1. The New Insurance Core Principles: How do they operate in practice
The New Insurance Core Principles: How do they operate in practice? Round Table: Implications for the Supervisory Body ICPs, EIOPA & Solvency II
Manuela Zweimueller
EIOPA External Relations
ASSAL Conference, Guayaquil, Ecuador
24 April 2012

2. Outline Current regulatory environment in Europe
The ESAs: New regulatory and supervisory landscape – New responsibilities, new challenges
ESRB – Ensuring financial stability
From SI to SII – The final countdown
SII as the practical implementation of the new ICPs
Selected examples
Implementation challenges
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3. Legal Status
European Union body with legal personality as well as administrative/financial autonomy
Autonomous budget - revenues from national authorities and EU Budget
Accountable to EU institutions
First Chairman: Gabriel Bernardino (1 March)
First Executive Director: Carlos Montalvo (1 April)
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4. “Protect the public interest by contributing
EIOPA’s Mission
“Protect the public interest by contributing
to the short, medium and long–term stability and effectiveness of the financial system, for the Union economy, its citizens and businesses.”
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5. EIOPA’s key objectives
Ensure appropriate & sound regulation and supervision of risk taking by the (re)insurance and occupational pension industry
Prevent regulatory arbitrage and promote equal conditions of competition
Ensure integrity, transparency, efficiency and orderly functioning of financial markets
Ensure a stable & effective financial system
Enhanced customer protection
Improve functioning of financial markets, incl. a sound effective and consistent level of regulation and supervision
Strengthen international
supervisory coordination
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6. EIOPA’s Powers Art 8 (2)
Develop draft regulatory technical & implementing standards
Issue guidelines/recommendations regarding consistent, efficient and effective supervisory practices
Take individual decisions addressed to CAs or financial institutions
Issue opinions to the European Parliament/Council/Commission
Collect necessary information concerning financial institutions
Develop common methodologies for assessing the effect of product characteristics/distribution processes on the financial position of institutions and on consumer protection
Provide a centrally accessible data base of registered financial institutions
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7. Tools Member in Colleges of supervisors Expert groups and committees
Insurance/reinsurance and occupational pensions stakeholder groups
Peer Reviews
Impact Assessment/Consultation
Stress Testing
Monitor and assess market development/Economic analyses of markets
Sectoral and cross-sectoral training programmes
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8. European and national activity
Working Groups
Chair
EIOPA ED
National supervision
BOS
Staff
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9. EIOPA and national supervisors as part of …
European System of Financial Supervision
European Systemic Risk Board (ESRB) – macro view
ECB Council (with insurance and securities alternates where necessary)
Chairs of EBA, EIOPA & ESMA
European Commission
Non-voting:
Representative of the national supervisor(s) per Member State + EFC President + + +
European Supervisory Authorities and National Supervision – micro view
The European System of Financial Supervision (ESFS) is an integrated network of national and European supervisory authorities:
EIOPA and national supervisory authorities are independent from each other with clearly confined responsibilities
EIOPA is governed by its Board of Supervisors, which integrates national authorities
The EU’s national supervisory authorities are a source of expertise and information
Best practice: close cooperation between EIOPA and national supervisors
National supervisors will continue to provide day-to-day supervision
National supervisors keep direct link to industry; involved in coordination of activities such as QIS5, stress testing
European
Banking Authority
(EBA)
European
Insurance and Occupational Pensions Authority (EIOPA)
European Securities and Markets Authority
(ESMA)
National Banking
Supervisors
National Insurance and Pension Supervisors
National Securities
Supervisors
24 April 2012 9

