Title: CEIOPS and the Forthcoming Insurance Prudential Regulation
1CEIOPS and the Forthcoming Insurance Prudential
Regulation
- Alberto Corinti
- CEIOPS Secretary General
- Solvency II
- MIB School of Management
- Trieste, 4 March 2005
2Arguments
- 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
3Role 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
4Economic 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
5Role 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.
6Role 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
7CEIOPS 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 .
8Arguments
- 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
9CEIOPS 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)
10CEIOPS 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
11CEIOPS 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
12CEIOPS 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
13CEIOPS 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
14CEIOPS Work Plan The Working Groups
- New Initiative on Insurance Mediation
- First meeting in December 2004
- Mandate to be endorsed
- Conclusion of Cooperation Protocol
15Arguments
- 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
16The 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
17The Solvency II Project
- The general design (after phase I)
- I financial requirements
- II risk management and supervisory process
- III disclosure requirements
18The 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
19The 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
-
20The 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
21The 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
22The Solvency II Project
- The third pillar
- Disclosure of financial situation and risks
- Market discipline effects
- Consistency with accounting framework
23Arguments
- 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
24The 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
25The 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
26Project time schedule
27The 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
28Calls time schedule
29Arguments
- 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
30Draft 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
31Draft 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
32Draft 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
33Draft 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)
34Arguments
- 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
35Accounting 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
36Accounting 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
37Accounting 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
38ConclusionsMain 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