solvency ii news april 2012

Solvency ii Association1200 G Street NW Suite 800 Washington, DC 20005-6705 USA Tel: 202-449-9750 www.solvency-ii-associa

tion.com

Solvency I I News, April 2012

Dear member,

“We’re no longer a committee of supervisors, we’re an authority”

Interview with Gabriel Bernardino, Chairman of EIOPA, conducted by André de Vos, Omni magazine

Supervisory authority EIOPA submitted recommendations for new European pension regime to the European Commission on 15 February.

EIOPA Chairman Gabriel Bernardino understands that the proposed changes make the sector nervous. ‘But let’s not start panicking; this is only the first step.’

Ice flows in the Main fifty metres below us.

The view from Gabriel Bernardino’s office is breathtaking, even on a grey February afternoon.

The EIOPA’s offices are located on the 14th, 25th and 26th floors of the green glass Westhafen Tower along the banks of the Main in Frankfurt.

As the wind whistles outside the glass panels, EIOPA Chairman Bernardino details the European Insurance and Occupational Pensions Authority recommendations released that same day regarding changes to IORP European pension regime.

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Bernardino & Co.’s final recommendations were submitted the same day to the European Commission. The Commission in turn issued its ‘white paper’ on the pension funds a day later.

The ‘white paper’ contained elements from the EIOPA recommendations which, after all, had been released last October for consultation.

The version most recently submitted to the EC incorporates the 170 responses to the recommendations received.


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Are you surprised by the number of responses to your recommendations?

‘The pension sector takes these recommendations seriously and we’ve received responses from every possible type of organisation, not just the pension funds, facilitators and insurers, but also government authorities, labour unions, employers and even participants.


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I’m pleased with the wide diversity of responses.

It’s nice to have generated so many opinions, although a percentage of the feedback did not pertain directly to our recommendations, but to the content of the tasks assigned to us by the European Commission.’

Recommendations running to more than 500 pages is not exactly easy reading.

‘That was a deliberate decision.

We’re breaking new ground and this is a sensitive discussion.

That’s why we aim to be completely transparent, to show how we arrived at our decisions, who our sources are, the pros and cons of our position and the steps we’d like to take. That results in a thick document.

But the one that I ’m satisfied with. And those who only read the blue boxes with the advice itself can still get a clear picture of our intention.’

Did all of those responses lead to changes to your original recommendations?

Some of them do. We now clearly explain in the introduction what our goal is and, of all the options set out in the original recommendations, quite a few have been shelved.

The recommendations have been streamlined, but are mostly in line with the consultation advice given in October.’This will come as a disappointment to many.

‘Many people are acting as if everything is already set in

stone. But let’s not start panicking; this is only the first

step.Solvency ii Association

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There’s still plenty of work to be done before a new European regime is in place.’

Many of the responses to your recommendations, including from the Netherlands, point to the fact that the EIOPA should not be meddling in this area – hands off our pension schemes!

‘That’s understandable.

It’s a misconception to think that our goal is to replace the existing schemes. We want to see where improvements can be made.

There are always similarities across national pension systems. What they all have in common is that pension promises are being made across Europe.

Regardless of the national structure used to fulfil those promises, we believe that clarity is needed at European level regarding the value of those promises.

But to do this we must be able to compare, which in turn requires European regulations.

This is ultimately in everyone’s best interest, from employees to the funds making the pension promises in the various countries to the pension industry itself, which will be in a better position to operate across borders.’

‘European organisations like EIOPA need to communicate better about the added value of these types of European agreements, certainly at a time when the EU itself is under debate.

It is precisely because of the EU current unpopularity we need to move forward in this way.


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These kinds of recommendations are in keeping with that ambition. They’re good for Europe.’

What is your personal opinion of the most important proposals in the recommendations?

‘We’re putting forward a ‘holistic balance sheet’, a harmonisation on top of the existing balances, which will make it possible to compare pension funds.

Clear European rules are needed for the governance of pension

funds. And participants in pension funds with a defined

contribution plan mustbe provided with clear and accessible information in a standardisedfashion.

This is called a ‘Key Information Document’.’

The proposals for the holistic balance sheet require further development.

‘Over the next few months, we’re going to carry out a quantitative impact study on how our proposals would look like in practice.

We’re starting in April and will conduct this study in the countries where Defined Benefit Plans are most relevant. (Until now we have 7 countries including the Netherlands).

Our primary goal is to develop a uniform and consistent manner to communicate about pensions.’

The pension sector is afraid that the new European pension regime will impose much stricter capital requirements on pension funds, like those in Solvency I I .


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‘I have no intention of imposing another Solvency I I on the pension sector. That is a persistent misconception.

But it’s not mentioned in our recommendations.

After all, there are essential differences between pension funds and insurers, so you cannot impose capital requirements in the same way.

That doesn ’t alter the fact th at So lv en cy I I con t ain s a n umber of important provisions in areas like governance and risk management that can also be used for pension funds.’

What kind of changes are needed in the area of governance?

‘Pension promises in Europe need to be guaranteed in the same way across Europe.

This means that governance also needs to be organised in a comparable manner.

Regardless of national pension system structures, the administrators responsible for investments need to understand what they are investing in.

The knowledge level of pension administrators is a pan-European theme; agreements in this area also need to be made at European level.

But it should still be possible to distinguish between large and small funds, DB and DC schemes.’

Pension funds are afraid that larger buffers will lead to lower pensions.

‘We need a pension regime with a good balance between certainty and affordability.


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That’s where buffers come in.

If you want 100% long-term security , there will be no funds left for pensions.

And if you only consider the affordability of the system, too much risk is taken.

We want to supply instruments that make it possible to view risks across Europe in the same way.

We want a consistent approach to risk across Europe.

This can also entail certain minimum requirements for

buffers. But that is ultimately a political decision and does

not concern us.

We simply aim to provide a clear framework that facilitates risk and return determination.’

All pension funds are to be based on market value from now on.

‘Our standpoint is that, if you want to effectively compare pension funds, the market value of assets and obligations should form the basis.

That is the holistic balance sheet approach.

If everyone uses the same reporting format, pension agreements can be easily compared. But this still means pension funds can continue to consider their national specificities.

Not only that, but it provides the possibility of incorporating assurances as buffers on the national level.


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Our aim is to achieve comparability of the various national systems with as little impact on those systems as possible.’

The Dutch believe that the Netherlands has the best pension system. Should we be concerned that it could be undermined by European regulations?

‘The Netherlands must also be integrated into the European system, which, after all, is the whole point of the EU, i.e. that we all observe the same rules.

But I don’t anticipate any dramatic changes to the Dutch pension system.

Our recommendations contain numerous measures that were introducedin the Netherlands long ago.’

Like the market valuations that are seriously damaging our coverage ratios and that we would prefer to get rid of once and for all.

‘A few years ago, the Netherlands made a brave decision when it chose the market valuation of both assets and obligations.

That this might now possibly result in cutbacks in pension rights is evidence of the risk run by pension funds.

You can’t solve that problem but suddenly using a different

interest rate. In the quantitative studies, we will be testing how a

holistic balancesheet with market values would work in practice.’

What about the key information document?

‘There are needs for a clear format for information presentation to participants regarding DC schemes.


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Right now this information is often insufficient.

How much have people built up and what risks do they

run? We are using the current best practices in Europe to

define thisdocument.’