10. Developing the regulatory framework for Solvency II
Framework dates from the 1970s
14 Directives
‘Prudent’ valuation of liabilities reflect local accounting practices, non-harmonised valuation of TP
Simple ‘volume-based’ capital requirements
Asset risk managed by quantitative restrictions
Diverging supervisory practices
Solvency II
Three pillar structure
A risk-based approach
Unified legislative basis for pruden-tial regulation of insurers & r/i
Employs Lamfalussy arrangements
Non-zero failure regime (explicit ruin probability)
Two capital requirements
Market consistent valuation
Importance of risk management
Streamlined group supervision
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11. SII implementation challenges
Solvency II is a huge challenge for supervisors:
Supervisory culture - transition from a rules based approach to a principles-based approach
Supervision of the 3 Pillars:
Pillar 1: for example approval of internal models, USP, classification of own funds
Pillar 2: Prudent person principle , ORSA, Capital add-ons
Pillar 3: Harmonised reporting, SFCR
Increased dialogue with supervised entities
Appropriate combination of off-site and on-site activities
IT and human resources!
24 April 2012

12. EIOPA is currently working on +/- 50 sets of draft guidelines and standards
Areas of standards and guidelines:
Valuation of assets and liabilities including technical provisions
Solvency capital requirements
Own funds
Internal models
Group supervision
Supervisory transparency and accountability
Supervisory reporting and public disclosure
Governance
ORSA
Supervisory review process
Capital add-ons
Extension of recovery period (“Pillar 2 dampener”)
Finite reinsurance
Special purpose vehicles
Repackaged loan investments
Single rulebook
24 April 2012

13. Solvency will enter into force in 2014 (“phase-in” in 2013)
“Level 3”
Draft standards
and guidelines by EIOPA
Draft COM proposal for
implementing measures
“Level 2”
“Level 1”
Vote EU Parliament on OMDII
July (Sept.)
Trialogue on OMDII (April- June)
ECON vote on OMDII 21/03/12
Solvency will enter into force in 2014 (“phase-in” in 2013)

14. Outline Current regulatory environment in Europe
The ESAs: New regulatory and supervisory landscape – New responsibilities, new challenges
ESRB – Ensuring financial stability
From SI to SII – The final countdown
SII as the practical implementation of the new ICPs
Selected examples
Implementation challenges
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15. New ICPs: Implications for the Supervisor - Scope
Policyholder protection
sound regulatory and supervisory system
maintaining a fair, safe and stable (re)insurance sector for the benefit and protection of the interests of policyholders, beneficiaries and claimants
as well as contributing to the stability of the financial system
Article 1(6) EIOPA Regulation
The objective of the Authority shall be to protect the public interest
by contributing to the short, medium and long-term stability and effectiveness of the financial system,
for the Union economy, its citizens and businesses.
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16. EIOPA’s key objectives
Prevent regulatory arbitrage and promote equal conditions of competition
Ensure appropriate & sound regulation and supervision of risk taking by the (re)insurance and occupational pension industry
Ensure integrity, transparency, efficiency and orderly functioning of financial markets
Ensure a stable & effective financial system
Enhanced customer protection
Improve functioning of financial markets, incl. a sound effective and consistent level of regulation and supervision
Strengthen international
supervisory coordination
24 April 2012 16

17. New ICPs: Implications for the Supervisor - Scope
Financial stability/systemic risk
Insurance and other financial sector supervisors and regulators
understand and address financial and systemic stability concerns
arising from the insurance sector as they emerge and their interaction with other financial sectors
Articles 22, 21, 23, 24, 1(6), 2 & 8(1i) EIOPA Regulation
duly consider systemic risk
monitoring, assessment and measurement of systemic risk
draw up guidelines and recommendations for financial institutions taking account the systemic risk posed by them
to respond effectively to the materialisation of systemic risks
European System of Financial Supervision: ESRB
functioning of colleges of supervisors for cross-border institutions, taking account of the systemic risk posed by financial institutions
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18. EIOPA and national supervisors as part of …
European System of Financial Supervision
European Systemic Risk Board (ESRB) – macro view
ECB Council (with insurance and securities alternates where necessary)
Chairs of EBA, EIOPA & ESMA
European Commission
Non-voting:
Representative of the national supervisor(s) per Member State + EFC President + + +
European Supervisory Authorities and National Supervision – micro view
The European System of Financial Supervision (ESFS) is an integrated network of national and European supervisory authorities:
EIOPA and national supervisory authorities are independent from each other with clearly confined responsibilities
EIOPA is governed by its Board of Supervisors, which integrates national authorities
The EU’s national supervisory authorities are a source of expertise and information
Best practice: close cooperation between EIOPA and national supervisors
National supervisors will continue to provide day-to-day supervision
National supervisors keep direct link to industry; involved in coordination of activities such as QIS5, stress testing
European
Banking Authority
(EBA)
European
Insurance and Occupational Pensions Authority (EIOPA)
European Securities and Markets Authority
(ESMA)
National Banking
Supervisors
National Insurance and Pension Supervisors
National Securities
Supervisors
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19. EIOPA Financial Stability Report
Content of the SFCR is clearly defined in Level 1 and covers 5 main areas
This structure is also used for the Regular Supervisory Reporting

