29 September, 2010 Page 1
Impact of the new EU supervisory architecture and
Solvency II on data needs
Sandra Desson
Secretariat CEIOPS Financial Stability Committee
OECD Asia Regional Seminar Kuala Lumpur, 23/09/2010
Overview
• CEIOPS – who we are and why do we do financial stability analysis
• CEIOPS-FSC Workplan 2010
• CEIOPS datacollection and its challenges
• Introduction of Solvency II and the new financial supervisory architecture
EIOPC Insurance
Pensions
CEIOPS
European
Commission
Council of Ministers
(ECOFIN)
European
Parliament
EBC Banking
ESC Securities
CESR
CEBS
Economic
and Finance
Committee
Financial
Services
Committee
FCC Financial
Conglomerates
Council
Working
Groups
Members led organisations –
Members are the National Supervisory Authorities
Regulators
“level 2”
committees
Supervisors
“level 3”
committees
Parliament
Committees
CEIOPS’ role in the development of European
regulation
Cooperation
through
3L3
JCFC
CEIOPS – who we are
Members´
Meeting
Managing
Board Chair: Gabriel Bernardino, PT
Consultative
Panel
W o
r k
i n
g G
r o
u p
s
S e c r e t a r i a t Secretary General: Carlos Montalvo
Insurance Groups Supervision Committee
Petra Faber-Graw, Germany
Internal Governance, Supervisory Review and Reporting Expert Group
Jan Parner, Denmark
Internal Models Expert Group
Paolo Cadoni, United Kingdom
Financial Requirements Expert Group Olaf Ermert, Germany
Financial Stability Committee
Patrick Darlap, Austria
Occupational Pensions Committee
Brendan Kennedy, United Kingdom
Consumer Protection Committee
Victor Rod, Luxembourg
Convergence
Committee Raffaele Capuano, Italy
Solvency II:
Review Panel Michel Flamée, Belgium
Financial stability analysis CEIOPS: why
• The Committee shall … assessments a classification of the main risks and vulnerabilities and indicate to what extent such risks and vulnerabilities pose a threat to financial stability and, where necessary, propose preventative or remedial actions
• Cooperation with the other committees in the field of cross sectoral risks
• twice a year provide to the EC assessments of micro-prudential trends, potential risks and vulnerabilities in the insurance, reinsurance and occupational pensions sector
6 May 2010 Page 6
Workplan 2010
CEIOPS
• Statistical database compilation for
– Pension funds 2008
– Insurers 2009
• Interim financial stability report for April/Sept EFC FST
• CEIOPS Half-yearly financial stability report
• Lessons learned from the ‘national measures’
• Input to 3L3 Task Force on cross-sectoral risks
• Ad-hoc studies/assessments (stress test, ILS report)
CEIOPS
Page 7 Page 7
Quantitative data collection CEIOPS Financial Stability Report
CEIOPS
Non-life profitability (mio € )(based on sample of large European insurance groups)
266,418
188,679
84,723
246,635
175,087
79,006
0
50,000
100,000
150,000
200,000
250,000
300,000
Net premiums earned Net claims incurred Net operating expenses
2008
2009
Net combined ratio
(based on sample of
large European
insurance groups)
103%103%
0%
20%
40%
60%
80%
100%
120%
Net combined
ratio
2008
2009
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Total Life Non-life
2005 2006 2007 2008
Growth in gross premiums written
(percentage change compared to previous
year)
CEIOPS
Page 8 Page 8
Challenges
CEIOPS
• Timeliness
• Frequency
• Different accounting standards (market/booking value – discount rate)
• Level of Consolidation
• Investments – look through
• Exchange rate
• Resources
• Confidentiality
CEIOPS
Page 9 Page 9
Qualitative data collection CEIOPS Financial Stability Report
CEIOPS
Expected risks for the insurance
sector over the next 12 months
Classification of most imminent risks for the
insurance sector
