eiopa & solvency ii what to expect in non-member states such as switzerland gabriel bernardino...
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EIOPA & Solvency IIWhat to expect in non-member states such as Switzerland
Gabriel BernardinoChairman of EIOPA
Swiss Insurance AssociationZurich, 1 December 2011
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Outline
1. What is EIOPA?
Key objectives
Powers
Activity
Challenges
2. Solvency II – The final countdown
3. Equivalence – The road to convergence
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What is EIOPA?
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EIOPA’s key objectives
• Stable/effective financial system
• Sound regulation/supervision
• Transparent, efficient and orderly markets
• International supervisory co-ordination
• No regulatory arbitrage
• Equal conditions of competition
• Appropriate regulation/supervision of risks
• Enhanced customer protection
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EIOPA’s powers
• Develop draft technical standards
• Issue guidelines and recommendations
• In certain cases, remedy emergency situations
• Settle disagreements in cross-border situations
• Monitor correct application of EU law
• Methodologies for products and distribution
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EIOPA’s activity
• Regulation
Solvency II
Input to the EU Commission on the Level 2 implementing measures
On-going work on the Regulatory Technical Standards and Guidelines and Recommendations
Review of the IORP Directive
Draft answer to the call for advice from the EU Commission (in public consultation until 2 January 2012)
Introduce a risk-based framework in the EU occupational pensions supervision
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EIOPA’s activity
• Supervision
Participation in the colleges of supervisors
Providing an added value on consistency and making recommendations in order to assure a convergent and coherent functioning
EIOPA colleges action plan (definition and monitoring)
EU wide stress test
Common framework applied by all undertakings
Evaluate the overall stability of the EU insurance market and assess the major prospective vulnerabilities
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EIOPA’s activity
• Financial Stability
Monitor and assess market developments
Using efficiently the public information available
Collecting more granular information directly from the national supervisory authorities
specific quantitative and qualitative queries
visits by EIOPA staff
Cross-sectoral risk assessment
Done at the level of the Joint Committee of the ESA’s
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EIOPA’s activity
• Consumer protection
Committee on Consumer Protection and Financial Innovation
Guidelines on complaints-handling by insurance undertakings
Best practices on disclosure and selling practices of variable annuities
Report on Financial Literacy and Education Initiatives
First report on consumer trends
Complex unit-linked life insurance
Payment Protection Insurance
Use by consumers of comparison websites
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EIOPA’s activity
• International Relations
Solvency II equivalence analysis
Switzerland, Bermuda and Japan in the first wave
Off-site and on-site analysis to prepare the advice to be given to the EU Commission
International Association of Insurance Supervisors
EIOPA full member of the IAIS - the international standard setter in the insurance area
EIOPA chair elected to the Executive Committee
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EIOPA’s challenges
• Building phase but already need to deliver
• Recruit and maintain highly skilled, competent and experienced staff
• Implementation of Solvency II
• Deliver more standardized and comparable information to consumers
• Create a centralized hub of information for stability purposes
• Deal with the specificities of system risk in insurance
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EIOPA’s challenges
• Creation of a truly European supervisory culture that:
Promotes stability
Enhances transparency
Fosters consumer protection
• A culture based on intelligent and effective regulation
• A culture that adds credibility and promotes good practices
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Solvency IIThe final countdown
• What is still missing?
Level 2 implementing measures
Omnibus 2
Technical standards and guidelines
• EIOPA plans to start public consultation of technical standards on May 2012
Solvency II – The final countdown
• KEY challenge: How to deal with the impact on long-term guaranteed products?
Mitigate the effect of short-term volatility
Preserve transparency of economic approach
Reward long-term ALM and hedging strategies
Build counter-cyclical measures
Reinforce level playing field
Solvency II – The final countdown
• Countercyclical tools Pillar I equity dampener
MCR and SCR - Supervisory ladder of intervention
Pillar II extension of the recovery period
Counter Cyclical Premium A tool to be used in crisis situations Complete formulaic approach is not desirable or even possible Clear criteria and indicators monitored by EIOPA Decision on the application of the CCP, by EIOPA on a European
basis, when certain defined thresholds would be exceeded Avoid incentives to insurers to invest in higher risky assets Should not be used to maintain unsustainable business models
in an on-going situation
Solvency II – The final countdown
Solvency II – The final countdown
Key challenge:
Capital is not the answer for poor risk management
Capital is not the solution for all the risks
Effective risk management processes and practices, applied in a consistent way can be a relevant tool to foster policyholder protection and promote stability in the markets
Solvency II – The final countdown
Key challenge:
Appropriate reporting to supervisors
Quarterly reporting of some core elements
Increase of risk-based information
Preventive supervision is based on the access to timely and quality information
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SII EquivalenceThe road to convergence
SII Equivalence
• SII Directive gives EU Commission authority to
decide about the equivalence of a third country’s
solvency and prudential regime
• EIOPA is responsible for the technical assessment
Benefits of equivalence
• Ensure an adequate level of policyholder
protection on a global basis
• Facilitate cross-border activities of insurance
and reinsurance undertakings
• Reduce regulatory complexity – diminish the
burden on internationally active insurance groups
• Reinforce the global trend towards introducing
economic risk-based approaches
Consequences of equivalence
1. A (re)insurer located in a third country enters into
a reinsurance arrangement with a (re)insurer
in the EU
Reinsurance contracts treated in the same manner as
contracts concluded with EU (re)insurers
EU member states not allowed to require collateral
Consequences of equivalence
2. A (re)insurer headquartered in the EU has
participations or subsidiaries located in a
third country
EU Group to use third country rules on own funds and
capital requirements rather than SII rules for the
calculation of the Group Solvency Capital Requirement
EU Group undertakings in third countries do not need to
recalculate their data according to SII
Consequences of equivalence
3. A (re)insurer headquartered in a third country has
participations or subsidiaries located in the
EU
EU supervisory authorities required to rely on group
supervision exercised by third country supervisors
Avoid burden to third country international groups
Demystifying equivalence
• Not in search for a copy of SII !!!
• But go beyond the simple definition of the
objectives of the regimes…
• Equivalence assessments are principles based:
Is the third country regime risk-based?
Are the basic principles of Solvency II reflected in the
third country regime? (e.g. fully risk-based capital
requirements, enhanced group supervision, etc…)
Criteria for equivalence
• Areas to be assessed:
Powers and responsibilities of third country supervisors
Taking-up of business
System of governance
Public disclosure
Changes in business, management or qualifying holdings
Solvency assessment
Professional secrecy, exchange of information
Group supervision
Transitional regime for equivalence
• To be applied to third countries willing and
committed to converge towards a risk-based
regime over a pre-defined period
• Subject to a EU Commission decision
• Subject to conditions to be defined in Omnibus 2
• EIOPA to perform gap-analysis
EIOPA experience with equivalence
• Excellent cooperation with third country
authorities
• Information provided and dialogue with third
country supervisors was essential to assure the
quality and accuracy of the assessments
• EIOPA has identified which aspects of the third
country regime could be deemed equivalent and
what additional steps would need to be taken in
order for the remaining criteria to be met
EIOPA experience with equivalence
• EIOPA’s advice is that Switzerland meets the
criteria set out in EIOPA’s methodology for
equivalence assessments under Solvency II, but
with certain caveats• This findings reflect the efforts to maintain a
fruitful cooperation between the Swiss and EU
supervisory regimes • In-depth dialogue and cooperation between
EIOPA and FINMA will continue beyond
equivalence
“Very important step in the right direction
with regards to international cooperation and
acceptance of supervisory regimes”
Comment to EIOPA’s assessment
SII equivalence assessment
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