solvencyii medium term work plan 2011 2014

8/7/2019 SolvencyII Medium Term Work Plan 2011 2014

1/22

1/22 EIOPA 2011

EIOPA-11/0026 January 2011

From Regulation to Supervision

EIOPAs Solvency II Medium Term Work Plan

(2011-2014)


2/22

2/22 EIOPA 2011

Table of content

1. Executive summary ............................................................................................................... 3

2. Aim and philosophy of the Solvency II Medium Term Work Plan ............. 4

3. Regulation ........................................................................................................................ 53.1 General approach ................................................................................................................. 53.2 Key elements for regulatory development in the various work streams ...... 8

3.2.1 Quantitative requirements (general) ............................................................... 83.2.2 Valuation of assets and liabilities including technical provisions .......... 83.2.3 Solvency capital requirements

............................................................................ 93.2.4 Own funds................................................................................................................... 93.2.5 Governance, including ORSA ............................................................................. 103.2.6 Reporting and disclosure..................................................................................... 103.2.7 Supervisory review process ............................................................................... 11

3.2.8 Group Supervision, Supervisory Cooperation, Coordination and In-formation Exchange, including Colleges of supervisors...................................... 123.2.9 Internal models....................................................................................................... 133.2.10 Equivalence............................................................................................................ 14

3.3 Areas for ongoing regulatory and supervisory coordination.............................. 15

4. Supervision ............................................................................................................................... 164.1 General approach ............................................................................................................... 164.2 Training .................................................................................................................................. 16

4.3 Supervisory review process and risk assessment framework, including su-pervisory transparency and accountability....................................................................... 164.4 Colleges .................................................................................................................................. 174.5 Equivalence........................................................................................................................... 17

5. Relation with non-Solvency II-specific work streams ................................... 195.1 Analysis of costs and benefits ....................................................................................... 195.2 Review process.................................................................................................................... 195.3 Financial stability ................................................................................................................ 195.4 Consumer Protection/Financial activities .................................................................. 205.5 Information to consumers............................................................................................... 215.6 Insurance guarantee schemes ...................................................................................... 215.7 Data collection ..................................................................................................................... 215.8 International regulatory dialogues .............................................................................. 22


3/22

3/22 EIOPA 2011

1. Executive summary

1.1 Two key developments are impacting Solvency II today: the state of playof the Solvency II project, and the creation of the European Insur-ance and Occupational Pensions Authority, EIOPA.

1.2 The implementation date is coming closer and supervisors as well as theindustry are getting prepared to put into practice Solvency II while manyregulatory discussions are still taking place. European-wide guidelines willsupport the convergent application of the new rules. Also, binding technicalstandards be developed under Solvency II. The results of the last majorquantitative impact study before implementation (QIS5) will be available inthe first quarter of 2011, and will help identifying the most important re-maining regulatory issues that would need to be solved to ensure a bestpossible implementation of Solvency II, by finding an appropriate balance

between regulation and the practicability of the rules.

1.3 The transition to a European Authority impacts on the general governance ofthe project. The roles and responsibilities of EIOPAs constituent bodies aswell as the organisation of its work streams will be affected. EIOPA, with itsnew powers and responsibilities will support the implementation of SolvencyII.

1.4 The aim of the Solvency II work plan is to ensure the efficiency of the workahead for preparing the implementation. Mapping the various work streamsand showing their interconnectedness provides a basis for coordination ofthe regulatory and supervisory efforts to be made in the medium term. The

work plan identifies the key areas of attention in the Solvency II project. Itshows the need for an increased coordination of the output in the variouswork streams and levels of regulatory action (Level 1- Level 2- Level 3), aswell as the need for active preparation for the implementation by supervi-sors and industry. The work plan also reminds of the fundamental principlesof Solvency II. This will allow EIOPA, Member States and industry to man-age resources and plan their implementation in the coming months andyears.


4/22

4/22 EIOPA 2011

2. Aim and philosophy of the Solvency II Medium TermWork Plan

2.1 The Medium Term Work Plan will help realising a shift in attention from thedrafting of regulatory advice to the implementation: from regulation tosupervision. Till today, the Solvency II project has focused on the devel-opment of the regulatory framework. In view of the imminent implementa-tion, EIOPA will increasingly focus on preparing the day-to-day supervisionby Member States under Solvency II. Therefore, the work plan should en-sure a smooth transition to the new framework both from a policy and a su-pervisory practice perspective, with an appropriate balance between risk

sensitivity and practicability of the new regulation.

