issued their August 2015 Joint Committee Report on Risks and Vulnerabilities in the EU financial system. The joint risk report informs on risks in the EU financial system (banking, securities, and insurance sectors), with a focus on cross-sectoral vulnerabilities and developments.

ESAs call for rigorous action on asset quality and business models. The report highlights the need for further efforts by financial entities to clean up balance sheets and to address legacy assets and non-performing loans (including assessing the sustainability of business models as a key supervisory concern). The report stresses a specific need for coordination when conducting such assessments for cross-border and cross-sector institutions. It also points to the valuation risks in illiquid markets and emphasizes the transparent disclosure of risk exposures (for example, as part of periodic financial reporting). The report also calls for further appropriate and harmonized regulation promoting the adequate marketing of investment products and complementing recent plans to support market-based funding.

ESAs see further risks looming ahead. The joint risk report also identifies potential risk drivers for the developments ahead. It highlights the possible re-emergence of concerns on sovereign debt sustainability, reflecting high public and private sector indebtedness, large fiscal deficits, and insufficient fiscal consolidation in some countries. This could trigger a change in market sentiment if a further tightening in credit spreads would not be in line with future economic developments. Such concerns apply particularly in the euro area, also in reaction to potential adverse developments regarding the long-term development of the Greek economy.

Another potential trigger for a change of sentiment in the European markets could be increasing international risks; for example, following heightened market volatility, structural concerns about China's economy, fluctuations in commodity prices, or divergence of monetary policy conditions between major jurisdictions. Adverse spillover effects from China, or other emerging market economies facing reduced growth, could provide further challenges to the EU economy.

Links: Press Release, Report on Risks and Vulnerabilities Keywords: Risk and Vulnerability Report, Systemic Risk

Updates on the Set 2 of Draft Implementing Technical Standards for Solvency II

- EIOPA

September 08, 2015


EIOPA released updates on the set 2 of the draft ITS for Solvency II:

» Draft ITS on templates for the submission of information

» Technical Annexes to draft ITS on templates for the submission of information

» Technical Annexes to draft ITS on procedures, formats, and templates of the Solvency and Financial Condition Report

Link: Updated and Other ITS Keywords: ITS, Regulatory Reporting, Solvency II

The Equivalence Progress Report on Developments in the Bermudian Supervisory Regime

- EIOPA

September 04, 2015


The EIOPA’s progress report describes the latest developments in the Bermudian supervisory regime on the basis of material provided by the Bermuda Monetary Authority.

In March 2015, EIOPA provided the EC with additional advice regarding the full equivalence assessment under Solvency II of the insurance supervisory regime in Bermuda. Since that advice, Bermuda has made substantial amendments to the regulations applicable to (re)insurers; consequently, the EC considered that a further progress report was necessary for it to take fully informed equivalence decisions later this year.

Links: News Release, Progress Report, Final Report: Full Equivalence Assessment, Equivalence Overview, Equivalence Decisions Keywords: Equivalence Assessments, Solvency II

http://www.eba.europa.eu/-/esas-see-continued-risks-in-eu-financial-markets-and-call-for-rigorous-action-on-assets-and-liabilities

http://www.eba.europa.eu/documents/10180/950548/JC+2015+053+%28JC+Autumn+Risk+Report%29.pdf

https://eiopa.europa.eu/Pages/Supervision/Insurance/draft-implementing-technical-standards-on-the-supervisory-approval-processes-for-solvency-ii.aspx

https://eiopa.europa.eu/Pages/News/EIOPA-publishes-the-Equivalence-progress-report-on-developments-in-the-Bermudian-supervisory-regime.aspx

https://eiopa.europa.eu/Publications/Reports/EIOPA-BoS-15-176-%20Equivalence%20-%20Progress%20report%20Bermuda.pdf

https://eiopa.europa.eu/Pages/News/EIOPA-publishes-the-Final-Reports-on-full-equivalence-assessments-of-Bermuda-Japan-and-Switzerland.aspx

https://eiopa.europa.eu/external-relations/equivalence

https://eiopa.europa.eu/external-relations/equivalence/overview-of-equivalence-decisions