20. Public Disclosure Requirements under Solvency II
Directive 2009/138/EC:
Art. 51: solvency and financial condition report (SFCR) disclosed annually
Description of business and performance
Description of system of governance and an assessment of its adequacy for the risk profile of the undertaking
Description, separately for each category of risk, of the risk exposure, concentration, mitigation and sensitivity
Description of the bases and methods used in valuation, and an explanation of any major differences in the bases and methods used for accounting
Description of the capital management
Content of the SFCR is clearly defined in Level 1 and covers 5 main areas
This structure is also used for the Regular Supervisory Reporting
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21. New ICPs: Implications for the Supervisor
Transparency
to provide the opportunity for meaningful public consultation on the development of supervisory policies, and in the establishment of new and amended rules and regulations
Articles 1(6b), 10, 11, 13, 15, 37 EIOPA Regulation
Objective: ensuring the integrity, transparency, efficiency and orderly functioning of financial markets
Promoting transparency, simplicity and fairness in the market for consumer financial products or services across the internal market
Technical standards: Before submitting them to the Commission, the Authority shall conduct open public consultations
EIOPA Stakeholder Groups: To help facilitate consultation with stakeholders in areas relevant to the tasks of the Authority, an Insurance and Reinsurance Stakeholder Group and an Occupational Pensions Stakeholder Group shall be established
„Comply & explain“: publish reasons for supervisory authorities’ non-compliance with guidelines and recommendations
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22. New ICPs: Implications for the Supervisor - Scope
Cross-sectoral/Financial conglomerates
To address the increasing presence in the market of insurance groups and financial conglomerates, as well as financial convergence
Supervisors at a jurisdictional and international level must collaborate
to ensure effective supervision of such entities
to minimise the risk of contagion from one sector or jurisdiction to another
to reduce supervisory gaps and avoid unnecessary supervisory duplication
Articles EIOPA Regulation: Joint Committee
The Joint Committee shall serve as a forum
Regular and close cooperation to ensure cross-sectoral consistency with EBA and ESMA, in particular regarding: financial conglomerates
Sub-Committee on Financial Conglomerates to the Joint Committee to be established (joint positions)
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23. New ICPs: Implications for the Supervisor - Scope
Group-wide Supervision
[…] group-wide supervision may vary across jurisdictions depending on the supervisory powers and structure within a jurisdiction (direct/indirect approaches – similar outcome).
[…] to ensure effective group-wide supervision, which includes ensuring that all relevant group-wide risks […] are addressed appropriately.
Articles 19, 21, 25, 27, 28 + Recitals 5, 15, 36, 38 EIOPA Regulation: Group Supervision
Coherent group supervision
Strengthening oversight of cross-border groups
Binding mediation to settle disagreements in cross-border situations (incl. colleges of supervisors)
Best practices to facilitating the resolution of failing of cross-border groups, (avoid contagion, ensuring that appropriate tools, including sufficient resources available for resolution in an orderly, cost-efficient and timely manner)
the assessment of the benefit of enhancing group supervision and capital management within a group including possible measures to enhance a sound cross-border management of insurance groups, in particular in respect of risks and asset management
International aspect: ComFrame
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24. Cooperation via Colleges since the year 2000 …..
Helsinki Protocol (2000)
Guidelines (2005)
Statement on the role of the lead supervisor (2006)
Guidelines on exchange of information (2007)
Survey on the functioning of Colleges ( )
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25. Rights and duties of the Group Supervisor in SII (Art. 248)
(a) coordination of the gathering and dissemination of [...] information for going concern and emergency situations, including the dissemination of information which is of importance for the supervisory task of a supervisory authority;
Facilitation of group supervision tasks through establishment of a college, chaired by the GS
(b) supervisory review and assessment of the financial situation of the group;
(c) assessment of compliance of the group with the rules on solvency and of risk concentration and intra-group transactions [...];
(d) assessment of the system of governance of the group, [...] and of whether the members of the administrative, management or supervisory body of the participating [...] (are fit and proper);
(e) planning and coordination, [...] of supervisory activities in going-concern as well as in emergency situations, in cooperation with the supervisory authorities concerned [...];
(f) other tasks, measures and decisions assigned to the group supervisor by this Directive or deriving from the application of this Directive, in particular leading the process for validation of any internal model at group level [...] and leading the process for permitting the application of the regime established in Articles 237 to 240 (groups with centralized risk management).
24 April 2012