2.2 The topical approach structures the work plan along concrete deliverablesand work streams. The identification and regrouping of issues helps coordi-nating different issues. The following overarching work streams have beenidentified and will be considered in the regulatory and supervisory efforts:

o Valuation of Assets and Liabilities including Technical Provisionso Solvency Capital Requirements (SCR, MCR)o Own fundso Governance and ORSAo Reportingo Disclosureo Group Supervision, Supervisory Cooperation, Coordination and In-

formation Exchange, including Colleges of Supervisors

o Internal Modelso Supervisory Review Process and Risk Assessment Framework, in-

cluding Supervisory Transparency and Accountability

o Equivalence2.3 The work plan also shows the interconnectedness of Solvency II with

non-Solvency II-specific areas. This opens another window of opportuni-ty to move away from a purely regulatory approach. Horizontal tools (suchas for example the analysis of costs and benefits) or individual work streamsand tasks for EIOPA (such as for example financial stability, mediation, con-sumer protection ) have been highlighted with the aim of showing thebroader implications of supervision of (re)insurance undertakings in the newfinancial architecture.

2.4 In order to build on the expertise gathered by Member States in the pastyears, no structural changes are being foreseen in the short term to EIOPAsworking structure for Solvency II. However, the working group structurecan be redesigned based on the needs of the Solvency II project and in lightof the regulatory and monitoring tasks of EIOPA (form follows function).


5/22

5/22 EIOPA 2011

3. Regulation

3.1 General approach

3.1 For EIOPA, the regulatory developments will encompass the drafting ofbinding technical standards as well as non-binding guidelines, or where itis relevant, providing further input to the Commission in order to finalisethe proposals for implementing measures.

3.2 The Solvency II Directive (Level 1) was published in December 2009(Solvency II Directive).1 No further work is expected from EIOPA on draft-ing advice for Level 1. However, the Omnibus II Directive (adoption ex-

pected in 2011) will amend the Solvency II Directive in respect of EIOPA spowers, the approval procedure for Level 2 measures and the possibilityfor EIOPA to draft binding technical standards (hereafter: BTS), whicheventually affects the scope of non-binding Level 3 guidelines. This willhave to be taken into account in the further regulatory work that EIOPAwill undertake in the Solvency II project.

3.3 The Commission has started discussing the implementing measures(Level 2)with Member States at the end of 2009. CEIOPS has been partic-ipating in these discussions an observer, providing additional clarificationand providing comments in key areas of interest. The Commission has in-dicated it will wait for the conclusions of the QIS5 exercise before conclud-ing the discussions with an official proposal for implementing measures(expected in June 2011).

3.4 Following key deliverables have been identified for the work on Level 2:o EIOPA remains committed to contribute to the discussions on im-

plementing measures, also following QIS5. EIOPA will prioritiseareas of interest to be further developed in the working groups andseek approval of its Members of the output.

o Issues arising from QIS5 should benefit from common discussionsand cooperation between the Commission, EIOPA, Member

States and industry to ensure coordinated action where relevant.3.5 The draft Omnibus II Directive foresees that EIOPA will be required to

draft binding technical standards (hereafter: BTS) in various areas byDecember 2011.2 The exact scope of the BTS will need to be identified inorder to prioritise the work. EIOPA will also have to further consider thedevelopment process of BTS, and this in cooperation with the other Euro-pean authorities, ESMA and EBA, as well as the Commission.According tothe Regulation establishing EIOPA the Commission will have to endorse theBTS and to explain the rationale for not endorsing or proposing changes.

1 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking up

and pursuit of the business of Insurance and Reinsurance (Solvency II), 17 December 2009, Official Journal L335.2 The Commission has informally shared with CEIOPS the 15 areas for BTS appearing in a draft of the Omnibus

2 Directive on 14 October 2010.


6/22

6/22 EIOPA 2011

3.6 Awaiting confirmation of the content of the Level 2 proposals and theareas of potential BTS, EIOPA has identified areas for potential Level 3guidelines in order to promote the convergent application of the newframework. The aim is to have final adopted guidelines in March 2012.

3.7 Following key deliverables have been identified for the work on BTS andLevel 3 guidelines:

o EIOPA and the Commission will need to ensure a proper exchangeof information during the drafting stage of binding technical stan-dards to ensure a smooth adoption of the standards.

o BTS and Level 3 guidelines are being prioritised according to wheth-er they are considered essential before the implementation of Sol-vency II. In those areas where BTS are required and at the sametime guidelines would be needed, the work on BTS will take priorityover the Level 3 guidelines. Where the scope of the BTS is limited incomparison to the Level 3 guidance, additional work on Level 3

guidelines will continue once the BTS is final or, when the scope isclearly defined, in parallel.

o Special attention will be paid to: the consistency in the drafting, aclear and concise drafting style, the analysis of costs and benefitswhere relevant and proportionate, and the practical application ofthe measures.

3.8 The timing of EIOPAs deliverables on Level 2, BTS and Level 3 guidelinesdepends on the timing of the proposals and adoption of the Level 2 meas-ures and the adoption of the Omnibus II Directive.

3.9 The timeline shows the importance of the Level 2 implementing measuresfor any further work by EIOPA on Solvency II. Any further delay or addi-tional work on Level 2, will put EIOPA under undue time pressure to de-velop BTS and Level 3 guidelines.

