1 / 34

Prof. Karel VAN HULLE Head of Unit, Insurance and Pensions, DG Markt, European Commission

Royal Institute of Technology Stockholm, 12 June 2009 Solvency II: a new and modern solvency regime for the insurance industry. Prof. Karel VAN HULLE Head of Unit, Insurance and Pensions, DG Markt, European Commission.

nakia
Download Presentation

Prof. Karel VAN HULLE Head of Unit, Insurance and Pensions, DG Markt, European Commission

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Royal Institute of TechnologyStockholm, 12 June 2009Solvency II: a new and modern solvency regime for the insurance industry Prof. Karel VAN HULLE Head of Unit, Insurance and Pensions, DG Markt, European Commission

  2. « Not everything what can be counted counts – and not everything what counts can be counted » Albert Einstein

  3. Framework DirectiveProposed on 10 July 2007Adopted April/May 2009 14 existing Insurance Directives (direct insurance, reinsurance, groups etc.) + Solvency II Codification & New Articles Recast & Codification = 1 Directive ‘EU Insurance sourcebook’

  4. Solvency II – 4 Principal Objectives • Deepen the Single Market • Enhance policyholder protection • Improve (international) competitiveness of EU insurers • Further Better Regulation

  5. Why Solvency II? • Modernise regulatory framework • Need to act now before the present Solvency I regime breaks down • Provide the insurance industry with more capacity to take on new risks • Improve supervisory convergence • Reduce regulatory arbitrage between banking and insurance

  6. The new regime… • Introduces an economic risk based approach that will reward good risk management and enhance policyholder protection • Places emphasis on the responsibility of the senior management to manage their business responsibly • Fosters and demands greater supervisory convergence across the Community

  7. Legislative Process - Lamfalussy Level 1: Framework Directive Level 2: Implementing Measures Level 3: Convergent implementation assisted by close co-operation between national authorities Level 4: Rigorous enforcement of Community legislation by the Commission

  8. 8

  9. Intensive consultation process • Framework for Consultation • Three waves of calls for advice to CEIOPS • Interviews with selected number of SMEs by Commission staff • QIS 1 and QIS 2 • Impact Assessment with 45 options

  10. Consultation continued • Commission proposal prepared following consultation and dialogue with CEA, AMICE, CRO Forum, CFO Forum, Groupe Consulatif, CEIOPS, EIOPC • Close contact with ECON members • QIS 3 and QIS 4 • Several public hearings and public meetings with stakeholders

  11. Quantitative Impact Studies • Key element of Better Regulation • QIS 4 April – July 2008 • Analysis and conclusions from each QIS published by CEIOPS • Results helped to shape the proposal and influenced the negotiations • Some 1500 (re)insurers took part in QIS 4 • Results of QIS4 will feed into development of implementing measures

  12. Solvency II timetable for 2007-2012 2012 2011 2007 2008 2009 2010 2006 Directive development (Commission) Directive adoption (Council & Parliament) Implementation (Member states) CEIOPS work on technical advice necessary for implementing measures / supervisory convergence / preparation for implementation / training & development Commission preparatory work on possible implementing measures and impact assessment Adoption of Implementing measures July 2007 Solvency II Directive published 2012 Solvency II enters into force QIS 2 QIS 3 QIS 4

  13. New European solvency regime in place and operational in all Member States by October 2012!!

  14. Solvency II… • 3 ‘Pillars’ of equal importance: • Quantitative requirements • Qualitative requirements • Disclosure and reporting • Economic, risk based approach • Proportionality principle • Group supervision

  15. Group supervision & cross-sectoral convergence Groups are recognised as an economic entity => supervision on a consolidated basis (diversification benefits, group risks) Pillar 1: quantitative requirements 1. Harmonised calculation of technical provisions 2. "Prudent person" approach to investments instead of current quantitative restrictions 3. Two capital requirements: the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR) Pillar 2: qualitative requirements and supervision 1. Enhanced governance, internal control, risk management and own risk and solvency assessment (ORSA) 2. Strengthened supervisory review, harmonised supervisory standards and practices Pillar 3: prudential reporting and public disclosure 1. Common supervisory reporting 2. Public disclosure of the financial condition and solvency report (market discipline through transparency) Solvency II: 3 pillars and a roof

  16. Pillar I: Quantitative Requirements • Market consistent valuation (fair value) of assets and liabilities, including technical provisions (Best Estimate + Risk Margin calculated on the basis of Cost of Capital) • Two capital requirements: MCR and SCR • SCR: Total balance sheet approach; VaR 99.5% 1-year • European Standard Formula for the SCR • MCR: corridor between 25% and 45% of the SCR • Internal Models to calculate the SCR: full / partial • Less or no need for lists of eligible assets or limits on investments (Prudent Person Rule) • Credit for risk mitigation (securitisation, derivatives, reinsurance) • Credit for diversification

