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CEIOPS and the Forthcoming Insurance Prudential Regulation

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The general design of the new model. State of play and next steps ... Enhanced risk sensitiveness. Trade-off effectiveness vs. simplicity ... – PowerPoint PPT presentation

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Title: CEIOPS and the Forthcoming Insurance Prudential Regulation


1
CEIOPS and the Forthcoming Insurance Prudential
Regulation
  • Alberto Corinti
  • CEIOPS Secretary General
  • Solvency II
  • MIB School of Management
  • Trieste, 4 March 2005

2
Arguments
  • The role of CEIOPS
  • Overview of the CEIOPS Work Plan
  • CEIOPS and the Solvency II project
  • The general design of the new model
  • State of play and next steps
  • Main issues in CEIOPS answer to the first wave
  • Accounting implications

3
Role of CEIOPSThe Framework
  • The four level model of the new EU regulatory
    framework
  • I Framework principles (directive)
  • II Implementing measures
  • Comitology procedure
  • III Actual Implementation
  • Supervisory Standards
  • IV Enforcement
  • The actors at the first three levels

4
Economic and Finance Committee
Financial Services Committee
Parliament Committees
Council Working Groups
EIOPC Insurance Pensions
EBC Banking
ESC Securities UCITS
FCC Financial Conglomerates
Regulators level 2 committees
CEIOPS
CESR
CEBS
Supervisors level 3 committees
3L3
5
Role of CEIOPS
  • CEIOPS was established by the Commissions
    Decision of 5 November 2003 as Level 3 Committee
    in the Insurance and Pensions field
  • Level 2 tasks
  • It works as an independent advisory committee
    and, as such, shall advise the Commission for the
    preparation of draft implementing measures.
  • Level 3 tasks
  • It works for a consistent implementation of EU
    Directives,
  • can issue its own standards in areas not covered
    by EU Directives and shall promote adoption of
    best practices and
  • shall constitute a forum for exchange of
    information and supervisory cooperation.

6
Role of CEIOPS
  • Accountability
  • CEIOPS submits an Annual Report to the Commission
    which also will be sent to the EP and Council
  • Takes part in IC/EIOPC and FSC-EFC meetings
  • Meeting of Chairs of Level 3 Committees (3L3)
  • Transparency and Consultation
  • CEIOPS shall fulfills its tasks in a spirit of
    openness and transparency
  • CEIOPS publishes an Annual Work Programme
  • CEIOPS consults market participants both ex ante
    and ex post (mainly for level 2 work but also for
    level 3 work)
  • Public Statement on Consultation Practices
  • Market Participants Consultative Panel

7
CEIOPS Structure and relations with third parties
Members Meeting (25 3)
EU Commission
EFC - FSC EIOPC 3L3
Consultative Panel
Managing Board (5 2)
Secretariat
  • Working Groups
  • Insurance Groups Supervision
  • Financial Stability
  • Occupational Pensions Funds
  • Insurance Mediation
  • Solvency II
  • Pillar I Life
  • Pillar I Non-life
  • Pillar II
  • Pillar III Accounting
  • Group/Cross-Sector Issues

EU Commission CEBS CESR ARC EFRAG IAIS Actuaries
..
INDUSTRY CEA EFRP AISAM FEE .
8
Arguments
  • The role of CEIOPS
  • Overview of the CEIOPS Work Plan
  • CEIOPS and the Solvency II project
  • The general design of the new model
  • State of play and next steps
  • Main issues in CEIOPS answer to the first wave
  • Accounting implications

9
CEIOPS work plan the issues
  • Level 2
  • Solvency II project
  • Level 3
  • IORP Occupational Pensions Directive
  • IAS Regulation
  • Insurance groups Supervision Directive
  • (and Conglomerate Directive)
  • Insurance Mediation Directive
  • (Reinsurance Directive)