Development
over the last 12
months
Expected
development
over the next 12
months
-2 = cons. decrease
+2 = cons. increase
-2 = cons. decrease
+2 = cons. increase
Interest rate risk 73% 1,9 0,4 -0,2
Lapse risk 77% 1,7 0,5 -0,3
Economic cycle 62% 1,6 0,7 0,1
Premium risk 62% 1,3 0,4 0,2
Equity risk 54% 1,3 -0,2 -0,4
Credit risk 50% 1,1 0,4 0,2
Regulatory & reporting changes 46% 1,1 0,5 1,3
Property risk 42% 1,0 0,5 0,0
Consumer confidence 35% 0,8 0,6 -0,1
Competition 31% 0,7 0,6 0,3
Reserve risk 31% 0,7 0,4 0,6
Tax and pension reforms 27% 0,6 0,6 0,9
Natural catastrophes 27% 0,5 0,6 0,1
Claims inflation 23% 0,5 0,3 0,7
Reported by
X% of
supervisors
Most relevant risks -
INSURANCE
Average risk
score
Expected
development
over the next 12
months
-2 = cons. decrease
+2 = cons. increase
Regulatory & reporting changes 1,3
Tax and pension reforms 0,9
Claims inflation 0,7
Reserve risk 0,6
Competition 0,3
Credit risk 0,2
Premium risk 0,2
Natural catastrophes 0,1
Economic cycle 0,1
Property risk 0,0
Consumer confidence -0,1
Interest rate risk -0,2
Lapse risk -0,3
Equity risk -0,4
Expected risks -
INSURANCE
CEIOPS
Page 10 Page 10
Challenges
CEIOPS
• Standardized set of questions
• Risk – combination of impact and probability
• Aggregation
• Resources
CEIOPS
Page 11
A new structure for insurance supervision
Insurance supervision: solo and groups
Focus on firm’s
responsibility
Convergence of
supervisory practices
Convergence of
supervisory reporting
More pressure from rating
agencies, capital markets
Total balance sheet
approach
Market-consistent
valuation (fair value)
Validation of internal
models
Quantitative
requirements Technical provisions (BE
and risk margin) 2 capital requirements
(MCR and SCR –SF/IM)
Prudent person investment rule
Own funds (3 tiers)
Qualitative
requirements Internal control and risk
management (incl. ORSA) Supervisory review
process (qualit. & quant - Add-ons)
Reporting
Supervisory reporting
Public disclosure
Market discipline
Pillar 1 Pillar 2 Pillar 3
CEIOPS
Page 12 Page 12
2010
Omnibus Directive II
Solvency II Road Map for 2007-2013
CEIOPS: Work on the technical details for implementing measures/
supervisory convergence/Level 3 guidance/Binding technical standards
2006 2007 2008 2009 2010 2011 2012
Negotiation & adoption
of Directive Proposal
(Council & Parliament)
Preparation of the implementation
(Member States)
QIS 2
July 2007
Directive Proposal
QIS 3 QIS 4
April-July 2008
Commission: Preparation of
implementing measures
Adoption of
implementing
measures
QIS 5
August-Nov
2010
November 2009
Directive adopted
Development of
Directive
(Commission)
CEIOPS
Page 13
New Financial Supervisory Architecture
Some quotes from newspapers Sept 2010
• EU reaches deal on new financial supervision architecture
• EU OKs new financial supervision deal
• EU finance regulation shake-up welcomed
CEIOPS
Page 14
New structure of financial supervision
ECB Council (with insurance and
securities alter-nates where necessary)
Chairs of EBA, EIOPA & ESMA
European Commission
European Systemic Risk Board (ESRB)
+ +
European Banking Authority
(EBA)
European Securities & Markets
Authority (ESMA)
National Banking Supervisiors
National Insurance Supervisors
National Securities
Supervisors
Information exchange Advice and warnings
European Insurance & Oc. Pensions
Authority (EIOPA)
CEIOPS
Page 15 Page 15
CEIOPS
• Limited years of experience however good results
• The introduction of SII and the introduction of the new Supervisory
Architecture will solve some of the issues
• Condition: The network of national, European supervisors and industry
should share the same vision and European mission
Conclusions
Page 16
Thank you
