1. EIOPA & Solvency II What to expect in non-member states such as Switzerland
Gabriel Bernardino
Chairman of EIOPA
Swiss Insurance Association
Zurich, 1 December 2011

2. Outline What is EIOPA? Key objectives Powers Activity Challenges
Solvency II – The final countdown
Equivalence – The road to convergence 2 2

3. What is EIOPA?

4. EIOPA’s key objectives
Stable/effective financial system
Sound regulation/supervision
Transparent, efficient and orderly markets
International supervisory co-ordination
No regulatory arbitrage
Equal conditions of competition
Appropriate regulation/supervision of risks
Enhanced customer protection 4 4

5. EIOPA’s powers Develop draft technical standards
Issue guidelines and recommendations
In certain cases, remedy emergency situations
Settle disagreements in cross-border situations
Monitor correct application of EU law
Methodologies for products and distribution 5 5

6. EIOPA’s activity Regulation Solvency II Review of the IORP Directive
Input to the EU Commission on the Level 2 implementing measures
On-going work on the Regulatory Technical Standards and Guidelines and Recommendations
Review of the IORP Directive
Draft answer to the call for advice from the EU Commission (in public consultation until 2 January 2012)
Introduce a risk-based framework in the EU occupational pensions supervision 6 6

7. EIOPA’s activity Supervision
Participation in the colleges of supervisors
Providing an added value on consistency and making recommendations in order to assure a convergent and coherent functioning
EIOPA colleges action plan (definition and monitoring)
EU wide stress test
Common framework applied by all undertakings
Evaluate the overall stability of the EU insurance market and assess the major prospective vulnerabilities 7 7

8. EIOPA’s activity Financial Stability
Monitor and assess market developments
Using efficiently the public information available
Collecting more granular information directly from the national supervisory authorities
specific quantitative and qualitative queries
visits by EIOPA staff
Cross-sectoral risk assessment
Done at the level of the Joint Committee of the ESA’s 8 8

9. EIOPA’s activity Consumer protection
Committee on Consumer Protection and Financial Innovation
Guidelines on complaints-handling by insurance undertakings
Best practices on disclosure and selling practices of variable annuities
Report on Financial Literacy and Education Initiatives
First report on consumer trends
Complex unit-linked life insurance
Payment Protection Insurance
Use by consumers of comparison websites 9 9

10. EIOPA’s activity International Relations
Solvency II equivalence analysis
Switzerland, Bermuda and Japan in the first wave
Off-site and on-site analysis to prepare the advice to be given to the EU Commission
International Association of Insurance Supervisors
EIOPA full member of the IAIS - the international standard setter in the insurance area
EIOPA chair elected to the Executive Committee 10 10

11. EIOPA’s challenges Building phase but already need to deliver
Recruit and maintain highly skilled, competent and experienced staff
Implementation of Solvency II
Deliver more standardized and comparable information to consumers
Create a centralized hub of information for stability purposes
Deal with the specificities of system risk in insurance 11 11

12. EIOPA’s challenges
Creation of a truly European supervisory culture that:
Promotes stability
Enhances transparency
Fosters consumer protection
A culture based on intelligent and effective regulation
A culture that adds credibility and promotes good practices

13. Solvency II The final countdown

14. Solvency II – The final countdown
What is still missing?
Level 2 implementing measures
Omnibus 2
Technical standards and guidelines
EIOPA plans to start public consultation of technical standards on May 2012

15. Solvency II – The final countdown
KEY challenge: How to deal with the impact on long-term guaranteed products?
Mitigate the effect of short-term volatility
Preserve transparency of economic approach
Reward long-term ALM and hedging strategies
Build counter-cyclical measures
Reinforce level playing field

16. Solvency II – The final countdown
Countercyclical tools
Pillar I equity dampener
MCR and SCR - Supervisory ladder of intervention
Pillar II extension of the recovery period
Counter Cyclical Premium
A tool to be used in crisis situations
Complete formulaic approach is not desirable or even possible
Clear criteria and indicators monitored by EIOPA
Decision on the application of the CCP, by EIOPA on a European basis, when certain defined thresholds would be exceeded
Avoid incentives to insurers to invest in higher risky assets
Should not be used to maintain unsustainable business models in an on-going situation

17. Solvency II – The final countdown
Key challenge:
Capital is not the answer for poor risk management
Capital is not the solution for all the risks
Effective risk management processes and practices, applied in a consistent way can be a relevant tool to foster policyholder protection and promote stability in the markets

18. Solvency II – The final countdown
Key challenge:
Appropriate reporting to supervisors
Quarterly reporting of some core elements
Increase of risk-based information
Preventive supervision is based on the access to timely and quality information

19. SII Equivalence The road to convergence

20. SII Equivalence
SII Directive gives EU Commission authority to decide about the equivalence of a third country’s solvency and prudential regime
EIOPA is responsible for the technical assessment

21. Benefits of equivalence
Ensure an adequate level of policyholder protection on a global basis
Facilitate cross-border activities of insurance and reinsurance undertakings
Reduce regulatory complexity – diminish the burden on internationally active insurance groups
Reinforce the global trend towards introducing economic risk-based approaches

22. Consequences of equivalence
A (re)insurer located in a third country enters into a reinsurance arrangement with a (re)insurer in the EU
Reinsurance contracts treated in the same manner as contracts concluded with EU (re)insurers
EU member states not allowed to require collateral

23. Consequences of equivalence
A (re)insurer headquartered in the EU has participations or subsidiaries located in a third country
EU Group to use third country rules on own funds and capital requirements rather than SII rules for the calculation of the Group Solvency Capital Requirement
EU Group undertakings in third countries do not need to recalculate their data according to SII

24. Consequences of equivalence
A (re)insurer headquartered in a third country has participations or subsidiaries located in the EU
EU supervisory authorities required to rely on group supervision exercised by third country supervisors
Avoid burden to third country international groups

25. Demystifying equivalence
Not in search for a copy of SII !!!
But go beyond the simple definition of the objectives of the regimes…
Equivalence assessments are principles based:
Is the third country regime risk-based?
Are the basic principles of Solvency II reflected in the third country regime? (e.g. fully risk-based capital requirements, enhanced group supervision, etc…)

26. Criteria for equivalence
Areas to be assessed:
Powers and responsibilities of third country supervisors
Taking-up of business
System of governance
Public disclosure
Changes in business, management or qualifying holdings
Solvency assessment
Professional secrecy, exchange of information
Group supervision

27. Transitional regime for equivalence
To be applied to third countries willing and committed to converge towards a risk-based regime over a pre-defined period
Subject to a EU Commission decision
Subject to conditions to be defined in Omnibus 2
EIOPA to perform gap-analysis

28. EIOPA experience with equivalence
Excellent cooperation with third country authorities
Information provided and dialogue with third country supervisors was essential to assure the quality and accuracy of the assessments
EIOPA has identified which aspects of the third country regime could be deemed equivalent and what additional steps would need to be taken in order for the remaining criteria to be met

29. EIOPA experience with equivalence
EIOPA’s advice is that Switzerland meets the criteria set out in EIOPA’s methodology for equivalence assessments under Solvency II, but with certain caveats
This findings reflect the efforts to maintain a fruitful cooperation between the Swiss and EU supervisory regimes
In-depth dialogue and cooperation between EIOPA and FINMA will continue beyond equivalence

30. SII equivalence assessment
“Very important step in the right direction with regards to international cooperation and acceptance of supervisory regimes” Comment to EIOPA’s assessment