10
CEIOPS Work Plan The Working Groups
  • 5 Solvency II Experts Groups
  • Analysis of issues to be included in the three
    pillars of the future insurance solvency regime (
    level 1, level 2 and level 3 rules)
  • Pillar III WG also follows accounting
    developments affecting insurance
  • Cross Sector WG analyses groups and
    conglomerates issues in the forthcoming
    regulation

11
CEIOPS Work Plan The Working Groups
  • Occupational Pensions Committee
  • Enhancing common understanding of the IORP
    Directive
  • Facilitating cooperation on cross border
    membership (conclusion of Cooperation Protocol)
  • Dealing with issues related to pension funds

12
CEIOPS Work Plan The Working Groups
  • Insurance Groups Supervision Committee (former
    HPWG)
  • Enhancing common understanding of IGD
  • Harmonization and streamlining of supplementary
    supervision of groups
  • Enhancing cooperation between supervisors in
    dealing with multinational groups

13
CEIOPS Work Plan The Working Groups
  • Financial Stability Committee
  • Establishment of a macro-prudential surveillance
    programme formonitoring the interplay between
    insurance and financial stability
  • Study and report on financial stability issues
  • Organizing Q.I.S. in the frame of the Solvency II
    project

14
CEIOPS Work Plan The Working Groups
  • New Initiative on Insurance Mediation
  • First meeting in December 2004
  • Mandate to be endorsed
  • Conclusion of Cooperation Protocol

15
Arguments
  • The role of CEIOPS
  • Overview of the CEIOPS Work Plan
  • CEIOPS and the Solvency II project
  • The general design of the new model
  • State of play and next steps
  • Main issues in CEIOPS answer to the first wave
  • Accounting implications

16
The Solvency II Project
  • Main driving factors
  • Global solvency approach
  • Enhanced risk sensitiveness
  • Trade-off effectiveness vs. simplicity
  • Encouraged internal risk management
  • Flexibility
  • Compatibility with IAIS / IAA
  • Cross border and sectoral convergence

17
The Solvency II Project
  • The general design (after phase I)
  • I financial requirements
  • II risk management and supervisory process
  • III disclosure requirements

18
The Solvency II Project
  • The first pillar
  • Capital requirements
  • Minimum level (safety margin)
  • Target capital (SCR)
  • Standard formula (assumptions on quantifiable
    risks)
  • Internal model
  • Link with the supervisory review process
  • Validation of internal models
  • Added capital requirements

19
The Solvency II Project
  • The first pillar (continued)
  • Technical provisions
  • Explicit prudential level
  • Guidelines for life technical assumptions
  • Common statistics and guidelines for claims
    management
  • Investments
  • Prudent person - plus approach
  • Also coverage of capital requirement

20
The Solvency II Project
  • The second pillar
  • Internal management, i.e.
  • Governance, internal control and risk management
  • Investment and ALM (relations with Pillar II)
  • Fitness and propriety

21
The Solvency II Project
  • The second pillar (continued)
  • Supervisory process, i.e.
  • Process
  • Off site and on site reviews
  • Powers of intervention ad solvency control levels
  • Transparency
  • Tools
  • stress tests
  • early warnings
  • An horizontal issue Group supervision

22
The Solvency II Project
  • The third pillar
  • Disclosure of financial situation and risks
  • Market discipline effects
  • Consistency with accounting framework

23
Arguments
  • The role of CEIOPS
  • Overview of the CEIOPS Work Plan
  • CEIOPS and the Solvency II project
  • The general design of the new model
  • State of play and next steps
  • Main issues in CEIOPS answer to the first wave
  • Accounting implications

24
The Solvency II Project
  • State of play
  • CEIOPS is mainly working on Pillar I and Pillar
    II
  • Priority on issues included in the 1st and 2nd
    wave, but
  • holistic approach (see 1st progress report)
  • First wave (mainly pillar II issues) issued in
    July 2004
  • Internal control and risk management
  • Supervisory review process (general)
  • Supervisory review process (quantitative tools)
  • Transparency of supervisory actions
  • Investment management rules
  • Asset-liability management