Interview of Gabriel Bernardino, Chairman of EIOPA, Conducted by David Gorr, VersicherungsWirtschaft Heute

- EIOPA

September 03, 2015


David Gorr, VersicherungsWirtschaft Heute, interviewed Gabriel Bernardino, the Chairman of EIOPA. In the interview, Mr. Bernardino highlighted that Solvency II was inspired by the early developments in risk-based regulation in countries such as Canada and Australia. “It is only natural that its development motivated other countries to move in a similar direction.” Specifically, the new insurance risk-based regulatory regimes of countries, such as Mexico, China, Brazil, and Bermuda, adopt approaches consistent with the basic Solvency II principles, while developing practical solutions adapted to their own market realities.

Furthermore, the basic sound principles of Solvency II are also considered in the setting up of the International Capital Standards by the IAIS. He opines that the equivalence process has significantly contributed to the international movement toward risk-based regulation and supervision.

EIOPA has been working on Solvency II equivalence assessments since the first year of its existence. In 2011, it delivered the first assessments of the Swiss, Bermudan, and Japanese supervisory systems. In the following years, it assessed ten further supervisory regimes in Australia, Brazil, Canada, Chile, China, Hong Kong, Israel, Mexico, Singapore, and South Africa. This work was instrumental for the recent Solvency II equivalence decisions taken by the EC.

The EIOPA Chairman emphasized that, this year, Solvency II remains the top priority for EIOPA and is a huge step forward for policyholder protection and for the implementation of a true single market in the EU. The goal is to ensure a successful transition to the new regulatory regime, which enters into force on January 01, 2016. Developing a European supervisory culture that can ensure a consistent implementation of Solvency II throughout the EU will remain EIOPA’s main responsibility even after the end of this year. This is why EIOPA started to refocus its strategic approach in the insurance area from regulation to supervision, emphasizing on EIOPA’s participation in colleges of supervisors.

The Authority set up the Center of Expertise in internal models that contributes to the development of new tools and practices in the area of internal models. Last year, it also created a Supervisory Oversight team with the aim to provide independent and challenging feedback on supervisory practices. Since then the team already conducted about 20 bilateral visits to different national supervisory authorities. It also steered the balance sheet review and stress test of the Romanian insurance companies, which proved to be an important step toward enhancing consumer protection and increasing confidence in the Romanian insurance sector.

Link: Speech Keywords: Equivalence Assessments, Solvency II, Supervisory Oversight

XBRL Tool for Undertakings

- EIOPA

August 28, 2015


EIOPA published a new beta release (VER 2015.08.28) of the XBRL T4U, with two versions of the tool being:

» Preparatory Reporting—supporting DPM and XBRL Taxonomy versions 1.5.2.b and 1.5.2.c, as in the previous versions

» Full Solvency II Reporting—supporting DPM and XBRL Taxonomy version 2.0.0

Links: News Release, Preparatory Reporting, Full Solvency II Reporting Keywords: Solvency II, T4U, XBRL

Norway

Key Developments

https://eiopa.europa.eu/Pages/News/Interview-by-Gabriel-Bernardino-Chairman-of-EIOPA,-conducted-by-David-Gorr-VersicherungsWirtschaft-Heute.aspx

https://eiopa.europa.eu/regulation-supervision/insurance/tool-for-undertakings

http://dev.eiopa.europa.eu/XBRT/Deployment/2015/WindowsT4U/PRO/SolvencyII_T4U_PREP_2015_PRO.application

http://dev.eiopa.europa.eu/XBRT/Deployment/2015/WindowsT4U_FULL_S2/PRO/SolvencyII_T4U_FULL_2015_PRO.application



Technical Notes as Part of the Financial Sector Assessment

- IMF

September 17, 2015


The IMF published the following technical notes as part of the Financial Sector Assessment Program (FSAP) program on Norway:

» Crisis Management, Bank Resolution, and Financial Sector Safety Nets (cr15253). The report reveals that arrangements for crisis management, bank and group resolution, and the financial sector safety nets are well-developed and tested. Roles, responsibilities, accountabilities, and information-sharing arrangements among the relevant bodies—the Ministry of Finance, the Finanstilsynet (the Financial Supervisory Authority of Norway), Norges Bank, and the Banks’ Guarantee Fund, and the private sector-led deposit guarantee scheme—are generally well-defined and functioning. The report also contains a table summarizing key recommendations.