3.10 Keeping in mind the ultimate implementation date, a cut-off period forthe development of further Level 2 measures, BTS and Level 3guidelines needs to be built in, at the risk of supervisors and industry notbeing able to properly implement the measures.

3.11 The bulk of the remaining regulatory initiatives will take place in 2011 (fi-nal Level 3 guidelines to be adopted in March 2012).

3.12 Taking into consideration all outstanding deliverables, a general timelinefor the Solvency II project may look as follows:


7/22

7/22 EIOPA 2011

2010

July-Sept Oct-Dec Jan-Mar Apr-June July-Sept Oct-Dec Jan-Mar Apr-June July-Sept Oct-Dec Jan-Mar Apr-June July-Sept Oct-Dec Jan-Mar Apr-June

QIS5

March 2011:

publication of

the final QIS5

report

L2

June 2011: EC

proposal for L2

measures

BTS

EIOPA drafts binding technical

standards.

End December 2011: Final proposal for

BTS to EC

Implementation measures, training, transition to new regime

L3

EIOPA develops L3 guidelines

Pre-consultation on L3 guidelines with selected stakeholders (not

public)

March

2010:

EIOPA

approves

final L3

guidelines

Equivalence

Assessme

nt of the

1st wave

of third

countries

EIOPA

consultation

phases

Informal consultation before publication of L2

proposals by EC Public cons ultat ion

2011 2012 2013 20


8/22

8/22 EIOPA 2011

3.2 Key elements for regulatory development in the various workstreams

3.2.1 Quantitative requirements (general)

3.13 The total balance sheet approach foreseen under Solvency II requires aconsistent economic approach to the valuation of assets and liabilities, in-cluding technical provisions. This will allow defining the net asset value,and the available own funds. The value of the assets and liabilities is beingput to the 99.5 VaR stress to define the SCR. The classification into tiers ofthe available capital and the application of the criteria for the eligibility willdefine the solvency position of the undertakings.

3.14 The main aspects of this regulatory framework are already determined atLevel 1 and Level 2. Further detail will need to be provided in some areasthrough BTS.

3.15 Following priorities can be identified in this area:o When drafting further regulation on the elements of the Solvency II

balance sheet or capital requirements a consistent and coherentframework of quantitative solvency requirements shall bemaintained which from the outsetreflects the overall impact ofthe requirements.

o Practical implications of proposed regulatory requirements needto be taken into account (complexity, theory vs. practice) to ensurethat the requirements can be implemented effectively. The devel-opment of the measures will need to take into account the results ofQIS5.

3.2.2 Valuation of assets and liabilities including technical provisions

3.16 Valuation principles belong to the fundamentals on which Solvency II isbuilt. It is one of the central aims of SII that harmonisation should beincreased by providing specific rules for the valuation of assets and liabili-

ties, including technical provisions following an economic and market-consistent approach to valuation. Standards and guidelines developed inthis field should be reflective of this aim. Valuation issues shouldtherefore be treated consistently to the extent possible limiting thescope for national specificities.

3.17 Because Solvency II aims to align where possible solvency valuation andaccounting standards, attention should be paid to the valuation of theassets and liabilities for public accounting and solvency purposeswhen developing further guidelines or standards and changes in public ac-counting standards should be monitored.

3.18 Following priorities can be identified in this area:o Determination of the risk-free interest rate curve used for dis-

counting technical provisions and the use of transitional measures


9/22

9/22 EIOPA 2011

o Development ofactuarial guidelines for the calculation of the bestestimate

o Assessment of the consistency between IFRS valuation andSolvency II valuation approaches

3.2.3 Solvency capital requirements

3.19 The solvency capital requirement under Solvency II follows an economicapproach based on a 99.5% VaR confidence level both for internalmodels and for the standard formula (the minimum capital requirementshould correspond to a 85 % VaR). Whereas most parts of the standardformula will be covered in the Level 1 and Level 2 texts, it is expected thatin some areas (e.g. for catastrophe risks) BTS or Level 3 guidelines will beneeded to supplement Level 1 and Level 2 in providing further detailsamnd guidance on the calculation of the formula. These BTS should bedrafted with the aim to achieve a coherent and consistent design of theformula as well as a level of calibration which is commensurate withthe 99.5% VaR confidence level.

3.20 Any future updates to the calibration of capital requirements shouldtake into account the development of risks as detected through, for exam-ple work, analysis of financial stability indicators or further information col-lected through the supervisory review process.

