Júlia Čillíková The insurance in EU on the threshold of the third millennium – May 2011

1. NEW ARCHITECTURE OF THE SUPERVISION OF THE INSURANCE INDUSTRY IN THE EU IS NOT ONLY A REACTION TO CRISIS Júlia Čillíková The insurance in EU on the threshold of the third millennium – May 2011

2. Role of the National bank of Slovakia in the supervision of the insurance market The insurance in EU on the threshold of the third millennium – May 2011

3. NBS organizational structure The insurance in EU on the threshold of the third millennium – May 2011

4. Brief description • Rulemaking activities (regulation department) • generally binding regulations of the NBS - decrees, methodology • Licensing&enforcement(supervision department) • Supervision – Microprudential(supervision department) • Off-site supervision • On-site supervision • Supervision – Macroprudential (financial analyses department) • Analyses– analyses for internal and external users, for supervision purposes and monitoring of insurance market stability • Complaints handling • Data collection, processing, storage and disclosure of information (statistics department) The insurance in EU on the threshold of the third millennium – May 2011

5. Macroprudentialanalyses • Focus on early identification of risks and adverse trends in the insurance industry and the whole financial sector • Systemic view • Macroprudential analyses on quarterly and half yearly basis • Monitoring of trends • Identification of risks and threats Monitoring of risks – macro-stress testing Impact of stress testing on insurance sector (profit & loss as a percentage of total assets) The insurance in EU on the threshold of the third millennium – May 2011

6. Lesson learned from financial crises The insurance in EU on the threshold of the third millennium – May 2011

7. Lessons learned • Macroprudential supervision needed • Important to identify systemically important financial institutions (SIFIs) • Microprudential supervision • More focus on risk – Solvency II on right track • Insurance is different business model as banks • Less important from a systemic point of view • Lower exposition to liquidity risk • More connection to real economy – policyholder behavior • Regulation - no zero failure environment The insurance in EU on the threshold of the third millennium – May 2011

8. New architecture of the European financial supervision The insurance in EU on the threshold of the third millennium – May 2011

9. Solvency II The insurance in EU on the threshold of the third millennium – May 2011

10. Highlighted issues • Fifth quantitative impact studyshowed that for all tested insurance undertakings own funds were higher than required capital (SCR) • However, further work is needed • Open issues: Expected profits included in future premium (EPIFP), Contract Boundaries, CAT risk, too complexmethodology, etc. • More focus on system of governance and disclosure(pillar 2 & 3) • Huge administrative work connected to transposition of level 1 directive to Slovak act on Insurance • Challenge for supervisors (harmonized supervisory tools, increased EU dimension, well prepared stuff, new IT tools, etc.) • Level 1 – Omnibus II • Pros: Postponed implementation (two months) • Cons: Postponed work on Delegated Acts, Transitional provisions The insurance in EU on the threshold of the third millennium – May 2011

11. Project for implementation of the Solvency II in the Slovak republic • Analysis of the preparedness of the insurance undertakings for the Solvency II (published: November 2010) • Analytical data of the fifth quantitative impact study (published: March2011) • Analysis of the impact of the Solvency II on the National bank of Slovakia (published: April 2011) • Report on the fifth quantitative impact study (will be soon available) • Analysis of the legislation framework after the implementation of the Solvency II (will be soon available) • Ongoing work on the Level II, Level III (delegated acts and guidelines) and Omnibus II • Transposition of the Solvency II to Slovak act on insurance • Other activities (discussions with market, presentations, etc.) The insurance in EU on the threshold of the third millennium – May 2011

12. Solvency II project- Timetable Ongoing work on Level 1, Level 2 a Level 3 Transposition of the S II to Slovak act on insurance Analyses of the preparedness of the Slovak republic Analysis of the legislation framework QIS 5 Impact of the S II on the NBS Prepar. of the market March April May June July Presentations . The insurance in EU on the threshold of the third millennium – May 2011

13. Issues related to Solvency II • Review of the IORP directive April 2011 – Call for advice from EC on review of IORP Directive (deadline: December 2011) Deliverable: advice on principles for Level 1 IORP II Directive Reasons for review: • Remove regulatory obstacles for cross-border operation of IORPS • Implement risk-based supervision • Modernize prudential regulation for DC IORPs Allocation of work: The insurance in EU on the threshold of the third millennium – May 2011

14. Consumer protection The insurance in EU on the threshold of the third millennium – May 2011

15. Current workstreams • Insurance Guarantee Schemes • NBS is against the IGS • Main arguments: moral hazard, not suitable for too concentrated insurance market such as Slovak republic • Highlighted issues: • home vs. host, ex post vs. ex ante, full coverage vs. focus on life or non-live, etc. • Packaged retail investment products (PRIPs) • November 2010 – January 2011: Consultation on PRIPs • Scope: • “with-profits” – grey area • Pensions – out (IORP review) • Pre-contractual disclosures: KIID (UCITS) • Sales: MiFID The insurance in EU on the threshold of the third millennium – May 2011

16. Current workstreams • Insurance mediation Directive • Conflicts of interest • Disclosure of remuneration • Review of information requirements • Classical Directive structure of the IMD (If the revised IMD provisions in this area are set at a maximum level this could result in a lower degree of protection if this was below the level of protection provided currently by individual Member States.) • Reducing the administrative burden • Increased efficiency in cross-border business and new notification provisions for IMD2 • IMD exclusion for reinsurance transactions The insurance in EU on the threshold of the third millennium – May 2011

17. Current workstreams • The role of the EIOPA • Article 9, EIOPA Regulation No. 1094/2010 of the European Parliament and of the Council - Tasks related to consumer protection and financial activities • Therole of the National bank of Slovakia • Possible solution - Twin peaks model ??? The insurance in EU on the threshold of the third millennium – May 2011

18. Discussion The insurance in EU on the threshold of the third millennium – May 2011

19. THANK YOU FOR YOUR ATTENTION • Júlia Čillíková • Director of the Regulatory • and Financial Analysis Department • Tel: 00421 2 5787 3300 • Fax: 00421 2 5787 1118 • E-mail: julia.cillikova@nbs.sk • National Bank of Slovakia • Imricha Karvaša 1 • 813 25 Bratislava 1 • Slovak Republic The insurance in EU on the threshold of the third millennium – May 2011