» Oversight and Supervision of Financial Market Infrastructure, and Selected Issues in the Payment System (cr15254). Norway has a modern and stable financial market infrastructure (FMI). The country has four interbank payment systems, including the Norges Bank Settlement System, the Norwegian Interbank Clearing System, and two private settlement systems. There is one central securities depository that also serves as a securities settlement system. There are currently no trade repositories. Two systemically important foreign central counterparties (CCPs) have branches in Norway. All Norwegian FMIs have completed assessments against the new international standards and are in the process of improving observance, where needed. Assessments were made against the new international standards CPMI-IOSCO Principles for Financial Market Infrastructures (PFMIs) upon the authorities’ request in 2013.

» Insurance Sector Stress Tests (cr15255). The mission conducted stress tests under Solvency II principles (simplified approach) for the life and non-life insurance sectors. The insurance stress tests consisted of a combination of top-down stress tests for asset-side risks and insurance liability risks, designed by the FSAP team and Finanstilsynet, and bottom-up stress tests for other liability risks. Three large life and nonlife insurers, which cover 80% and 51% of assets in the life and non-life sectors, respectively, on a solo basis, were covered.

» Linkages and Interconnectedness in the Norwegian Financial System (cr15256). Norway’s banks have important connections with global financial centers, but regional links are also important. Norwegian banks are very dependent on global financial centers as sources of funding and to hedge currency risks. Norwegian banks arrange for a sizable fraction of their wholesale funding in foreign markets. Cross-sectoral exposures of Norway’s banks, insurance companies, and real estate companies are significant and extend beyond the Nordic region.

» Macro-Prudential Policy (cr15257). The authorities have taken or announced a wide range of macro-prudential measures to address systemic risk. These measures include higher capital requirements, including early adoption and implementation of the EU capital regulations, additional capital buffers (a 3 percentage-point systemic risk buffer from July 2014, a 2 percentage-point capital surcharge for domestic systemically important banks (D-SIBs) from July 2016, and a 1 percentage-point countercyclical capital buffer, or CCyB from July 2015), Pillar 2 capital requirements relating to systemic risk, and restrictions on mortgage lending RWAs (bringing the internal-ratings based RWA on residential mortgages up to about 20%-25%). These measures represent a highly active approach to macro-prudential policy.

Links: Bank Resolution, Supervision of Financial Market Infrastructure, Insurance Stress Tests, Financial System Interconnectedness, Macro-Prudential Policy Keywords: FSAP, Technical Note, Stress Testing

http://www.imf.org/external/pubs/ft/scr/2015/cr15253.pdf








Report on the Financial System Stability Assessment

- IMF

September 09, 2015


The IMF published its report on the Financial System Stability Assessment (FSSA) for Norway.

The country’s financial system coped well with the global financial crisis and has further increased buffers to deal with potential shocks, but significant financial imbalances have also built up since then. Stress tests suggest that under severe macroeconomic shocks banks and life insurers could face important but manageable capital shortfalls.

Insurers’ solvency ratios would decline sharply in case of a combination of severe shocks under the Solvency II framework, although the rule for the transition to Solvency II would significantly reduce the immediate need for insurers to raise capital. The Financial Supervisory Authority of Norway should continue to constrain dividend distribution by weakly capitalized insurance institutions and ensure that the insurance businesses of conglomerates are adequately capitalized on a solo basis.

The authorities have taken significant measures to improve the oversight framework, but further strengthening is needed. To boost banks’ resilience, capital requirements have been increased, including through early implementation of the EU capital regulations and additional capital buffers. The authorities applied restrictions on mortgage lending risk weights and banks’ mortgage lending standards.

Nonetheless, to further enhance the monitoring of risks, the Norges Bank and the Financial Supervisory Authority of Norway should intensify cooperation to exploit synergies between macro- and micro-prudential stress testing, further enhance their stress testing frameworks, and consider supplementing the Basel III liquidity requirements with stress tests more closely aligned with banks’ funding and cash flow profiles.

The authorities should also introduce measures to contain systemic risks arising from high real estate prices and household indebtedness (for example, stricter loan-to-value ratios and loan-to-income or debt service ratio to supplement the affordability test). Additionally, the authorities should consider reducing tax incentives for mortgage finance and relaxing planning and building requirements to reduce imbalances in the housing market.

Link: FSSA Report Keywords: FSAP, FSSA, Stress Testing

Staff Report and Selected Issues Report for the 2015 Article IV Consultation

- IMF

September 09, 2015


The IMF published its staff report and selected issues report in the context of the 2015 Article IV consultation with Norway.

The report highlights that the FSAP update concluded that the Norwegian financial system is generally sound and well-managed . The authorities have taken significant measures to address financial stability risk, including early implementation of the Capital Requirements Directive (CRD) IV. More recently, risk-weights for residential mortgages used in banks’ internal ratings-based (IRB) models have been tightened. A CCyB of 1% took effect on July 01, 2015 and the buffer will be increased to 1.5% from July 01, 2016.

Nevertheless, there are important challenges with a potential impact on financial stability. High house prices and household debt and banks’ reliance on wholesale funding are areas of concern. House prices remain elevated and the household debt-to-disposable income ratio in the country is one of the highest among the OECD countries. To finance this, banks have relied extensively on wholesale funding. The IMF staff recommended further measures to reduce risks, including macro-prudential policy and banking and insurance stress tests. The FSA recommends to achieve recapitalization of weakly capitalized insurance companies in the current benign environment.

Links: Staff Report, Selected Issues Report Keywords: Article IV Consultation, FSAP, Stress Testing

United Kingdom

Key Developments

Updates on Solvency II

- PRA

September 22, 2015


The PRA invited firms that are due to submit Solvency II information for the first time in 2016 to a regulatory reporting seminar that will be held on October 22, 2015.

Firms should also be aware that a third regulatory reporting question and answer document has been made available on the “Detailed technical information” page. In addition, those working on the technical aspects of the Solvency II data submissions in the preparatory phase should be aware that a second version of the Bank of England’s (BOE) Solvency II XBRL filing manual is now available on the “Taxonomy” page.

Links: News Release, Regulatory Reporting Seminar, Detailed Technical Information, Taxonomy Keywords: FAQ, Solvency II, XBRL




http://www.bankofengland.co.uk/pra/Pages/solvency2/updates.aspx

http://www.bankofengland.co.uk/pra/Documents/solvency2/22oct2015regrepseminar.pdf

http://www.bankofengland.co.uk/pra/Pages/solvency2/technical.aspx

http://www.bankofengland.co.uk/pra/Pages/solvency2/taxonomy.aspx



Solvency II: Directors’ Update

- PRA

September 24, 2015


The PRA issued a Directors’ update on Solvency II. With only three months to go before the implementation of Solvency II, the PRA’s priority is to review applications for Solvency II approvals and inform firms of the outcome of these decisions. Later this month, Sam Woods (Executive Director, Insurance) will provide a further communication, which sets out the decision making process and timescales, including for matching adjustment and internal models.

Firms are reminded that they should have developed a contingency plan in case any of their applications are rejected and this should include planning for any interdependencies between approvals. Sam’s communication will also provide some more information on the capital add-on process and regulatory reporting feedback from the preparatory phase.

Annex 1 to the letter provides generic feedback on the preparatory phase submissions, which required a significant proportion of the UK market to submit a subset of the full Solvency II regulatory reporting package in July. The preparatory phase submissions were submitted using the Bank of England’s new web data collection facility. This system contains data quality checks and validation routine, although at this preliminary stage not all the checks are “turned-on”. Checks contained within the data collection facility range from straightforward numerical validation checks to plausibility checks on relationships between different values. One significant trend has been identified from the preparatory phase – concerning the quality of asset data submissions.

Link: Directors' Update Keywords: Contingency Plans, Solvency II, Solvency II Approvals

http://www.bankofengland.co.uk/pra/Documents/solvency2/directorsletter16sep2015.pdf



Middle East & Africa

Saudi Arabia

Key Developments

Staff Report for the 2015 Article IV Consultation

- IMF

September 09, 2015


The IMF published its staff report in the context of the 2015 Article IV consultation with Saudi Arabia.

The report offers a snapshot of the financial sector in Saudi Arabia. Twenty-four commercial banks are operating in Saudi Arabia (of which 12 are foreign-owned) and bank assets amount to 76% of GDP. Five public specialized credit institutions still play a significant role, are owned by government ministries, and are not supervised by SAMA or the Capital Market Authority (CMA). They are not deposit-taking institutions.

Non-bank financial institutions are growing in number since the passage of the Finance Law in 2012. From November 2014, all banks and finance companies providing real estate or other financing services have needed to be licensed by SAMA (37 such licenses have been granted). No data is available on the size of the finance companies and there are 88 securities firms.

The insurance sector is growing rapidly, but is still small. There are 35 insurance companies, but assets are only 3% of GDP. All insurance companies are now regulated and supervised by Saudi Arabian Monetary Agency (SAMA). The two public pension funds are sizable institutional investors, with combined assets of 34% of GDP. There are 169 listed companies with a market capitalization of 65% of GDP as of the end of 2014. The investor base consists primarily of retail and large state investors.

Additionally, a number of key reforms are being introduced to strengthen the banking sector. SAMA also noted that the impact of de-risking by several global banks in response to enhanced implementation of global regulatory standards and economic and trade sanctions has not had a significant impact on Saudi banks; however, it is believed a dialog is needed between banks and regulators to ensure this did not become a problem for local and regional banks.

Link: Staff Report Keywords: Article IV Consultation, FSAP




Americas

United States of America

Key Developments

2015 Annual Report on the Insurance Industry

- FIO

September 28, 2015

Type Of Information: Report

The FIO published its 2015 annual report on the insurance industry.

The report begins with an overview of the insurance industry, presenting and analyzing the financial performance and condition of the key U.S. insurance industry sectors, namely the life and health sector and the property and casualty sector. The industry financial overview also includes an analysis of the risk that continued low interest rates could pose to the life insurance sector, along with a discussion of insurance industry capital markets activities, including the use of alternative risk-transfer mechanisms.

Next, the report includes a section on matters of consumer protection and access to insurance. This section highlights developments concerning both sex and marital status as rating and underwriting factors, natural catastrophe insurance, and retirement security. The report then addresses a range of developments—at the state, federal, and international levels— which have occurred over the past year and which have implications for the U.S. insurance sector. Discussions of domestic regulatory activities include updates on:

» The insurance-related activities of the Financial Stability Oversight Council

» Supervision of insurers by the Board of Governors of the Federal Reserve System

» the role of reinsurance captives

» The Terrorism Risk Insurance Program

» State guaranty funds

» Cyber security and the evolving cyber insurance market

» Licensing of insurance producers

» Insurance in the housing sector

» The workers’ compensation market

The international section addresses recent developments at the IAIS as well as developments with the European Union (EU). The section also discusses FIO’s continued coordination of and involvement with the EU-U.S. Insurance Project and prospects for a covered agreement between the U.S. and the EU on certain prudential insurance matters.