3.21 Following priorities can be identified in this work stream:o Assessment of the complexity of the SCR standard formula and

the need for simplifying the standard formulao Assessment of the adequacy of the calibration of quantitative re-

quirements:

Calibration of non-life and health non-SLT underwriting riskfollowing data collection under QIS5

On-going monitoring of adequacy of calibration especially inthe area of market risks (link to financial stability)

o BTS and guidelines to help implementing the principles (for exam-ple: USP)

3.2.4 Own funds

3.22 The amount of own funds is determined by the net asset value based on amarket consistent valuation. The classification of own funds by under-takings and supervisors will have to be based on the key criteria expressedat Level 1 and the list of own funds in Level 2 measures. EIOPA will furthercontribute to the understanding of the own fund items, also on a cross-sectoral level and see to the correct classification of items that are not onthe list provided at Level 2. Updates to the list by EIOPA or the Commis-sion may be expected in the future.

3.23 Following priorities can be identified in this work stream:


10/22

10/22 EIOPA 2011

o Based on the data gathered during QIS5, a proposal can be formu-lated with regard to the grandfathering of existing items. Depend-ing on the approach adopted and the level of detail at Level 2 theremay be a significant amount of work for guidelines or most likelyBTS.

o Further work to enhance cooperation and information sharingon the issuance of capital instruments is being envisaged.

o BTS and guidelines to help implementing the principles (for exam-ple, ring-fenced funds).

3.2.5 Governance, including ORSA

3.24 In general, both the Level 1 text and current preliminary drafts of the Lev-el 2 implementing measures on governance reflect market best practice.The main requirements of the system of governance reflected there areconsistent with previous CEIOPS advice. No draft BTS are currently fore-seen in the draft OMD II with regard to governance. Therefore, the regula-tory work will focus on Level 3 guidelines.

3.25 Following priorities can be identified in this work stream:o System of Governance: explanation of the supervisorsexpecta-

tions regarding some aspects of the system of governance.

o Internal model governance: development of guidelines to allowundertakings to apply for the use of an internal model before im-plementation of Solvency II (pre-application),

o ORSA: development of guidelines on this fundamental part of Sol-vency II which is not covered by any Level 2 measure.

o Actuarial function: guidelines for good governance practices forperforming the tasks of the actuarial function.

o Intra-group outsourcing: in case of outsourcing, requirementsare not very different from the requirements posed in other sectors;Solvency II requirements were based on MIFID requirements. How-ever, specific guidelines on intra-group outsourcing should be fur-ther considered.

3.2.6 Reporting and disclosure

3.26 The aim of the reporting and disclosure requirements is to build a commonground for a consistent approach to supervision across the EU andconvergence in supervisory practices. Harmonised reporting require-ments should avoid regulatory and supervisory arbitrage, and en-sure a level playing field.

3.27 Reporting and disclosure requirements at Level 2 set details on theprocess and content of the Solvency and Financial Condition Report (SFCR,public report) and Regular Supervisory Reporting (RSR, for supervisorypurposes). More detailed requirements will be set as BTS and Level 3guidelines (i.e. reporting templates, reporting format).


11/22

11/22 EIOPA 2011

3.28 Disclosure requirements aim to provide for a common implementation ofthe new risk-based system across Europe based on market discipline. Dis-closure also has an educational role both for (informed) policyholders andanalysts. Furthermore, as disclosure and reporting are the main source forthe supervisory review process it is important to create the supervi-

sory tools before Solvency II come into force.3.29 Following priorities can be identified in this work stream:

o Reporting templates: it is important to approve reporting tem-plates as soon as possible, to allow undertakings, supervisory au-thorities and EIOPA to start working on implementing changes totheir systems and to allow preparing the supervisory review processin Member States. EIOPA will conduct an informal consultation ofthe whole set of reporting templates beginning 2011. This will befollowed by formal consultation and a testing period to allow fortimely and effective implementation.

o Collection of data: reporting is closely linked to each work streamof Solvency II as a means for checking compliance by undertakingswith the requirements. Reporting is also a source of informationthrough the collection of data at national and European level. More-over, there is a need to collect the data and information for thesound functioning of supervisory colleges and for EIOPAs coopera-tion with other institutions like the ESRB, the ECB and other ESAs.Additionally, reporting requirements are closely linked to the idea ofa centralised data base.

o Regular review: In order to fulfill data requests from ESRB, thereporting requirements should be regularly reviewed.

3.2.7 Supervisory review process

3.30 In developing the requirements for the supervisory review process, bothsolo and group (i.e. college guidelines) supervision will be covered. Anoverarching supervisory review process (SRP) umbrella paper will be de-veloped to cover the review of undertakings by supervisors. The Risk As-sessment Framework (RAF), which is a component of the SRP, aims at set-ting the priorities of SRP in a risk-based environment.

3.31 Once the guidelines on SRP have reached an appropriate level of depthand detail, EIOPA could bundle the guidelines into a European supervi-sory manual. The scope for such a manual would have to be further dis-cussed.

3.32 Following priorities can be identified in this work stream:o Level 3 guidelines on SRP: these guidelines will cover the main

objectives and general principles of supervision, Risk AssessmentFramework, Detailed Periodic Review, Supervisory Powers & Ac-tions, Information Analysis and Financial Stability.

o The development of the SRP guidelines will cover all work streams,so coordination is needed.

o BTS on the templates and structure of the supervisory disclosures.