There’s no guarantee that more or better information will help if the system itself remains complicated.

‘It’s true that people don’t always read the small print. That remains a dilemma.

But if you use that as an argument for simpler pension systems, you could run into trouble.

Take, for instance, the discussion on default options in DC systems. This makes it easier for people who do not fully understand the system to make choices.

Five years ago, a risk-free default consisted primarily of government bonds.

Nowadays, this could be seen as a risky portfolio. It is absolutely possible to create simpler DC systems, but good information remains essential.’

EIOPA has been around for more than a year now. How does it differ from CEIOPS, which you also headed?

‘They’re incomparable. We’re living in a different world, a different era.’

You mean that much has changed in just one year?

‘It seems like much longer ago.Solvency ii Associationwww.solvency-ii-association.co

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Our approach has changed dramatically. We’re no lon ger a committ ee of sup ervisors, we’re an aut h orit y.

We d on ’t n eed absolu t e u n an imit y .

At CEIOPS decisions were taken by consensus, now if we don ’t all agree, we put it to a vote. The discussions run deeper as a result.

Whereas, in the past, a supervisor could say, ‘I don’t agree’, and that would be the end of it.

It would simply be put on the record.

How seriously do people take EIOPA?

‘Our authority is acknowledged. I ’m ambitious.

We aim to be a well-informed, transparent supervisory

authority. But we need to operate carefully and inspire

confidence among allparties.

We need to avoid simply imposing measures and to introduce changes step by step.’

Important European pension documents are being released right in the middle of the euro crisis. Is the European pension framework in danger of being overlooked?

‘Our job is to make sure that doesn’t happen.

The EIOPA is also on the European Systemic Risk Board. We’re jointly responsible for financial stability.

Pension funds and insurers play an important role in that.


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It is understandable that all attention is now being directed towards the bank sector, but this should not be at the expense of everything else.

A low long-term interest rate is very good for banks, but not so good for the pension sector.

We’re making sure that this is also on the agenda for

discussion.’ ‘We view the crisis as an opportunity for change.

The message of thecrisis is that we can ignore neither financial nor demographic risks.

We need to accept and analyse those risks. It’s not about capital, but about risk.’

What happens now with your recommendations?

‘We’re going to start working on the quantitative impact studies, which should be finished by September.

The results will be submitted to the European Commission, who plans to present its proposal by the end of this year.


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SPEECHGabriel Bernardino, Chairman of EIOPA How EIOPA is “taking the lead” in consumer Protection

28th Progress International Seminar Geneva, 23 March 2012

Ladies and Gentlemen,

It is a great pleasure to speak to you here in Geneva and to share with you EIOPA’s priorities and plans related to consumer protection.

The protection of policyholders, pension scheme members and beneficiaries is one of our key objectives.

But, consumer protection is not just a legal objective for us; it encompasses our entire philosophy.

We are expected to take a “leading role” in promoting transparency, simplicity and fairness in the market for consumer financial products or services; that is why we aim to be ambitious in this area.

And we have taken a number of important steps in the right direction.

The first step we took internally last year was to create a specialisedCommittee on Consumer Protection and Financial Innovation (CCPFI).

This was not only to comply with a legal requirement under the EIOPA Regulation, but also to send out a message that we consider the issues of consumer protection and financial innovation to be important and closely interlinked.Solvency ii Association

























Product innovation also has an important impact on the level of consumer protection.

The next step was to target key areas where we felt we could achieve tangible outcomes and to consider our strategy as a European Supervisory Authority.

In that respect, I will start by outlining our achievements last year and then go on to talk about our strategic goals for this year and the years ahead.

Achievements in 2011

2011 was a very busy year for EIOPA as regards consumer protection:

•We prepared Guidelines and a Best Practices Report on Complaints Handling by Insurers.

We want to fill an existing regulatory gap at EU level and promote convergence of regulatory practice.

We aim to do this by, first, clarifying the expectations relating to an insurance undertaking’s internal control system and, second, giving guidance on the provision of information to consumers and procedures for responding to complaints.

We consulted on the Guidelines and Best Practices Report at the end of last year and they are due to be finalised in Q2 this year.

•We published at the end of last year a Report on Financial Literacy and Education Initiatives by national competent authorities; it was a stock take of existing structures/ processes in Member States.

This was in line with a requirement under our empowering legislation to review and coordinate such initiatives.


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•We collected data on consumer trends amongst our Members authorities.

This helped us to prepare an Initial Overview, analysing and reporting on those trends, which was published in early February this year.

We identified three key trends:

(i)Consumer protection issues around Payment Protection Insurance (PPI)

(ii) Development of unit linked life insurance and

(iii) Increased use of comparison websites by consumers.

This is just the start of our ongoing monitoring of consumer trends.

•We provided input into the Commission’s revision of the Insurance Mediation Directive (IM D) by carrying out an extensive survey of national laws providing for sanctions (both criminal and administrative) for violations of the provisions of the IMD.

The Commission’s legislative proposal is expected at the end of April this year. I will talk about this again later.

•We focused on disclosure and selling practices of Variable Annuities.

This exercise was brought about by the fact that some variable annuities products may achieve outcomes that are not easy for consumers to understand.

We consulted on a draft Report at the end of last year and this is due to be finalised in Q2 this year.


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Plans for 2012

We don’t want to just stop there in 2012, however. We need to move forward given the need for us to be proactive. As mentioned, we have some ambitious objectives.

We will finalise existing projects, but we also initiate new projects such as developing training standards for the industry, ensuring transparency in national general good rules, enhancing the existing methodology we use for collecting data on consumer trends and analyzing the impact of Solvency I I on product development.

All these initiatives will be carried out under the backdrop of the impending Commission legislative proposals on the revised IMD and Packaged Retail Investment Products (or PRIPs), which are expected at the end of April 2012.

There will inevitably be a considerable workload for EIOPA in response to these proposals and work under the Joint Committee of the ESAs will be crucial to ensure cross sectoral consistency.

The proposals will contain requests for follow up work in the form of advice on implementing measures, binding technical standards or common acts.

Ensuring the appropriate level of remuneration disclosure and robust mitigation of conflicts of interest will be crucial to our ultimate objective of enhancing customer protection.

Strategic approach for the years aheadBut what about our strategic approach for the years ahead?

We have developed a strategic orientation on consumer protection and financial innovation, which underpins all the work we do.


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This states that we will seek to prevent consumer detriment in the following ways:

•First, we contribute to making sure that consumers in Europe are well informed.

Information to consumers prior to purchasing an insurance contract and throughout the duration of the contract should encompass the risks and the costs of the products, relevant regulatory requirements and complaints handling procedures.

•Second, advice to consumers should best suit their profile and their needs, taking into account the complexity of the contract and the risks involved, with a view to purchasing an appropriate product.

As mentioned above, a good practices report concerning disclosure and selling of variable annuities is currently being finalised.

•Third, we want to contribute to the financial literacy and education of consumers inter alia by making available, through our website, information on the roles and responsibilities of national supervisors in these matters, and pointing to useful financial education material.

•Fourth, in order to ensure the quality of both the advice and the information a consumer receives, minimum standards for ensuring the training and competence of relevant staff in contact with the clients should be set out both at the outset and on an ongoing basis.

•Fifth, there should be effective redress procedures for consumers. Consumers should be able to complain, and their complaints should be heard.