  17. Pillar II: Qualitative Requirements • New regime places much emphasis on good governance (functions) • Risk-management: key change from old regime  Own Risk & Solvency Assessment gives focus and structure • Supervisory Review Process • More developed than in Basel II/CRD • Response to weaknesses identified

  18. Pillar III: Disclosure & Reporting • New approach in Pillars 1 & 2 means new approach needed for Pillar 3! • More freedom for firms to run themselves; but with new responsibilities new requirements for disclosure to harness market discipline in support of achieving the regulatory objectives • Power & discretion to supervisors; need to earn trust of stakeholders; need to foster supervisory convergence & achieve competitive equality  new requirements for transparency

  19. Improved group supervision • Group supervision no longer supplementary • Organised co-ordination and co-operation between all supervisors • Clear role and responsibilities for group supervisor chairing a college of supervisors • Group internal model • Group ORSA and Group Solvency and Financial Conditions Report

  20. Council Working Party negotiations • Hectic pace of negotiations under P, SI and FR Presidencies (over 1000 p. of comments) • Progress reports to ECOFIN under P and SI Presidencies • General approach ECOFIN: 2/12/2008 under FR Presidency

  21. Main issues raised in the Council • Application of the proportionality principle • Surplus funds, equity risk, mutual groups • Exclusion of small insurers • Relationship between MCR and SCR • Group supervision and group support: colleges, role of CEIOPS, role of group and solo supervisors (opposition by group of 12: power with responsibilities)

  22. Result obtained • Section on group support deleted from the final text • Introduction of a duration approach as a Member State option for equity risk • Introduction of a Pillar 1 and a Pillar 2 dampener to deal with procyclicality

  23. Negotiations in European Parliament • Several exchanges of views within ECON • Draft Report by Peter Skinner (ECON) • Draft Opinion by Sharon Bowles (JURI) • More than 800 amendments tabled • Discussion Results QIS 4: 22/09/2008 • Adoption of Skinner Report in ECON on 7 October 2008

  24. Main issues raised in EP • Exclusions: small insurers, pension funds • Relationship between MCR and SCR • Group supervision and group support: role of group and solo supervisors, legal commitment of parent, role of CEIOPS • Mutual groups and captives • Treatment of equity risk • Surplus funds

  25. Result obtained • Some 150 amendments were finally adopted in ECON • EP keen to keep group support and proposed further strengthening of cooperation between supervisors • EP opposed introduction of duration approach for equity risk and Pillar 1 dampener

  26. Trilogues • Extremely difficult negotiations between Council and European Parliament • 8 Trilogue meetings were held • EP accepts deletion of group support with review clause • EP accepts duration approach under conditions (mainly pension business)

  27. Political agreement • Agreement by Coreper on 1 April 2009 of compromise package agreed during the Trilogue meetings • EP adopts compromise package in plenary on 22 April 2009 with 593 votes in favour and 80 opposed • ECOFIN Council notes agreement of EP on 5 May 2009

  28. Next steps • Final adoption of the Framework Directive after finalisation in 22 official languages • Preparation of implementing measures by EC with help of CEIOPS and EIOPC • Delivery of level 3 guidance by CEIOPS

  29. Preparation of implementing measures • 3 consultation rounds by CEIOPS during the course of 2009 • Final CEIOPS advice by January 2010 • Discussion of draft texts with MS in subcommittee of EIOPC • Preparation of Impact Assessment with the help of an external consultant

  30. Finalisation of the process • Last QIS exercise (QIS 5) to be launched in August 2010 based upon draft technical specifications to be published in March 2010 • Several hearings with stakeholders and EP • Publication of level 3 guidance by CEIOPS by the end of 2011 • Agreement on implementing measures by end October 2011

  31. The de Larosière Report • Report issued end February 2009 • Commission Communication of 27 May 2009: keep functional supervision but with strengthening of EU level (ESRC, ESFS with EBA, ESA and EIOPA) • Legislative proposals by EC Autumn 2009 • Amendment of recast text in order to reflect de Larosière changes

  32. Solvency II … modern, innovative and liberal regime for the prudential supervision of insurers, based on sound economic principles…

  33. Conclusion Solvency II is… good for you!

  34. How to contact us? • Karel.van-hulle@ec.europa.eu • All official documents, including the text of Solvency II and preparatory papers are available on our website, which is regularly updated. http://ec.europa.eu/internal_market/insurance/solvency/index_en.htm

More Related