26. Role of Colleges Role of the colleges of supervisors:
Be a platform for cooperation and coordination
Ensure the exchange of information
Facilitate group-wide supervision
Enhance solo supervision
Facilitate convergence of supervisory practices
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27. EIOPA – A Competent Authority in Colleges –Tasks Art 21 (1)&(2)
What are EIOPA’s tasks……
Promote and monitor the efficient, effective and consistent functioning of Colleges
Foster the consistent implementation of Union law
Converging supervisory best practices
Lead in ensuring consistent and coherent functioning of Colleges taking account of the systemic risk
24 April 2012 27

28. EIOPA – A Competent Authority in Colleges – Powers Art 21 (2)
……And How To Be Achieved
Collect and share all relevant information and establish & manage a central system to share information with college members
Initiate and coordinate stress tests to assess the resilience of groups: Results to be discussed in the college
Promote effective & efficient supervisory practices including evaluating of risks to which groups are exposed
Oversee the tasks carried out by the supervisors
Participate in cross-border onsite inspections
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29. EIOPA – A Competent Authority in Colleges – Powers Art 21 (2,3,4)
…..And How To Be Achieved (Cont’d)
Develop draft regulatory/implementing technical standards regarding the operational functioning of colleges
Issue guidelines and recommendations to promote convergence in supervision and best practices adopted by the colleges
Legally binding mediation role to resolve disputes between CAs
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30. Implementation challenges (1) SII as the practical implementation of the new ICPs
Implementation: Task of the national supervisor
Several elements of SII not yet fully available but FSAP assessments already focus on new ICPs
Examples of national implementation of some of the SII elements:
UK enhancements („handbook“) such as on Resilience Capital, ICAS, Risk Management, ARROW, Realistic balance Sheets
BaFin circular on MaRisk
Best to reflect ICPs when considering enhancements of the current system
In EU/EEA, limited implementation flexibility as SII strives for a harmonized regime in the internal market
Proportionality principle contained in both systems
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31. Implementation challenges (1) SII as the practical implementation of the new ICPs
ICPs: Major enhancements on
Corporate Governance
Risk Management
Group-wide Supervision
Macroprudential Surveillance
Well reflected in SII so that this should not cause any problems in implementation of the new ICPs
For companies & supervisors alike: Time needed to understand the SII requirements and their operational implementation
Pillar II and Pillar III (ORSA, Governance, disclosure)
Training, Human resources (supervisory skill and experience)
IT, Data collection
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32. Thank you For additional questions please contact:
Dr. Manuela Zweimueller, External Relations
phone: