CIA Annual Meeting

1. CIA Annual Meeting LOOKING BACK…focused on the future

2. Groupe ConsultatifSolvency II: Current Status Rolf Stölting St. John's, June 29th 2005 Session 5709

3. Overview over initiatives / working groups (Europe) EU CommissionInternal Market DGFinancial Institutions: Insurance Pillar I Life Pillar I Life Groupe Consultatiffounded 1978 as technical advisory institution for the EU Association of European actuarial associations Advisory Board Project team Pillar I Non-life Pillar I Non-life Pillar II Pillar II Pillar III Account. Pillar III Account. CEIOPS Committee of European Insurance and Occupational Pensions Supervisors28 countries: EU, Norway, Iceland, Liechtenstein Board Groups etc. Groups etc. Institut des Actuaires DAV Institute of Actuaries Consultative Panelappr. 17 named persons:CEA, Mutuals,Groupe Consultatifetc. CEA (Comité Européen des Assurances) Steering Group for Solvency II GDV FFSA ABI June 2005

4. Time-Frame EU-Commission / CEIOPS 1st WaveCall forAdvice ProgressReport DraftAnswers TechnicalAdvice 2nd WaveCall forAdvice Draft Answers TechnicalAdvice ProgressReport 3rd WaveCall forAdvice ProgressReport TechnicalAdvice Draft Answers 31.10.04 28.02.05 30.06.05 31.10.05 28.02.06

5. Solvency II Pillar I Pillar II Pillar III • Market discipline (transparency and disclosure) Quantitative assessment of solvency Supervisory control procedure Three-pillar approach similar to Basel II

6. First Wave of Calls for Advice • Calls for Advice 1- 6 (Pillar II): • Internal control and risk management • General aspects of the supervisory process • Quantitative tools • Transparency of supervisory action • Investment management rules • Asset-liability management

7. Second Wave of Calls for Advice • Calls for Advice 7- 12 (Pillar I): • Technical Provisions in Life Assurance • Technical Provisions in Non-life Assurance • Safety Measures • Solvency Capital Requirement: Standard Formula (Life and Non-life) • Solvency Capital Requirement: Internal Models (Life and Non-life) and their validation • Reinsurance (and other risk mitigation techniques)

8. Second Wave of Calls for Advice • Calls for Advice 13 - 18 (Pillar I, Pillar II): • Quantitative impact Study and Data related Issues • Powers of the Supervisory Authorities • Solvency Control Levels • Fit and proper Criteria • Peer Reviews • Group and Cross-sectoral Issues

9. Third Wave of Calls for Advice • Calls for Advice 19 – 23: • Eligible elements to cover the capital requirements (Pillar I) • Cooperation between supervisory authorities (Pillar II) • Supervisory reporting and public disclosure (Pillar III) • Procyclicality (Pillar II) • Small and medium sized enterprises (Pillar I)

10. Pillar 1 – Quantitative requirements (1) • Increased level of harmonisation for technical provisions • Best estimate topped up with a risk margin • Solvency Capital Requirement (SCR) : • Reflects level of capital to absorb significant volatility of results and to give reasonable assurance to policyholders • If undertaking does not fulfil SCR, amount of capital covering the SCR has to be re-established in due time, based on concrete and realisable plan submitted to supervisor for approval. • Parameters calibrated in such a way that quantifiable risks to which insurer is exposed are taken into account • Based on amount of economic capital corresponding to a ruin probability of 0,5 % (VaR of 99,5 %) and a one year time horizon (working hypothesis) • Method for Standard formula not yet fixed

11. Pillar 1 – Quantitative requirements (2) • Minimum Capital Requirement (MCR) : • Reflects level of capital below which ultimate supervisory action would be triggered. • Level of MCR will be set once quantitative impact studies have been performed • Possibility to be calculated in a simple and robust manner • MCR will have an absolute floor

12. Solvency Capital Requirement Safety margin ontechnical reserves Pillar 1 – Quantitative requirements (3) • Solvency Capital Requirement as the main instrument of a two-tier system under normal conditions assets Technical reserves

13. Additional levelsof intervention? Solvency CapitalRequirement (SCR) Equity capital available Pillar 1 – Quantitative requirements (4) Intervention of supervisory body Minimum Capital Requirement (MCR)

14. Pillar 1 – Quantitative requirements (5) • Risk classification : • Based on IAA risk classification • Underwriting risk • Credit risk • Market risk • Operational risk • Liquidity risk • Not quantifiable risks will be taken into account in pillar 2 • Internal models : • May replace standard formula of SCR if validated • Validation criteria and process to be developed and harmonised • Partial use of models may be authorised

15. Pillar 2 – Supervisory activities • Aim to identify insurers with financial, organisational and other features producing a higher risk profile • Increase level of harmonisation of supervisory methods, tools and powers • Broader scope than Basel II • Need for increased cooperation between supervisors combined with peer reviews

16. Pillar 3 – Supervisory reporting and public disclosure • Supervisory reporting : • Harmonised reporting to supervisors • Goes beyond the notion of financial reporting rules, including different types of information a supervisor needs to perform his functions • Information normally not in public domain • Public disclosure : • Transparency and disclosure of information to public will serve to reinforce market mechanisms and discipline • Should be in line with IASB to reduce admin burden • Should be compatible with disclosure requirements of banking sector.

17. Road to Solvency II • Draft proposal for Framework Directive: mid 2006 (Commission) • Implementing measures: in 2009 (?) • CEIOPS is primary advisor of Commission • CEIOPS advises through specific "calls for advice" (early, extensive, open consultation with market participants expected from CEIOPS) • Framework for Consultation made up by Commission • Commitment of Groupe Consultatif / IAA explicitly appreciated Source: MARKT/2506/04

18. Thank you for your attention!