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Manuela Zweimueller EIOPA External Relations ASSAL Conference, Guayaquil, Ecuador 24 April 2012

The New Insurance Core Principles: How do they operate in practice? Round Table: Implications for the Supervisory Body I CPs, EIOPA & Solvency II. Manuela Zweimueller EIOPA External Relations ASSAL Conference, Guayaquil, Ecuador 24 April 2012. Outline.

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Manuela Zweimueller EIOPA External Relations ASSAL Conference, Guayaquil, Ecuador 24 April 2012

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  1. The New Insurance Core Principles: How do they operate in practice?Round Table: Implications for the Supervisory BodyICPs, EIOPA & Solvency II Manuela Zweimueller EIOPA External Relations ASSAL Conference, Guayaquil, Ecuador 24 April 2012

  2. Outline Current regulatory environment in Europe The ESAs: New regulatory and supervisory landscape – New responsibilities, new challenges ESRB – Ensuring financial stability From SI to SII – The final countdown SII as the practical implementation of the new ICPs Selected examples Implementation challenges 2

  3. Legal Status European Union body with legal personality as well as administrative/financial autonomy Autonomous budget - revenues from national authorities and EU Budget Accountable to EU institutions First Chairman: Gabriel Bernardino (1 March) First Executive Director: Carlos Montalvo (1 April) 3

  4. EIOPA’s Mission “Protect the public interest by contributing to the short, medium and long–term stability and effectiveness of the financial system, for the Union economy, its citizens and businesses.” 4

  5. EIOPA’s key objectives Ensure appropriate & sound regulation and supervision of risk taking by the (re)insurance and occupational pension industry Prevent regulatory arbitrage and promote equal conditions of competition Ensure integrity, transparency, efficiency and orderly functioning of financial markets Ensure a stable & effective financial system Enhanced customer protection Improve functioning of financial markets, incl. a sound effective and consistent level of regulation and supervision Strengthen international supervisory coordination 5

  6. EIOPA’s Powers Art 8 (2) Develop draft regulatory technical & implementing standards Issue guidelines/recommendations regarding consistent, efficient and effective supervisory practices Take individual decisions addressed to CAs or financial institutions Issue opinions to the European Parliament/Council/Commission Collect necessary information concerning financial institutions Develop common methodologies for assessing the effect of product characteristics/distribution processes on the financial position of institutions and on consumer protection Provide a centrally accessible data base of registered financial institutions 6

  7. Tools Member in Colleges of supervisors Expert groups and committees Insurance/reinsurance and occupational pensions stakeholder groups Peer Reviews Impact Assessment/Consultation Stress Testing Monitor and assess market development/Economic analyses of markets Sectoral and cross-sectoral training programmes 7

  8. European and national activity Working Groups Chair EIOPA ED National supervision BOS Staff 8

  9. EIOPA and national supervisors as part of … European System of Financial Supervision European Systemic Risk Board (ESRB) – macro view Non-voting: Representative of the national supervisor(s) per Member State + EFC President ECB Council (with insurance and securities alternates where necessary) Chairs of EBA, EIOPA & ESMA European Commission + + + European Supervisory Authorities and National Supervision – micro view European Banking Authority (EBA) European Securities and Markets Authority (ESMA) European Insurance and Occupational Pensions Authority (EIOPA) National Insurance and Pension Supervisors National Securities Supervisors National Banking Supervisors

  10. Developing the regulatory framework for Solvency II • Solvency I • Framework dates from the 1970s • 14 Directives • ‘Prudent’ valuation of liabilities reflect local accounting practices, non-harmonised valuation of TP • Simple ‘volume-based’ capital requirements • Asset risk managed by quantitative restrictions • Diverging supervisory practices • Solvency II • Three pillar structure • A risk-based approach • Unified legislative basis for pruden-tial regulation of insurers & r/i • Employs Lamfalussy arrangements • Non-zero failure regime (explicit ruin probability) • Two capital requirements • Market consistent valuation • Importance of risk management • Streamlined group supervision 10

  11. EIOPA is currently working on +/- 50 sets of draft guidelines and standards • Areas of standards and guidelines: • Valuation of assets and liabilities including technical provisions • Solvency capital requirements • Own funds • Internal models • Group supervision • Supervisory transparency and accountability • Supervisory reporting and public disclosure • Governance • ORSA • Supervisory review process • Capital add-ons • Extension of recovery period (“Pillar 2 dampener”) • Finite reinsurance • Special purpose vehicles • Repackaged loan investments Single rulebook

  12. “Level 3” Draft standards and guidelines by EIOPA “Level 2” DraftCOM proposal for implementing measures “Level 1” Vote EU Parliament on OMDII July (Sept.) Trialogue on OMDII (April- June) ECON vote on OMDII 21/03/12 Solvency will enter into force in 2014 (“phase-in” in 2013)

  13. Outline Current regulatory environment in Europe The ESAs: New regulatory and supervisory landscape – New responsibilities, new challenges ESRB – Ensuring financial stability From SI to SII – The final countdown SII as the practical implementation of the new ICPs Selected examples Implementation challenges 14

  14. New ICPs: Implications for the Supervisor - Scope 15

  15. New ICPs: Implications for the Supervisor - Scope 17

  16. EIOPA Financial Stability Report

  17. New ICPs: Implications for the Supervisor 21

  18. New ICPs: Implications for the Supervisor - Scope International aspect: ComFrame 23

  19. Rights and duties of the Group Supervisor in SII (Art. 248)

  20. Implementation challenges (1)SII as the practical implementation of the new ICPs Implementation: Task of the national supervisor Several elements of SII not yet fully available but FSAP assessments already focus on new ICPs Examples of national implementation of some of the SII elements: UK enhancements („handbook“) such as on Resilience Capital, ICAS, Risk Management, ARROW, Realistic balance Sheets BaFin circular on MaRisk Best to reflect ICPs when considering enhancements of the current system In EU/EEA, limited implementation flexibility as SII strives for a harmonized regime in the internal market Proportionality principle contained in both systems 30

  21. ICPs: Major enhancements on Corporate Governance Risk Management Group-wide Supervision Macroprudential Surveillance Well reflected in SII so that this should not cause any problems in implementation of the new ICPs For companies & supervisors alike: Time needed to understand the SII requirements and their operational implementation Pillar II and Pillar III (ORSA, Governance, disclosure) Training, Human resources (supervisory skill and experience) IT, Data collection Implementation challenges (1)SII as the practical implementation of the new ICPs 31

  22. Thank you For additional questions please contact: Dr. Manuela Zweimueller, External Relations external.relations@eiopa.europa.eu phone: +49-69-95111946

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