In this respect, as already noted above we are preparing guidelines on complaints handling in the insurance industry, which may be extended to cover intermediaries at a later point in time.


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•Sixth, firms should also have in place appropriate claims handling procedures to ensure effective and fair treatment of claims.

When following these strategic goals we need to reconsider the policy tools that we traditionally used to deal with information asymmetries, conflicts of interest and market inefficiencies.

We need a paradigm shift.

On the information side we need to reinforce standardization and comparability.

However, information should not be used to shift responsibility from the providers to consumers. We cannot take for granted that consumers always make rational decisions.

Furthermore, it is not all about transparency. Disclosure is a relevant tool but alone cannot deliver the full results for consumers.

On the provision of advice we need to take a closer look at conflicts of interest.

Unfair practices leading to consumer detriment in the insurance and pensions market are often due to situations of conflict of interest.

Insurance is an industry where agency incentives can be the main driver of the kind of product to be sold.

Sometimes this results in the sale of products which are not suitable for the consumers concerned.

This necessarily entails that selling practices, whether through intermediaries or direct writers, should meet certain high standards.

We also need to pay further attention to product suitability.


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Insurers should implement as part of their governance system a framework for early detection of unfair products, clauses or selling practices.

I believe that this can usefully include the request of an independent opinion on the product design and characteristics by the internal governance functions of the insurer.

Looking ahead, one of the most relevant powers of EIOPA is the possibility of issuing warnings when consumer protection is at risk.

Furthermore, in the cases specified in EU legislative acts and in emergency situations EIOPA may temporarily prohibit or restrict certain financial activities.

We need to use these powers within a robust governance framework, but they are there to be used.

This is a “whistlestop” tour of EIOPA’s work in the area of consumer protection and financial innovation.

I hope it has provided you with some food for

thought. Thank you for your attention.


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The Solvency I I implementation update

Speech by Julian Adams, Director of Insurance, FSA Solvency I I industry briefing on 27 February 2012, London

This event marks an important stage on the road to the implementation of Solvency I I here in the UK, as we move to the next phase of our programme of work with internal model firms.

This takes place, of course, against a backdrop of ongoing uncertainty about Solvency I I , both in the substance of the policy and the timescales for its implementation, but what we aim to do today is give you as much clarity as we can about what the position is and, just as importantly, what we are proposing to do over the coming months.

Later today my colleague, Martin Etheridge, will be talking to you about our view of the latest policy position, and then we’ll be taking you through the detail of how our review process will work, and what you can expect to happen following your submission date.

There will also be the opportunity for you to ask questions of our panel, and I hope you will take the opportunity to do so.

Before all of that, I have a number of topics I want to cover with you this afternoon.

The first of these is the ongoing uncertainty at a European level as to what the timeline for implementation will be, and when we and you will start to get some certainty about what important aspects of the new regime will look like.

I then want to go on to explain what our approach has been to dealing with this uncertainty when designing the next stage of our process and putting together the supporting information and materials we are launching today, as well as describing how we are going to apply the principle of proportionality to our execution of that process.


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And finally, I want to touch a little bit on how all of this will interact with t h e UK’s d omest ic regulatory reform agen d a , in particular looking at how the implementation of Solvency I I will sit alongside the creation of the new Prudential Regulation Authority, which we currently expect in spring 2013.

Policy uncertaintyTurning first to the issue of policy uncertainty, I’d like to start by saying that the industry’s frustration with the ongoing lack of clarity is fully understandable.

We appreciate that the lack of resolution of important issues – both in relation to what the new regime is going to look like, and in particular about when it is likely to commence and what the effect of transitionals will be – is disruptive to the implementation plans that the industry has spent a lot of time and effort putting into place.

Martin will set out later how we expect the rest of the legislative process to be concluded over the coming months, and how that fits with our ongoing assumption that firms will be required to comply with the new regime from January 2014.

You’ll be aware, of course, that the timetable is a very tight one, particularly in the context of a legislative process which has been far from straightforward, and I should share with you our views on what might happen if there is a further delay.

We await a key vote in the European Parliament at the end of March, and it would clearly not take much further slippage in this to put transposition in January 2013 at risk, but this would not necessarily affect the implementation date for firms in January 2014.

What it might do instead is merely compress the period between transposition and implementation.


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It therefore remains our assumption that the new regime will apply to firms from January 2014, and we have developed a plan which reflects this.

Clearly, it is possible that this will change in the future, but for the time being we remain of the view that we must plan for a 2014 implementation.

Our need to be able to apply the new regime to you from January 2014 is the reason we are pressing ahead with the developments we are outlining to you here today.

It is also the reason why it is vitally important that you stick to the submission slots we have already agreed with you, as there is very little scope in our timetable for any form of slippage.

By sticking to your submission slot you will also be considered alongside a peer group of firms, which will ensure a greater degree of consistency of approach.

Clearly, if the position in relation to the implementation date changes again, we will communicate this to you as quickly as we can, along with an outline of what we expect the implications to be for our own implementation programme here in the UK.

In doing so, we will attempt to respond in the same way as we did to the bifurcation proposal last autumn, that is seeking a path which optimises our own resource position and the work firms have already completed.

Launch of the next phase of workI’d like to turn now to the main purpose of today’s event, which is the launch of the next phase of internal model approval work in the UK.

Last year, when we announced our revised implementation assumptions based on implementation for firms in 2014, we took the view that it made sense to maintain the momentum that the UK industry had built up, and continue with our programme of model approval work. Solvency ii Association

























We also set out a position where it would potentially be open to firms to start using their Solvency I I model to meet existing Individual Capital Adequacy Standards (ICAS) requirements where they wished to do so and where they could be satisfied that the model met all of the requirements of the current regime.

As part of that, we decided that we would stick with our previously- announced ‘open for applications’ date of 30 March 2012.

The purpose of today is to give you more information on what this next phase will look like, to set out the expectations we will have of you during this period, and to provide more detail on the support and guidance, which we will be making available to you before and during the application phase.

Later on, some of my colleagues will be taking you through the process in detail, so in the meantime I would like to set this in the context of how we are approaching this issue, given the lack of clarity we have about a number of aspects of the underlying policy.

As I mentioned at an Association of British Insurers (ABI) event in December, we are basing our approach to the next phase on the stable draft text of the Level 2 material which was circulated by the Commission in November.

We are aware of the limitations associated with this approach, namely that first, it is not a final or complete articulation of what the policy will be, and second, that it is not technically a public document.

Nonetheless, we feel that using the Level 2 material as it stands is the most sensible approach, as it represents the best available view of what the final position will be.

We will be basing our internal decision-making materials on this Level 2 text, and will be publishing later today an updated version of the self assessment template based on this also.


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It is clearly possible that the Level 2 text will change as it gets closer to adoption, and we will review our materials and update them as needed.

The new self-assessment template sets out the almost 300 requirements which the Directive identifies as having to be met before model approval can be granted, requirements which are derived from the Directive text and have not in any way been overlaid by us with additional UKcriteria.

We appreciate that this change will require some additional work for firms, in particular in the move from our previously published contents of application materials.

We have not made this change lightly, but believe that it is important to do so, as it is the Level 2 text which will ultimately set out the standards which have to be met, and are therefore the standards against which your compliance – and ours – will have to be judged.

The change also removes a number of items from the previous version which are now super-equivalent following changes to the text.

I should also mention here also that the materials we are launching today do not take any account of the Level three text.

This is insufficiently developed at this stage and lacks stability, meaning that it does not provide a meaningful platform for planning purposes.

Again, we will ensure that our materials are updated in future to reflect any changes which may be required as the policy becomes clearer.

An area in which we can provide some more clarity today is that of technical provisions.

We are often asked whether a review of these will form part of our approval process for an internal model, given that technical provisions are the largest and most complex item on an insurer’s balance sheet.

Our view is that we would not be able to approve a model under Solvency I I without having reasonable assurance as to the accuracy of


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the underlying balance sheet, and we will therefore be undertaking a review of the technical provisions of IM AP firms as part of our existing activity with the firm before and after its submission slot.

In the main, we envisage that there will be two elements for our review: the approach taken by firms and the actual calculation of technical provisions.

Whilst we may be able to start a review of the approach this year, it is unlikely that we will review the calculation of technical provisions until a point in 2013, when firms will have prepared their year-end 2012 balance sheet on a Solvency I I basis.

We are considering the approach that we may take to our review of technical provisions, which may include the use of external review - something firms are already doing and which we have deployed for other aspects of Solvency I I such as data management.

Supervisors will start discussions with firms about the review of the approach to the calculation of technical provisions in the next few months, and we will provide further detail on our approach to the review of the calculation once we have sight of the finalised Level 2 text, probably this autumn.

The Directive text – for model approval as with other matters – sets out criteria which have to be met in order for an approval to be granted.

In the case of internal models approval, these are detailed, and around 300 in number.

It will be necessary for us to gain assurance that all of these requirements have been met before we can decide to grant approval for a model’s use.

We make no apology for doing so, since model approval is not something which should be granted lightly, and the Directive allows for no discretion in applying or not applying certain requirements.


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Model approval will allow firms to set their own pillar one regulatory capital requirement, something which is a step change both from the existing Directives and our own current ICAS regime.

Once granted, it is difficult to unwind, and so we need to be sure that not only is the resulting capital requirement correct, but also that the framework of the model is sufficiently robust and risk-sensitive to respond to changes in circumstances over time.

Proportionality

What the Directive does allow for – and indeed specifically mandates – is the principle of proportionality.This means that the amount of effort which we and you collectively will have to go to in order to show that a requirement has been met should be commensurate with the risk that is posed by the item in question, and the extent to which it is material to the performance of the overallmodel.

My commitment to you, therefore, is that our review work will focus on what is genuinely important in the context of your business, whilst bearing in mind our obligations under the Directive.

The practical steps we have taken to ensure this have included senior management challenge of all of the workplans for pre-application, and the approach of reviewing teams will be challenged again at a number of stages through the process to ensure that we are focusing our efforts on what are the main drivers of risk in an individual firm.

We make no apology, though, for being challenging in our approach to what firms are doing.

I want to give you today some examples of specific issues which have arisen and why they are important.

This will hopefully help to put into context some of the questions we are asking and the approach we have taken so far, and will continue to take.


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The first example is in the area of model scope, where we have challenged firms on their exclusion from scope of important factors which could be significant drivers of the model’s performance.

One example of this is in the area of catastrophe modelling.

Clearly if a firm has a significant portfolio of catastrophe-exposed business it is not a tenable position, as some have claimed, that catastrophe models are out of scope, as these will have a very significant effect on the way in which the model functions and the extent to which it is genuinely reflective of risk.

The second issue that our review work regularly identifies is where various aspects of a firm’s model submission do not fit together in a coherent way.

Let me give you an example.

We do not view the Directive requirements in silos – Model Scope, Use Test, Validation, Model Change requirements are all linked and interdependent.

In reviewing a firm’s model we therefore need to ensure the approach being taken to scope, use, validation and change are all consistent.

And this will include the extent to which the senior management and Board of the firm have engaged with, understood, and challenged what has been done.

The third is in the area of documentation.

Our review work regularly highlights examples of firms being able to provide credible explanations of how certain Directive requirements will be met, but not necessarily being able to follow through with sound documentary evidence of this compliance.

This does not necessarily mean that more documentation is required, simply that it needs to be of better quality.Solvency ii Association

























For the reasons I outlined earlier this is an important factor in being assured as to the performance of the model in a range of future circumstances.

In some cases the state of documentation is a reflection of the fact that firms are implementing and embedding their models in parallel with the development work.

We recognise what’s driving this issue and are sympathetic with the challenges that firms face in this regard but we will continue to view the quality of a firm’s documentation as being an important indicator of overall preparedness for making a submission.

Whilst it is important for us to be robust, and I hope the foregoing examples give a sense of why this is the case, I would ask you to raise with your supervisor any concerns you may have about the approach which is being taken or the scope of our review.

They will be able to explain what it is that the review teams are doing and why they are taking a certain approach or raising certain concerns.

I should mention that we are also working to ensure that our approach is consistent with that taken by supervisors in other Member States.

We are pursuing this through European Insurance and Occupational Pensions Authority (EIOPA), and also through more informal contacts with the supervisors in the other major jurisdictions.

Through its peer review work EIOPA is currently reviewing Member States’ approaches to pre-application, and also the performance of a sample of colleges.

We know that this is a matter of acute importance to many groups with European operations, and we will not be able to achieve our objectives without close cooperation with regulators in other parts of Europe.


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By seeking this consistency we also hope to achieve one of the other aims of the Directive, which is to achieve a high level of harmonisation across Europe.

In mentioning this high level of harmonisation I would like to emphasise– as I have on a number of occasions in the past – that it is categorically not our intention to ‘gold plate’ the Directive’s requirements on model approval, or, for that matter, in other areas.

We have designed our processes in accordance with a set of requirements which are derived directly from the Directive text.

In the few areas where we have felt the need to do something which is different or in some way super-equivalent – for example in the area of approved persons – we have sought to be transparent about this in the text of our consultation documents, and have drawn our reasoning specifically to your attention.

All of this, of course, is the FSA’s stated approach, but you may be wondering whether this will continue to hold true once responsibility for insurance regulation passes to the new Prudential Regulation Authority (PRA), probably in spring 2013.

The simple answer to this is yes, it will, and the reasons for this are very simple. First, the senior management team responsible for Solvency I I in the FSA are – by and large – the people who will continue to be responsible for it when we move to the PRA.

Our colleagues from the Bank of England have been engaged in our implementation programme for over a year now, and are also fully aware of the approach we are taking.

The second is that Solvency I I seeks to bring into place a regime which is based on the same principles as that envisaged for the PRA.

Solvency I I is a regime which is forward-looking, based on a market- consistent valuation basis; it encompasses a proactive framework for


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supervisory intervention, and provides a direct link between risk and capital.

All of this is completely consistent with the judgement-driven approach to supervision which the FSA and the Bank of England set out in the launch document for the PRA, which we published last summer.

The third reason is derived from the second, namely that we are ensuring that the requirements of Solvency I I are being taken fully into account in the design of insurance supervision in the PRA.

This should ensure that the process you see being developed now will endure through the creation of the PRA and beyond, and supervision of insurers under the PRA will have at its core the requirements of the Solvency I I Directive.


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Gabriel Bernardino, Chairman of EIOPAStability and growth – A balancing actGala Dinner of the Institutional Money Congress, Frankfurt

Ladies and Gentlemen,I am very pleased to be here with you tonight.

First of all I would like to thank the organizers for their invitation to deliver this short dinner speech.

It is my pleasure as Chair of EIOPA, the European Insurance and Occupational Pensions Authority, based in Frankfurt, to welcome you to such an important congress.

The Institutional Money Congress is known as a significant communication platform for institutional investors, providing an ideal forum for professional exchange between internationally renowned asset managers and institutional investors.

This year it will also be an opportunity to debate the challenges posed by recent regulatory initiatives, such as Solvency I I and Basel I I I , and discuss their possible effects on the investment policies of financial institutions.


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As for challenges I think there is no doubt that the development and implementation of these regimes requires significant effort not only from regulatory and supervisory authorities, but also from the industry.

The more these issues are discussed, the easier we will build up a new financial culture based on robust standards of solvency, enhanced risk management and increased consumer protection.

And by launching discussions and different workshops on such topics, the Institutional Money Congress creates a basis for this culture.

Because only by discussing, by exchanging views we can reach a full understanding of the regimes by all market participants.

Let me start by using this opportunity to make some remarks about the possible consequences of Solvency I I on the investment behaviour of insurers and more generally on the financial markets.

It is clear that applying capital charges for investment risk may encourage insurers to shift to less volatile investments, especially when the expected financial returns of risky assets do not offset the additional capital requirement.

However, as insurers are aware of the changing regulation and have been rebalancing their portfolios accordingly, there should not be any significant sudden portfolio reallocations.

Most importantly, a reduction of investment risk could also be achieved by an improvement in asset liability management, especially on long term guaranteed products.

That is the purpose of the strong focus of Solvency I I on enhancing risk management policies and practices.Solvency ii Association

























Controlling and ensuring sound and prudent management is far more important than the capital calculations, because management errors by their nature cannot be compensated by capital requirements.

As a consequence of a greater focus on asset liability management, insurers could be willing to invest more in relatively highly rated corporate bonds since they offer higher yield and would provide diversification benefits within the fixed income portfolio.

Therefore, easier access to financing could be granted to firms with high credit ratings, which will translate into a lower cost of capital and would therefore contribute to higher investment and economic growth.

Overall, regulatory regimes are always a result of a balancing act between different objectives.

I am convinced that Solvency I I will provide an appropriate basis for increased policyholder protection and will contribute to reinforcing financial stability, while allowing insurance companies to continue to play their role as long term investors.

In a recent paper one of your distinguished guests, Prof. Thomas Sargent, discussed where to draw the line between stability and efficiency.

In my opinion this is a fundamental question for the policy decisions to be taken in the coming years.

We need to decide what we want to privilege: security or growth.

If we want both, and I believe we should, then we need to be prepared to collectively accept some risks.


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One of the major consequences of the financial crisis was the fall of confidence and trust in the financial sector and increase in suspicion on all areas of financial innovation.

Unfortunately, the benefits of financial innovation have been overshadowed by the costs of some activities that went really bad.I believe regulators and the industry need to take a fresh look at this area.

Financial innovation tools can be a useful way for investors to protect themselves against unavoidable risks.

However, they should be used to facilitate risk transfer and access to funding within the real economy and not to help institutions to arbitrage regulations and make balance sheets look safer than they are.

In order to increase long term stability and regain consumer confidence in the financial system we need to proceed with the reforms not only by adapting regulation but also by changing behaviour.

We should encourage realistic risk assessment and pricing.

Market participants should take concrete steps to promote responsible business conduct.

Overall we also need to reinforce preventive risk based supervision and timely enforcement.

We have all been witnessing during the last years systemic risks caused by excessive leverage combined with risky financial products as well as inadequacies in financial regulation and supervision.

Various uncertainties around the global financial system are still at place. Solvency ii Association

























In the modern highly integrated environment financial stability can be already thought of as an international public good.

All countries benefit from the stability of the world financial system as a whole.

But at the same time all countries experience certain costs when the system is unstable.

So it became clear that without more effective supervision it will not be possible to address further systemic risks in the financial system.This calls for international coordination.

A number of different international bodies such as G20 and the Financial Stability Board are currently working on these issues in their different spheres of influence.

EIOPA for example is contributing to the development of a common framework for supervising internationally active insurance groups and developing criteria to identify systemic risk in insurance activities, both conducted under the umbrella of the International Association of Insurance Supervisors (IAIS).

The results of this heavy regulatory agenda will reshape the financial system as we know it and we should be prepared to cope with the challenges ahead.

At EIOPA we are quite aware of the relevance of our mandate and responsibilities.

As you may know in January 2012 EIOPA completed the first year in its status as a European institution, one of the three European Supervisory Authorities.


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EIOPA’s mission is to protect the public interest by contributing to the short, medium and long term stability and effectiveness of the financial system, for the EU citizens and economy.

This mission is pursued by promoting a sound regulatory framework and consistent supervisory practices in order to protect the rights of policyholders, pension scheme members and beneficiaries and contribute to the public confidence in the European Union’s insurance and occupational pensions sectors.

And I would like to assure you that we are ambitious in fulfilling our obligations towards the EU citizens and businesses.

EIOPA is currently intensively working on the development of technical standards and guidelines that are essential for the implementation of Solvency I I .

But if I start elaborating further on this, it will not be a dinner speech anymore, but an epic poem.

EIOPA is also working intensively on the review of the IORP Directive, advising the EU Commission on the ways to introduce a risk based framework for the supervision of occupational pension funds.

EIOPA is an institution open to society.

We want to listen and debate with the different stakeholders and that is why we value very much the opportunity to exchange views with you during this Congress.

Thank you for your attention and have a good dinner.


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Dear Member,

In Basel iii, Solvency ii, and many other laws and regulations, we have to make economic projections.

What I really love is the need for “realistic assumptions”.

So, we have a crystal ball: The Monetary Policy Report to the Congress where we can find the “Summary of Economic Projections”

Monetary Policy Report to the Congress

Summary of Economic Projections

In conjunction with the January 24–25, 2012, Federal OpenMarket Committee (FOMC) meeting, the members of the Board of Governors and the presidents of the Federal Reserve Banks, all ofwhom participate in the deliberationsof the FOMC, submitted projections for growth of real output, the unemployment rate, and inflation for the years 2012 to 2014 and over thelonger run.

The economic projections were based on information available at the time of the meeting and participants’ individual assumptions about factors likely to affect economic outcomes, including their assessments of appropriate monetary policy.

Starting with the January meeting, participants also submitted their assessments of the path for the target federal funds rate that they viewed


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as appropriate and compatible with their individual economic projections.

Longer-run projections represent each participants’ assessment of the rate to which each variable would be expected to con-verge over time under appropriate monetary policy and in the absence of further shocks.

“Appropriate monetary policy” is defined as the future path of policy that participants deem most likely to foster outcomes for economic activity and inflation that best satisfy their individual interpretation of the Federal Reserve’s objectives of maximum employment and stable prices.

As depicted in figure 1, FOMC participants projected continued economic expansion over the 2012– 14 period, with real gross domestic product (GDP) rising at a modest rate this year and then strengthening further through 2014.


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Participants generally anticipated only a small decline in the unemployment rate this year.

In 2013 and 2014, the pace of the expansion was projected to exceed participants’ estimates of the longer-run sustainable rate of increase in real GDP by enough to result in a gradual further decline in the unemployment rate.

However, at the end of 2014, participants generally expected that the unemployment rate would still be well above their estimates of the longer-run normal unemployment rate that they currently view as consistent with the FOMC’s statutory mandate for promoting maximum employment and price stability.

Participants viewed the upward pressures on inflation in 2011 from factors such as supply chain disruptions and rising commodity prices as having waned, and they anticipated that inflation would fall back in 2012. Over the projection period, most participants expected inflation, as measured by the annual change in the price index for personal consumption expenditures (PCE), to be at or b elow t he FOMC’s objective of 2 percent that was expressed in the Committee’s statement of longer-run goals and policy strategy.


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Core inflation was projected to run at about the same rate as overall inflation.

As indicated in table 1, relative to their previous projections in November 2011, participants made small downward revisions to their expectations for the rate of increase in real GDP in 2012 and 2013, but they did not materially alter their projections for a noticeably stronger pace of expansion by 2014.

With the unemployment rate having declined in recent months by more than participants had anticipated in the previous Summary of Economic Projections (SEP), they generally lowered their forecasts for the level of the unemployment rate over the next two years.

Participants’ expectations for both the longer-run rate of increase in real GDP and the longer-run unemployment rate were little changed from November.

They did not significantly alter their forecasts for the rate of inflation over the next three years.

However, in light of the 2 percent inflation that is the objective included in the statement of longer-run goals and policy strategy adopted at the January meeting, the range and central tendency of their projections of longer-run inflation were all equal to 2 percent.

As shown in figure 2, most participants judged that highly accommodative monetary policy was likely to be warranted over coming years to promote a stronger economic expansion in the context of price stability.

In particular, with the unemployment rate projected to remain elevated over the projection period and inflation expected to be subdued, six participants anticipated that, under appropriate monetary policy, the first


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increase in the target federal funds rate would occur after 2014, and five expected policy firming to commence during 2014 (the upper panel).

The remaining six participants judged that raising the federal funds rate sooner would be required to forestall inflationary pressures or avoid distortions in the financial system.

As indicated in the lower panel, all of the individual assessments of the appropriate target federal funds rate over the next several years were below the longer-run level of the federal funds rate, and 11 participants placed the target federal funds rate at 1 percent or lower at the end of 2014.

Most participants indicated that they expected that the normalization of the Federal Reserve’s balance sheet should occur in a way consistent with the principles agreed on at the June 2011 meeting of the FOMC, with the timing of adjustments dependent on the expected date of the first policy tightening.

A few participants judged that, given their current assessments of the economic outlook, appropriate policy would include additional asset purchases in 2012, and one assumed an early ending of the maturity extension program.

A sizable majority of participants continued to judge the level of uncertainty associated with their projections for real activity and the unemployment rate as unusually high relative to historical norms.

Many also attached a greater-than-normal level of uncertainty to their forecasts for inflation, but, compared with the November SEP, two additional participants viewed uncertainty as broadly similar to longer- run norms.

As in November, many participants saw downside risks attending their forecasts of real GDP growth and upside risks to their forecasts of the Solvency ii Association

























unemployment rate; most participants viewed the risks to their inflation projections as broadly balanced.

The Outlook for Economic Activity

The central tendency of participants’ forecasts for the change in real GDP in 2012 was 2.2 to 2.7 percent.

This forecast for 2012, while slightly lower than the projection prepared in November, would represent a pickup in output growth from 2011 to a rate close to its longer-run trend.

Participants stated that the economic information received since November showed continued gradual improvement in the pace of economic activity during the second half of 2011, as the influence of the temporary factors that damped activity in the first half of the year subsided.

Consumer spending increased at a moderate rate, exports expanded solidly, and business investment rose further.

Recently, consumers and businesses appeared to become somewhat more optimistic about the outlook.

Financial conditions for domestic nonfinancial businesses were generally favorable, and conditions in consumer credit markets showed signs of improvement.

However, a number of factors suggested that the pace of the expansion would continue to be restrained.

Although some indicators of activity in the housing sector improved slightly at the end of 2011, new homebuilding and sales remained at depressed levels, house prices were still falling, and mortgage credit remained tight.


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Households’ real disposable income rose only modestly through late 2011. In addition, federal spending contracted toward year-end, and the restraining effects of fiscal consolidation appeared likely to be greaterthis year than anticipated at the time of the November projections.

Participants also read the information on economic activity abroad, particularly in Europe, as pointing to weaker demand for U.S. exports in coming quarters than had seemed likely when they prepared their forecasts in November.

Participants anticipated that the pace of the economic expansion would strengthen over the 2013–14 period, reaching rates of increase in real GDP above their estimates of the longer-run rates of output growth.

The central tendencies of participants’ forecasts for the change in real GDP were 2.8 to 3.2 percent in 2013 and 3.3 to 4.0 percent in 2014.

Among the considerations supporting their forecasts, participants cited their expectation that the expansion would be supported by monetary policy accommodation, ongoing improvements in credit conditions, rising household and business confidence, and strengthening household balance sheets.

Many participants judged that U.S. fiscal policy would still be a drag on economic activity in 2013, but many anticipated that progress would be made in resolving the fiscal situation in Europe and that the foreign economic outlook would be more positive.

Over time and in the absence of shocks, participants expected that the rate of increase of real GDP would converge to their estimates of its longer-run rate, with a central tendency of 2.3 to 2.6 percent, little changed from their estimates in November.

The unemployment rate improved more in late 2011 than most participants had anticipated when they prepared their November


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projections, falling from 9.1 to 8.7 percent between the third and fourth quarters.

As a result, most participants adjusted down their projections for the unemployment rate this year.

Nonetheless, with real GDP expected to increase at a modest rate in 2012, the unemployment rate was projected to decline only a little this year, with the central tendency of participants’ forecasts at 8.2 to 8.5 percent at year-end.

Thereafter, participants expected that the pickup in the pace of the expansion in 2013 and 2014 would be accompanied by a further gradual improvement in labor market conditions.

The central tendency of participants’ forecasts for the unemployment rate at the end of 2013 was 7.4 to 8.1 percent, and it was 6.7 to 7.6 percent at the end of 2014.

The central tendency of participants’ estimates of the longer-run normal rate of unemployment that would prevail in the absence of further shocks was 5.2 to 6.0 percent.

Most participants indicated that they anticipated that five or six years would be required to close the gap between the current unemployment rate and their estimates of the longer-run rate, although some noted that more time would likely be needed.

Figures 3.A and 3.B provide details on the diversity of participants’ views regarding the likely outcomes for real GDP growth and the unemployment rate over the next three years and over the longer run.

The dispersion in these projections reflected differences in participants’ assessments of many factors, including appropriate monetary policy and its effects on economic activity, the underlying momentum in economic


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activity, the effects of the European situation, the prospective path forU.S. fiscal policy, the likely evolution of credit and financial market conditions, and the extent of structural dislocations in the labor market.

Compared with their November projections, the range of participants’ forecasts for the change in real GDP in 2012 narrowed somewhat and shifted slightly lower, as some participants reassessed the outlook for global economic growth and for U.S. fiscal policy.

Many, however, made no material change to their forecasts for growth of real GDP this year.

The dispersion of participants’ forecasts for output growth in 2013 and 2014 remained relatively wide.

Having incorporated the data showing a lower rate of unemployment at the end of 2011 than previously expected, the distribution of participants’ projections for the end of 2012 shifted noticeably down relative to the November forecasts.

The ranges for the unemployment rate in 2013 and 2014 showed less pronounced shifts toward lower rates and, as was the case with the ranges for output growth, remained wide.

Participants made only modest adjustments to their projections of the rates of output growth and unemployment over the longer run, and, on net, the dispersions of their projections for both were little changed from those reported in November.

The dispersion of estimates for the longer-run rate of output growth is narrow, with only one participant’s estimate outside of a range of 2.2 to2.7 percent.

By comparison, participants’ views about the level to which the unemployment rate would converge in the long run are more diverse,


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reflecting, among other things, different views on the outlook for labor supply and on the extent of structural impediments in the labor market.


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The Bermuda Monetary Authority (BMA) is the integrated regulator of the financial services sector in Bermuda.

Established under the Bermuda Monetary Authority Act 1969, the Authority supervises, regulates and inspects financial institutions operating in or from within the jurisdiction.

It also issues Bermuda’s national currency; manages exchange control transactions; assists other authorities in Bermuda with the detection and prevention of financial crime; and advises the Government and public bodies on banking and other financial and monetary matters.

The Authority develops risk-based financial regulations that it applies to the supervision of Bermuda’s banks, trust companies, investment businesses, investment funds, fund administrators, money service businesses and insurance companies. I t also regulates the Bermuda Stock Exchange.

LICENCE FEES REDUCED FOR BERMUDA SPECIAL PURPOSE INSURERS

Amendment to Fee Structure Reinforces Bermuda’s Competitiveness for its Growing SPI Business

The Bermuda Monetary Authority (‘the Authority’ or ‘BMA’) is pleased to announce that the registration fees for Special Purpose Insurers (SPI’s) has been nearly halved.


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Effective 1st April 2012, all new SPI’s licensed in Bermuda will pay $6,000 for annual registration. This is a significant reduction from the current registration fee of $11,600.

Shelby Weldon, the Authority’s Director, Insurance, Licensing & Authorisations said, “The ability to establish SPI’s here within our insurance classification system is another option for the market to use Bermuda's extensive alternative risk transfer expertise.”

An SPI assumes insurance or reinsurance risks and typically fully funds its exposure to such risks through debt issuance or some other financing.

The repayment rights of the debt or other financing mechanisms are subordinated to the insurance or reinsurance obligations of that vehicle. Mr. Weldon continued, “Since SPI’s are fully funded, the Authority also applies a proportionate level of supervision to such entities, which appropriately is different from what we would apply to say, a largeClass 4 commercial insurer.

Therefore, this fee adjustment also recognises that distinction, since our fees are directly related to the cost of supervision, further reinforcing Bermuda’s competitive position to support SPI’s.”

Bermuda has recorded significant growth in SPI formations in the last two years.

A total of 23 new SPI’s were licensed in 2011, up from eight in 2010 and one in 2009 when the Authority established the regulatory framework to accommodate SPI’s.

During January and February 2012, three SPI’s had already licenced in Bermuda.


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The move to reduce the fees has been well received by industry, including Bermuda-based law firm, Appleby.

Brad Adderley, Partner, Corporate & Commercial at Appleby said, “The fee reduction epitomises the proactive approach of the Authority, which was reinforced by the very senior Bermuda contingent that attended the recent Insurance- & Risk-Linked Securities Conference held annually by the Securities Industry and Financial Markets Association (SIFMA).

The BMA's attendance at the conference reaffirms to the market place that Bermuda wants to be the preeminent player in this space.”

Greg Wojciechowski, President and CEO of the Bermuda Stock Exchange said, “Since the coming into force of the new licensing regime for Special Purpose Insurers, the BSX has seen a significant increase in interest from the market for the creation of Bermuda based SPI’s which are used for the issuance of Insurance Linked Securities (ILS). This development has led to a record number of listed ILS issues on the BSX.”

SP I’s are often u sed t o issu e cat ast roph e b ond s.

The BSX has reported that $3.4 billion worth of catastrophe bonds, or ILS was listed on the exchange by the end of 2011.

To date, 25 ILS structures have been listed on the BSX.

Mr. Adderley continued, “Bermuda has made significant inroads into the cat bond market – the reduction of fees will help the island continue to grow this business which will have a positive impact on the Bermuda economy.”

Mr. Wojciechowski added, “The announcement by the BMA to reduce registration fees for SPI structures is a significant development and underscores Bermuda's firm commitment to provide regulatory and Solvency ii Association

























commercially sensible support to the global reinsurance

industry. Bermuda has been a partner to the global reinsurance

industry for overthree decades, a healthy partnership which has resulted in thejurisdiction exhibiting a "silicon valley" effect for specialty insurance.

Bermuda is a global leader in the reinsurance industry and developments such as this reduction of fees highlight Bermuda stakeholders’ resolve in providing the environment for that partnership to continue for decades to come.”

Arthur Wightman, Partner, Assurance and Business Advisory Services, Insurance/Reinsurance at PricewaterhouseCoopers said, “Bermuda's established funds and reinsurance marketplaces make it the optimal jurisdiction for structuring Insurance Linked Securities and other convergence structures.

This move by Bermuda's forward-looking regulator is just one example of how seriously Bermuda is committed to further developing these markets and represents another proactive move by the BMA to commercially practicable regulation.

It also reinforces a commitment by the regulator to facilitate speed to market.”

BERMUDA INSURANCE SECTOR ACHIEVES STRONG RESULTS IN CHALLENGING MARKET CONDITIONS

Significant premium volumes, increased insurer registrations achieved The Bermuda Monetary Authority (the Authority or BMA) today announced the Bermuda insurance market remained resilient in 2011 and continued to absorb the impact of market issues, including a continued softening of prices, low interest rates and above-average losses from natural catastrophes.Solvency ii Association

























With respect to 2011 registrations, the Authority registered a total of 54 new Bermuda insurers, up from the 36 recorded in 2010. Growth in the registration of Special Purpose Insurers (SPIs) has continued: 23 new SPIs were licensed in 2011, up from eight the previous year.

2011 also saw the formation of two Class 4 reinsurance

companies. Shelby Weldon, Director, Insurance, Licensing &

Authorisations said,“2011 was certainly a challenging year, which was reflected in the year-end results of some firms.

However, Bermuda’s insurers are successfully addressing global market conditions.

Also, Bermuda’s commitment to achieving equivalence with relevant standards globally continues to attract quality businesses that see the benefits of being based in a practical, first league regulatory environment that is well-regarded in key international markets.”

“The latest available statistics show the Bermuda insurance market achieved significant premium volumes and healthy amounts of assets and capital and surplus,” Mr. Weldon said.

“The market recorded gross premiums written of $107.7 billion; this compares to $119.7 billion written the previous year, not surprisingly reflecting the challenges of a prolonged soft market.

In addition, the market recorded aggregate total capital and surplus of$185.2 billion and assets of $524.7 billion, year-on-year increases of1.7 per cent and 5.8 per cent respectively.”

Commenting on the market’s business volumes by sector, Mr. Weldon said, “The commercial sector wrote a consistent amount of gross premiums, $86.3 billion compared to $87.1 billion the previous year.


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Total assets were $438 billion, up 16.5 per cent year-on-year. Capital and surplus was also up, by 10.5 per cent, from $131.8 billion to $145.6 billion.”

“Bermuda captives also maintained high business volumes, and there were a total of 862 captives registered in Bermuda at the end of 2011, up from 845 in 2010,” Mr. Weldon continued.

“Captives wrote a total of $21.4 billion in gross premiums, compared to$32.7 billion the previous year.

This change can be attributed to a combination of the Authority’s continuing reclassification of a number of companies to more accurately reflect their risk-profiles, as well as a decrease in premiums written by particular firms within the sector.”

Mr. Weldon concluded, “Bermuda’s insurance market continues to manage the impacts of the global economy and market conditions effectively.

Bermuda is a unique jurisdiction providing leadership across the spectrum of insurance risk management: captives, insurance and reinsurance.

This reinforces Bermuda’s position as a leading domicile for insurance business along with other core elements of our success – such as disciplined underwriting by firms and a pragmatic regulatory environment with world class standards that supports quality business.”


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Solvency I I Speakers Bureau

The Solvency I I Association has established the Solvency I I Speakers Bureau for firms and organizations that want to access the expertise of Certified Solvency ii Professionals (CSiiPs) and Certified Solvency ii Equivalence Professionals (CSiiEPs).

The Solvency I I Association will be the liaison between our certified professionals and these organizations, at no cost. We strongly believe that this can be a great opportunity for both, our certified professionals and the organizers.

To learn more:www.solvency-ii-association.com/Solvency_II_Speakers_Bureau.html

Course TitleCertified Solvency ii Professional (CSiiP):

Preparing for the Solvency ii Directive of the EU (3 days)

Objectives:This course has been designed to provide with the

knowledge and skills needed to understand and support compliance with the Solvency ii

Directive of the European Union.

Target Audience:This course is intended for decision makers, managers,

professionals and consultants that:

A. Work in Insurance or Reinsurance firms of EEA countries.

B. Work in Groups - Financial Conglomerates (FC), Financial Holding Companies (FHC), Mixed Financial Holding Companies (MFHC), Insurance Holding Companies (IH C) - providing insurance and/ or


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http://www.solvency-ii-association.com/Solvency_II_Speakers_Bureau.html








































































reinsurance services in the EEA, whose parent is located in a country of the EEA.

C.Want to understand the challenges and the opportunities after the Solvency ii Directive.

This course is highly recommended for supervisors of EEA countries that want to understand how countries see Solvency I I as a Competitive Advantage.

This course is also recommended for all decision makers, managers, professionals and consultants of insurance and/ or reinsurance firms involved in risk and compliance management.

About the Course

INTRODUCTION The

European Union’s Legislative Process

Directives and Regulations

The Financial Services Action Plan (FSAP) of the EU

Extraterritorial Application of European Law

Extraterritorial Application of the Solvency I I Directive

Solvency ii and the Lamfalussy Process

Level 1: Framework Principles

Level 2: Detailed Technical MeasuresLevel 3: Strengthening Cooperation Among Regulators

Level 4: Enforcement Weaknesses of Solvency I From Solvency I to Solvency I I Solvency ii Players Solvency ii Objectives


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THE SOLVENCY I I DIRECTIVE A Unified Legislative Basis for Prudential Regulation of

Insurers and Reinsurers Risk-Based Capital Allocation Scope of the Application Important Definitions Value-at-Risk in Solvency I I Authorisation Corporate Governance Governance Functions Risk Management Corporate Governance and Risk Management - Level 2 Fit and proper requirements for persons who effectively

run the undertaking or have other key functions Internal Controls Internal Audit Actuarial Function Outsourcing Board of Directors: Role and Solvency ii Responsibilities 12 Principles – System of Governance (Level 2)

PILLAR 2 Supervisory Review Process (SRP) Focus on Risk Management and Operational Risk Own Risk and Solvency Assessment (ORSA) ORSA - The Internal Assessment Process ORSA - The Supervisory Tool ORSA - Not a Third Solvency Capital Requirement Capital add-on

PILLAR 3 Disclosure Requirements


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The Solvency and Financial Condition Report (SFC)

PILLAR I Valuation Of Assets And Liabilities Technical Provisions The Solvency Capital Requirement (SCR) The Value-at-Risk Measure Calibrated to a 99.5%

Confidence Level over a 1-year Time Horizon The Standard Approach The Internal Models The Collection of Additional H istorical Data External Data The Minimum Capital Requirement (MCR) Non-Compliance with the Minimum Capital

Requirement Non-Compliance with the Solvency Capital

Requirement Own Funds Investment Rules

INTERNAL MODEL APPROVAL CEIOPS Level 2 - Tests and Standards for Internal

Model Approval CEIOPS Level 2 - The procedure to be followed for the

approval of an internal model Internal Models Governance Group internal models Statistical quality standards Calibration and validation standards Documentation standards

SOLVENCY I I , GROUP SUPERVISION AND TH IRD COUNTRIES

Solvency I: Solo Plus Approach Group Supervision under Solvency I I Rights and duties of the group supervisorSolvency ii Association

























Group Solvency - Methods of calculation Method 1 (Default method): Accounting consolidation-

based method Method 2 (Alternative method): Deduction and

aggregation method Parent Undertakings Outside the Community -

Verification of Equivalence Parent Undertakings Outside the Community -

Absence of Equivalence The head of the group is in the EEA and the third country

regime is not equivalent The head of the group is in the EEA and the third country

regime is equivalent The head of the group is outside the EEA and the third

country is not equivalent The head of the group is outside the EEA and the third

country regime is equivalent Small and Medium-Sized Insurers: The Proportionality

Principle Captives and Solvency I I

EQUIVALENCE WITH SOLVENCY I I AROUND THE WORLD Solvency ii and Countries outside the European

Economic Area The International Association of Insurance Supervisors

(IAIS) The Swiss Solvency Test (SST) and Solvency ii: Solvency ii and the Offshore Financial Centers (OFCs) Solvency ii and the USA Solvency ii and the US National Association of Insurance

Commissioners (NAIC) - The Federal Insurance Office created under the Dodd-Frank Wall Street Reform and Consumer Protection Act in the USA, and the ORSA in the USA


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FROM THE REINSURANCE DIRECTIVE TO THE SOLVENCY I I DIRECTIVE

Directive 2005/ 68/ EC of 16 November 2005 on Reinsurance - The Reinsurance Directive (RID)

CLOSING The Impact of Solvency ii Outside the EEA Providing Insurance Services to the European Client Competing with Banks Learning from the Basel ii Framework Regulatory Arbitrage: A Major Risk for Countries

that see Compliance as an Obligation, not an Opportunity

Basel I I , Basel I I I, Solvency I I and Regulatory Arbitrage

Challenges and Opportunities: What is next Regulatory Shopping after Solvency I I

To learn more about the online exam you may visit: www.solvency-ii- association.com/CSiiP_CSiiEP_Frequently_Asked_Questions.pdf

www.solvency-ii-association.com/CSiiP_CSiiEP_Certification_Steps.pdf

To learn more about the course:www.solvency-ii-association.com/Certified_Solvency_ii_Training.htm


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http://www.solvency-ii-association.com/CSiiP_CSiiEP_Frequently_Asked_Questions.pdf























































http://www.solvency-ii-association.com/CSiiP_CSiiEP_Certification_Steps.pdf












































http://www.solvency-ii-association.com/Certified_Solvency_ii_Training.htm








































































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