25
The Solvency II Project
  • State of play
  • Second wave (mainly pillar I) issued in Dec.
    2004
  • technical provisions life and non life
  • safety measures
  • solvency capital requirement (standard/internal
    model)
  • Reinsurance
  • QIS
  • power of supervisors and solvency control levels
  • Fit and proper criteria
  • Peer review
  • Group and cross sectoral issues
  • Pillar III will start soon, after first results
    of Pillar I

26
Project time schedule
27
The Solvency II Project
  • Next steps
  • Proposal of framework directive 2nd half 2006
  • Third wave (pillar III) expected early 2005
  • CEIOPS advice on first wave expected in June
    2005 (consultation started 25 Feb. 2005)
  • CEIOPS advice on second wave expected in Oct.
    2005 (consultation June 2005)
  • CEIOPS started preparation phase for QIS

28
Calls time schedule
29
Arguments
  • The role of CEIOPS
  • Overview of the CEIOPS Work Plan
  • CEIOPS and the Solvency II project
  • The general design of the new model
  • State of play and next steps
  • Main issues in CEIOPS answer to the first wave
  • Accounting implications

30
Draft answer to the First wave (general)
  • Focus on issues relevant for Directive
  • Broad principles on potential level 2 rules
  • Framework for answers
  • do not address conduct of business
  • apply to solo supervision
  • apply the principle of proportionality
  • Dynamic boundary between level 2 and 3

31
Draft answer to the First wave
  • Internal control and risk management
  • Emphasis on Governance as umbrella of R.M. and
    I.C.
  • Principle in the directive and balance of level 2
    and 3 rules
  • Governance, I.C and R.M based on IAIS CP

32
Draft answer to the First wave
  • Investment management and ALM
  • Trade-off between
  • General principles
  • Quantitative limits
  • Capital requirements
  • Same treatment of assets covering T.P., MCR, SCR
  • ALM considered in designing capital requirements
  • Principles on Investment/ALM policy and
    procedures

33
Draft answer to the First wave
  • Supervisory Practices
  • Focus on forward looking analysis
  • On-site and off-site review principles
  • Resilience tests compatible with markets and
    business lines (details in level 3 regulation)
  • Early warning indicators (details in level 3)
  • Transparency of
  • Regulation (ex ante and ex post) and supervisory
    process (toward public)
  • Findings of supervisory review (toward firms)

34
Arguments
  • The role of CEIOPS
  • Overview of the CEIOPS Work Plan
  • CEIOPS and the Solvency II project
  • The general design of the new model
  • State of play and next steps
  • Main issues in CEIOPS answer to the first wave
  • Accounting implications

35
Accounting Implications
  • The current situation
  • Critical endorsement of IASs for 2005 (financial
    instruments)
  • Undefined situation for insurance
  • Standard on insurance contracts to be completed
    (phase II)
  • Standard on financial instruments to be reviewed
  • Short term and long term impacts on supervision

36
Accounting Implications
  • Short term impacts (2005), driven by
  • implementation of EU Regulation 1606/02
  • adoption of Directive 2003/51
  • Differences in national situations
  • Possible EU supervisory reactions
  • Supervisory filters for applying current
    supervisory tools (see CEIOPS consultation paper
    no. 3)
  • Guidelines on formats for reporting

37
Accounting Implications
  • Long term impacts
  • Driven by need of consistency between Solvency II
    and IFRS insurance phase II
  • Critical trade-off between capital and technical
    provisions
  • Possible supervisory actions
  • Supervisory reporting consistent with public
    financial statements
  • Creation of IAS compatible rules on prudential
    measurement of technical provisions

38
ConclusionsMain Trends
  • Enhanced role of capital requirements
  • New instruments and processes both at firm and
    supervisory level (e.g. internal models)
  • Focus on risk management and good governance
  • Wider use of ex ante tools (stress analysis)
  • Cross border and sectoral convergence
  • www.ceiops.org
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