12/22

12/22 EIOPA 2011

3.2.8Group Supervision, Supervisory Cooperation, Coordination and In-formation Exchange, including Colleges of supervisors

3.33

The aim of Solvency II with regard to groups is to improve and fostergroup supervision. One of the cornerstones of group supervision is theneed to assess properly own funds at group level (through elimination ofdouble gearing, internal creation of capital and debt leverage) in order toavoid that the same own funds cover commitments in two insurers or thatordinary debt indirectly covers insurers commitments. To achieve this,Solvency II acknowledges that the group supervisor and coordination ofsupervisory actions are central. Adequate supervision of an insurer part ofa group requires knowledge about the group it belongs to. The group su-pervisor also needs the support of solo supervisors in understanding therisk profile and reporting of the group.

3.34 There is an obvious link with the work on financial conglomerates, but in-surance groups and their specificities need to be taken into account.3.35 Besides the specific points mentioned below, the work on group supervi-

sion should focus on the additional requirements which are needed forgroups or undertakings belonging to a group.

3.36 Following priorities can be identified in this work stream:o Calculation of the group SCR (including group specific risks)o Non-EEA insurance entities:

Others financial sectors cross-sectoral cooperation with the

European Banking Authority (EBA) and the Joint Committee ofESAs

Non-EEA issues work on equivalence where relevant

Non-controlled entities (for example holdings) link with thework of the Financial Stability Board and G20

Non-controlled participations focus on governance, report-ing and disclosure and cross-sectoral cooperation in the JointCommittee of ESAs

o Transition from IFRS group balance sheet to Solvency II group Bal-ance sheet

o Key issues in the availability and non-availability of group own funds cross-sectoral cooperation with EBA and the Joint Committee ofESAs, including non-EEA cooperation

o Intra-group transactions and risk concentration link with JointCommittee of ESAs for conglomerates

o Treatment of national groupso Development of the process for the approval of group internal mod-

els cooperation within the internal models work stream

o Supervisory Cooperation, Coordination and Information Exchangeon a national and international basis, including Colleges of supervi-sors


13/22

13/22 EIOPA 2011

o Development of adequate Group-specific reporting templates in ad-dition to the solo templates and interlinked with the Joint Commit-tee of ESAs

o Development of an IT Tool for information exchange between su-pervisors

o Analysis of the review clause included in Article 242 of the Level 1Directive.

o Ensure consistency between group and solo treatments3.37 The link with the work undertaken by the IAIS on the Common Assess-

ment Framework and how EIOPA can support this from a Europeanperspective needs to be kept in mind.

3.2.9 Internal models

3.38 Internal models are one of the cornerstones of the risk oriented system inSolvency II. The use of internal models should allow insurance undertak-ings to get a full view of the risks they are facing, with implications not on-ly in terms of capital, but also in terms of risk management.

3.39 In general both the Level 1 text and Level 2 implementing measures setout procedures and general principles for the different tests and standardsthat internal models have to fulfill in order to obtain supervisory approval.These principles are to be complemented by BTS or Level 3 guidelines.

3.40 Prioritized Level 3 measures should be drafted as soon as possible, as theyare critical in order to help supervisors having a convergent view when as-sessing internal models (pre)-applications, and as well for undertakingsto clarify what is expected from them if they want to be authorised to useinternal models for the calculation of the capital requirements under Sol-vency II.

3.41 Following priorities can be identified in this work stream:o Priority should be given to specific Level 3 measures such as the

use test, the use of expert judgment, approximations when usingdifferent calibration and time horizon as stated in Level 1, valida-tion, and techniques for the integration of partial internal modelswith the standard formula. This is particularly important from a

group perspective and should be done in cooperation with differentspecialists in group aspects, internal models, the SCR standard for-mula and qualitative issues.

o More emphasis should be put on the coordination between the workstreams on the standard formula and internal models, to ensureconsistency, useful mutual input and assistance in the developmentof guidelines. This is not only relevant in relation to partial internalmodels, but in general, for the coherent assessment of capital re-quirements, technical provisions and the risk margin.

o Ongoing coordination on other work streams such as equivalence,reporting, disclosure, governance, supervisory review and monitor-ing of models after approval, ORSA remains important.


14/22

14/22 EIOPA 2011

o Promotion of Level 3 initiatives (beyond guidelines). This includesincluding a training programme to Supervisory Authorities to en-hance supervisory convergence and consistency in the (pre-) appli-cation process specifically for groups-, both in terms of processesand outcomes. This will substantially mitigate concerns on potential

regulatory arbitrage.

3.2.10 Equivalence

3.42 In line with the Level 1 Directive, CEIOPS will assess whether third countrysupervisory systems provide for a similar level of policyholder/beneficiaryprotection as under Solvency II.

3.43 Following priorities can be identified in this work stream, specifically withregard to the regulatory activity (the relevance for the supervisory activityis mentioned in Chapter 4) :

o Level 3 guidelines for supervisors: Once the proposal for Level 2measures providing criteria for equivalence will have been pub-lished, CEIOPS will be producing Level 3 guidelines for supervisorson the methodology for assessing equivalence (covered equivalenceassessment in relation to Art. (64), 172, 227 and 260).

o The Level 3 guidelines will build on CEIOPS previously published Me-thodology for equivalence assessments and will need to take intoaccount potential changes in the Level 2 text with regard to the cri-teria, the elements of the Solvency II framework against which theassessment will be made, as well as lessons learned from the first

wave of assessments to be undertaken in 2011.


15/22

15/22 EIOPA 2011

3.3 Areas for ongoing regulatory and supervisory coordination

3.44 The challenge for coordination remains, at European as well as nationallevel. The following chart depicts the key areas for coordination.

Valuation of Assets an Liabilities

including Technical Provisions

Solvency Capital Requirements

(SCR, MCR)

Own funds

Governance and ORSA

Reporting

Disclosure

Group supervision, Supervisory

Cooperation, Coordination and

Information Exchange, including

Colleges of supervisors

Internal Models

Supervisory Review Process and

Risk Assessment Framework,including Supervisory Transparency

and Accountability

Equivalence

coordination essential

coordination highly recommended

coordination possible where relevant

use of SII Level 1-Level 2

Supervisory

ReviewProcess

andRisk

Assessment

Framework,

including

Supervisory

Transparencyan

d

Accountability

Equivalence

Reporting

Disclosure

Group

supervision,

Supervisory

Cooperation,

Coordinationand

Information

Exchange,

includingCollege

s

ofsupervisors

InternalModels

Valuationof

Assetsand

Liabilities

including

Technical

Provisions

SolvencyCapita

l

Requirements

(SCR,MCR)

Ownfunds

Governanceand

ORSA


16/22

16/22 EIOPA 2011

4. Supervision

4.1 General approach

4.1. The Solvency II Medium Term work plan allows EIOPA to move from apurely regulatory approach to supporting the concrete implementation ofthe supervisory framework. To this extent, different tools can be devel-oped and areas further examined. Two areas will be of key importance tosupport the implementation of Solvency II by supervisors: training andthe development of guidelines on the supervisory review process.

4.2 Training

4.2. Training plays a key role in the development of common supervisory prac-tices and it is one of the main tools for achieving a common supervisoryculture. Concrete support and tools will be developed to help supervisorsto get prepared at an operational level for Solvency II.

4.3. As the timeline is short and the development of regulatory measures willnot stop abruptly, the supervisory perspective should be developed along

with the regulatory measures. The practical aspects of supervision underthe proposed measures should be identified and highlighted.

4.4. Following priorities can be identified in this work stream:o By introducing a practical approach as the preferred methodology

of training, the aim for the future trainings on Solvency II is to tar-get operational supervisors and to prepare them for supervision un-der Solvency II.

o Training will focus on the difference between the new and the oldsupervisory framework in order to allow supervisors to focus onwhat is new under Solvency II.

o Other general tools will be developed (a website-based Solvency IIlibrary, case-studies as an ongoing requirement for working groupswhen developing regulatory measures, the possibility of exchangingquestions and answers between Solvency II implementation projectmanagers through the EIOPA members area website).

4.3 Supervisory review process and risk assessment framework,including supervisory transparency and accountability

4.5. The aim of the requirements on the supervisory review process (SRP) is tobuild the ground for a consistent approach to supervision across theEU and convergence in supervisory practices. It is also important to


17/22

17/22 EIOPA 2011

build a sound and proper system to avoid regulatory and supervisoryarbitrage and to ensure a level playing field, while taking into accountnational specificities due to administrative law.

4.6. A convergent supervisory process with appropriate transparency and ac-countability by supervisors will enhance trust and cooperation between su-

pervisors as well the dialogue with undertakings.

4.4 Colleges

4.7. Better cooperation, exchange of information and coordination of supervi-sory activities and actions will allow supervisors to better understandgroups and to improve supervisory action. This is also in line with the in-creasingly centralized manner in which groups are being managed. Groupsupervision requires the necessary flexibility to adapt to the variety ofstructures of each group; this is shown for example in the preliminarywork on group internal models and the numerous issues raised by groupsolvency calculation.

4.8. Following priorities can be identified in this work stream:o EIOPA will be a member in all Colleges. This means that procedures

on the monitoring, follow-up and the inputs to provide during themeetings will be necessary. This will require appropriate staffing forEIOPA.

o An IT tool for the secured exchange of information withinColleges should be developed. Also, the EIOPA centralised data-

base should provide a tool to retrieve information to use in Colleges.o Guidelines for Colleges (required by Article 248 of the Solvency II

Directive) are being developed paying attention to the guidelinesdeveloped in the banking sector, for Conglomerates and on a world-wide basis.

4.5 Equivalence

4.9. Equivalence assessments will aim to ensure that the third country regula-tory and supervisory regimes provide a similar level of policyhold-

er/beneficiary protection as the one provided under the Solvency II Direc-tive. Equivalence assessments will be undertaken by EIOPA over theyears to come and support the supervisory review process with regard toreinsurance, group solvency and group supervision.

4.10. Equivalence assessments will be undertaken by group supervisors in theabsence of a decision by the Commission concerning a specific third coun-try. EIOPA will play a significant role in ensuring increased convergencegroup supervisors assessments and end results.

4.11. Equivalence findings relevance for reinsurance: In case of a posi-tive equivalence determination, Member States

are required to treat reinsurance contracts concluded with undertak-ings having their head office in the third country whose regime has


18/22

18/22 EIOPA 2011

been deemed equivalent, in the same manner as reinsurance contractsconcluded with an undertaking which is authorised under the SolvencyII Directive (Article 172 (3));

cannot require pledging of assets to cover unearned premiums andoutstanding claims provisions (Article 173); and

shall not require the localisation within the Community of assets heldto cover the technical provisions covering risks situated in the Com-munity, nor assets representing reinsurance recoverables (Article134).

4.12. Equivalence findings relevance for group solvency calculation: Under Article 227(1) where the third-country in which an undertaking

has its head office subjects the undertaking to authorisation and im-poses on it a solvency regime at least equivalent to that laid down in

Title I, Chapter VI, Member States may provide that the calculation ofthe group solvency shall take into account (as regards that undertak-ing), the Solvency Capital Requirement and the own funds eligible tosatisfy that requirement, as laid down by the third-country concerned.

4.13. Equivalence findings relevance for group supervision: Article 261 states that, in the case of equivalent supervision referred to

in Article 260, Member States shall rely on the equivalent group super-vision exercised by the third-country supervisory authorities. Articles247 to 258 on supervisory cooperation apply mutatis mutandis, whichmeans that EEA supervisors would expect to play a role in the coop-

eration arrangements of the third country group supervisor.

4.14. Following priorities can be identified in this work stream:o 2011: Following the European Commissions Call for Advice (June

2010) as well as its letter to CEIOPS from 29 October 2010, EIOPAshall deliver fully consulted advice on the equivalence of the thirdcountries included in the first wave by end September 2011 (Ber-muda, Japan and Switzerland).

o 2011 2012: EIOPA is expected to undertake the second wave ofthird country assessments.

o2013 2015: EIOPA is expected to undertake the third wave ofcountry assessments.


19/22

19/22 EIOPA 2011

5. Relation with non-Solvency II-specific work streams

5.1 The non-Solvency II-specific work streams mentioned hereunder coversome generic, horizontal tools which apply to other projects too, as wellas separate work streams which are linked to the supervision of(re)insurance undertakings. Mentioning these work streams allows forcross-fertilisation and for detecting potentially relevant areas of supervi-sory attention. This should enable experts to contribute where necessaryto each others fields of expertise and achieve coordinated supervision andregulatory activity.

5.1 Analysis of costs and benefits

5.2 The EIOPA regulation embeds the better/smart regulation approach inthe work of EIOPA by requiring the analysis of the economic and social ef-fects of policies and regulatory proposals in order to ensure that marketsfunction properly, to create a level playing-field for companies and finan-cial institutions competing in the single market, and to protect policyhold-ers.

5.3 The general approach to the analysis of costs and benefits is that at pre-liminary stages of drafting guidelines and BTS a high-level analysis ofthe costs and benefits should be carried out. The analysis of costs andbenefits should follow a structure which will facilitate the policy draftingprocess. Throughout the drafting process the analysis of costs and benefitswill be refined. CEIOPS has developed the process for the analysis of costsand benefits for guidelines, which is based on the 3L3 Guidelines on Im-pact Assessment.3

5.2 Review process

5.4

EIOPA will analyse the level of convergence in the application of the guide-lines and standards. A methodology for self-assessments, peer reviewsand peer pressure tools will steer convergent behaviour in the implemen-tation of BTS and Level 3 Guidelines across work streams in EIOPA.

5.3 Financial stability

5.5 Regulation and supervision under Solvency II needs to take into accountfinancial stability issues: the Solvency II Directive stipulates the duty forsupervisors to consider the potential impact of their decision on the stabili-

ty of the financial system (Article 28).

3https://www.ceiops.eu/fileadmin/tx_dam/files/publications/standardsandmore/guidelines/3L3IAGUIDELINES.pdf


20/22

20/22 EIOPA 2011

5.6 Furthermore, in the framework of Solvency II certain macro elementshave been introduced, such as for example the possibility to extend anundertakings recovery period in the event of an exceptional fall in finan-cial markets (Article 138, the so-called Pillar 2 dampener), or the use of anilliquidity premium for discounting technical provisions where such a pre-

mium can be observed in the market in times of liquidity crisis. Both theexceptional fall in financial markets as well as the observation of a liquiditycrisis will result from financial stability analysis.

5.7 The proper follow-up of risk warnings and recommendations issued by theESRB will need to be assessed. The cooperation between the ESRB andthe other European Supervisory Authorities (ESMA and EBA) will be para-mount.

5.8 Information collected through the financial stability work stream in EIOPAwill provide input for the overall market risk assessment and for updatingspecific calibrations.

5.9 Furthermore, in accordance with the EIOPA regulation, resilience tests(so-called stress testing) should be performed on the basis of Solvency II.5.10 This leads to further connections between Solvency II and financial stabili-

ty aspects which should be recognised in the coordination across workstreams.

5.4 Consumer Protection/Financial activities

5.11 The EIOPA Regulation provides that EIOPA will be responsible for foster-ing policyholder and beneficiary protection. For this purpose, the Sol-vency II framework and EIOPA share the same objective.

5.12 EIOPA will be able to develop common methodologies for assessing theeffect of product characteristics and distribution processes on the financialposition of institutions and on customer protection.

5.13 For this purpose, EIOPA will, among other tasks collect, analyse and reporton consumer trends and review and coordinate financial literacy and edu-cation initiatives as well as develop training standards for the industry andcontribute to the development of common disclosure rules.

5.14 EIOPA will not, however, be responsible for handling consumer complaintsfollowing the entry into force of the EIOPA Regulation, or for that matterany regulation such as Solvency II. This will remain the responsibility ofnational authorities.

5.15 Much will depend on the scope of the areas for EIOPA to develop bindingtechnical standards under the forthcoming Packaged Retail InvestmentProducts (PRIPs) legislation and the revised Insurance Mediation Di-rective, for example in the fields of professional requirements and infor-mation disclosure.

5.16 Finally, EIOPA will establish a Committee on Financial Innovation,which should achieve a coordinated approach to the regulatory and super-

visory treatment of new or innovative financial activities. In the frameworkof Solvency II, this activity will show its relevance in the area of own funds(e.g. hybrids), risk mitigation techniques (e.g. alternative risk transfers)


21/22

21/22 EIOPA 2011

and investments (e.g. compliance with the prudent person principle andthe assessment of risk in the ORSA).

5.5 Information to consumers

5.17 EIOPA will have an important role to play in contributing to the develop-ment ofcommon disclosure towards consumers on financial servic-es or products.

5.18 The Solvency II framework includes provisions regarding information forpolicyholders in life and non-life insurance (Article 183-186, a re-draft ofArticle 36 and Annex A of the Consolidated Life Directive). These provi-sions will be impacted by the future product disclosure provisions underthe future PRIPs Directive for life insurance including the introduction of aKey Investor Information Document for life insurance PRIPs.

5.19 The Joint Committee of ESAs will also have an important role to play re-garding information disclosure for retail investment products. The EIOPAregulation provides that the Joint Committee shall serve as a forum inwhich EIOPA shall cooperate regularly and closely and ensure cross-sectoral consistency with the other ESAs, in particular regarding retailinvestment products.

5.6 Insurance guarantee schemes

5.20 The Solvency II Directive (Recital 141) mentions that a pre-requisite for agroup support regime is the existence of harmonised and adequatelyfunded insurance guarantee schemes.

5.21 Furthermore, the EIOPA Regulation stipulates that EIOPA may report onnew developments and progress concerning a harmonised and adequatelyfunded EU-wide solution for insurance guarantee schemes in the frame ofcrisis prevention, management and resolution.

5.7 Data collection

5.22

EIOPA will collect data through Member States to carry out its duties underthe new regulation. This request shall use, where possible common report-ing formats. Information disseminated by the European Statistical systemand the European System of Central Banks will be considered before re-questing information to national authorities.

5.23 EIOPA will also have in place proper internal governance procedures forthe access to and transmission of confidential information, in particular, in-formation regarding individual financial institutions.

5.24 The collection of data should serve the purpose of carrying out its tasks;the relation with the regulation and supervisory tasks under Solvency II isto be clarified, for example for the purpose of impact studies and futurerefinement of calibrations.


22/22

5.8 International regulatory dialogues

5.25 CEIOPS has engaged in several regulatory dialogues with third countriesand has regularly discussed the progress of the Solvency II project atthose occasions. EIOPA has been given an explicit role in international re-lations, and will develop contacts and enter into administrative arrange-ments with supervisory authorities, international organisations and admin-istrations of third countries. Therefore, further development of the regula-tory dialogues will be pursued in the coming years, also to the benefit offuture equivalence assessments.

solvencyii medium term work plan 2011 2014

Documents