Link: Report

Keywords: Annual Report

http://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/2015%20FIO%20Annual%20Report_Final.pdf



Hearing Entitled “The Impact of Domestic Regulatory Standards on the U.S. Insurance Market”

- FIO/FED/NAIC/FSOC

September 29, 2015

Type Of Information: Statement

Following are the key highlights of the Hearing regarding the impact of domestic regulatory standards on the U.S. insurance market. The Hearing took the form of submissions from the FIO, the FED, the NAIC and the FSOC representative. Highlights of the four submissions are below:

Federal Insurance Office (FIO)

The FIO has an important role in domestic insurance matters. FIO monitors all aspects of the insurance industry, including:

» Identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system

» Monitoring the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products regarding all lines of insurance, except health insurance

» Recommending to the Financial Stability Oversight Council (FSOC) that it designate an insurer, including the affiliates of such insurer, as an entity subject to regulation as a nonbank financial company supervised by the FED

» Assisting the Secretary in administering the Terrorism Risk Insurance Program established in Treasury under the Terrorism Risk Insurance Act of 2002, as amended

» Consulting with the states (including state insurance regulators) regarding insurance matters of national importance and prudential insurance matters of international importance

Board of Governors of the Federal Reserve System (FED)

With the enactment of the Dodd-Frank Act, the FED assumed expanded responsibility as the consolidated supervisor of a significant number of insurance holding companies. The FED is responsible for the consolidated supervision of insurance holding companies that own an insured bank or thrift, as well as insurance holding companies designated for FED supervision by the FSOC. The insurance holding companies for which the FED is the consolidated supervisor hold about USD 3 trillion in total assets and one-third of the U.S. insurance industry assets.

The FED’s supervisory efforts to date have focused on strengthening firms’ internal controls; corporate governance; and risk identification, measurement, and management. The FED is investing significant time and effort into enhancing our understanding of the insurance industry and the firms it supervises. It also plays a role, along with the FIO and the National Association of Insurance Commissioners (NAIC), as member of the IAIS. In partnership with the NAIC and the FIO, it advocates the development of international standards that best meet the needs of the U.S. insurance market. The FED collaborates with the states in evaluating companies’ Own Risk and Solvency Assessments. Many states have recently enacted legislation that requires state regulated insurers to produce this assessment on a group-wide basis.

National Association of Insurance Commissioners (NAIC)

It is hoped that the FED will use its flexibility to apply capital rules to insurance entities that are consistent with the insurance business model and the legal entity regulation. State regulators, through the NAIC, are committed to assisting the FED in this important endeavor. For their part, the State insurance regulators also support the need to assess the adequacy of an insurance group’s capital position as part of coordinated solvency oversight. Through the NAIC’s ComFrame Development and Analysis Working Group, a group capital calculation is being developed to be used as a consistent regulatory analytical and assessment tool. Lessons learned and information garnered from developing this group capital calculation would also be useful in continuing work internationally with ComFrame and domestically with the FED regarding group capital requirements for certain U.S. groups.

FSOC Independent Member Remarks

Observations were shared on three aspects of the FSOC’s work that affected the U.S. insurance market:

» The FSOC’s unwillingness to designate systemically important financial institutions based on the systemically risky activities in which the company actually engages

» How this approach is also reflected in the FSOC’s annual reevaluations of the four systemically important financial institutions designated thus far

» What is perceived to be continued international encroachment into the domestic regulatory process

Link: Hearing Keyword: Hearing

http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=399698



Capital Regulation Across Financial Intermediaries, A Speech by Daniel K. Tarullo of the FED

- FED

September 28, 2015


Daniel K. Tarullo of the FED spoke, at the Banque de France Conference in Paris, about the degree to which the nonbank financial intermediaries should be subject to the capital regulations developed by the BCBS and applied to bank holding companies in the United States and to all commercial and investment banks in Europe.

Mr. Tarullo highlighted that “the answer to this question might seem intuitively obvious. After all, the risk of loss associated with a particular corporate loan or mortgage-backed security or, indeed, any other asset does not vary just because its legal owner is an insurance company or mutual fund, rather than a bank. Yet we all know that regulatory capital requirements sometimes do vary with the nature of the firm. And I suspect that most people in this room believe there are good reasons why they should vary under at least some circumstances.”

He also discussed that these circumstances should be identified by looking not at the asset side of a financial intermediary’s balance sheet, but at the liability side. This is because the scope and nature of a firm’s liabilities provide the justifications for capital requirements regulation. Differences in liabilities can sometimes warrant different capital requirements for portfolios of similar assets across firms.

Mr. Tarullo also mentioned that Basel III significantly strengthened capital quality and levels post-crisis. “Important as these changes have been, the risks to the financial system posed by large amounts of short-term wholesale funding argue for closer regulatory linkage between capital and liquidity concerns. Conceptually, the cleanest approach might be to integrate capital and liquidity requirements in a single regulatory framework, which would establish minimum levels of capital and liquidity and then increase the capital requirement for intermediaries with more vulnerable funding structures.”

Higher capital levels would be especially warranted for intermediaries that are using large enough amounts of short-term debt to constrain their response when funding liquidity, which could adversely affect the overall financial system. The Basel standards have already evolved to take account of different forms of intermediation in the financial firms subject to those rules. The Basel framework might itself be enhanced by further differentiation of capital and liquidity requirements based on the liability structures of firms. Similarly, capital rules for intermediaries not subject to Basel rules should be shaped by similar considerations.

Link: Speech Keywords: Non-Bank Financial Intermediaries, Regulatory Reform

http://www.federalreserve.gov/newsevents/speech/tarullo20150928a.pdf



Glossary BCBS Basel Committee on Banking Supervision BIS Bank for International Settlements BOE Bank of England CCyB Countercyclical Capital Buffer CCP Central Counterparty CDWG Capital Development Working Group CMA Capital Market Authority ComFrame Common Framework for the Supervision of Internationally Active Insurance Groups CPMI Committee on Payments and Market Infrastructures CPSS Committee on Payments and Settlement Systems CRD IV Capital Requirements Directive D-SIB Domestic Systemically Important Banks DPM Data Point Model EBA European Banking Authority EC European Commission ECB European Central Bank ECON Economic and Monetary Affairs Committee EIOPA European Insurance and Occupational Pensions Authority ESAs European Supervisory Authorities ESMA European Securities and Monetary Authority EU European Union FASB Financial Accounting Standards Board FED Board of Governors of the Federal Reserve System FIO Federal Insurance Office FMI Financial Market Infrastructure FSAP Financial Sector Assessment Program FSB Financial Stability Board FSOC Financial Stability Oversight Council FSSA Financial System Stability Assessment FTWG Field Testing Working Group G-SIB Global Systemically Important Bank G-SII Global Systemically Important Insurer GAAP Generally Accepted Accounting Principles GDP Gross Domestic Product GLEIS Global Legal Entity Identifier System HLA Higher Loss Absorbency IAIG Internationally Active Insurance Group IAIS International Association of Insurance Supervisors IASB International Accounting Standards Board ICPs Insurance Core Principles ICS Insurance Capital Standards IFIAR International Forum of Independent Audit Regulators IFRS International Financial Reporting Standards IMF International Monetary Fund IOSCO International Organization of Securities Commissions IPPC Insurance and Private Pension Committee IRB Internal Ratings-Based ITS Implementing Technical Standards LEI Legal Entity Identifier LEIROC Legal Entity Identifier Regulatory Oversight Committee MFI Monetary Financial Institution NAIC National Association of Insurance Commissioners OECD Organization for Economic Co-operation and Development OFR Office of Financial Research ORSA Own Risk and Solvency Assessment



OTC Over-The-Counter PFMI Principles for Financial Market Infrastructure PRA Prudential Regulation Authority RWA Risk-Weighted Asset ROC Regulatory Oversight Committee SAMA Saudi Arabian Monetary Agency SEC Securities and Exchange Commission T4U Reporting Tool for Undertakings TLAC Total Loss-Absorbing Capacity UPI Unique Product Identifier UTI Unique Transaction Identifier XBRL eXtensible Business Reporting Language



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