Overview of the Legislative Process - Solvency II Forum
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Transcript Overview of the Legislative Process - Solvency II Forum
Overview of the Legislative Process
Purpose of Presentation
Provide
brief overview of EU
insurance legislative background
Rationale for why Solvency II is
being introduced
Overview of Solvency II legislative
process
Where we are now and what lies
ahead
Ist EU Directives
1st EU non-life and life Directives
introduced in the 1970s
Developed and refined through the 80s,
and 90s culminating on the Life side with
consolidated Life Directive in 2002
Transposed into Irish law e.g. SI 359 of
1994 on non-life side and SI 360 of 1994
on Life side
Problems with old regime (1)
Old regime has served its purpose reasonably
well
Muller Report in 1997 indicated however that
solvency requirements did not reflect the risks
facing the modern insurance industry
This resulted in introduction of Solvency 1
requirements
Always seen as an interim step
Problems with old regime (2)
–
–
–
–
the existing system does not enable the
accurate and timely identification by
supervisors of problems and their root
causes which could lead to insolvency.
risk management is not incentivised under
the current regime.
the lack of consistency across the EU in
solvency and regulatory requirements.
Governance issues
Governance shortcomings a
reason for Solvency II
Sharma Report 2002- one of the main triggers
for non financial measures in Solvency II
Main Findings of report: Majority of insolvencies
preceded by governance type shortcomings
Reduce dependence on capital requirements as
the only early warning signal by supplementing it
with qualitative measures such as governance
and public disclosure
Solvency II Legislative process
Lamfalussy Process
Level 1: The Directive
– Joint decision of the Council of Ministers and the
European Parliament
Level 2: Delegated acts
– Responsibility of the Commission, based on the advice of
EIOPA (but influence of Finance Ministries)
Level 3: Guidelines and implementing acts
– Responsibility of EIOPA
Level 4: Enforcement
– Responsibility of Commission; ensure all Member States
have implemented fully / correctly
What is purpose of Solvency II
Key aspect of Solvency II is to put in place a
regime which has
(i)
risk based capital requirements
(Pillar 1)
(ii)
complemented by relevant non-financial
measures (Pillar 2) and which
(iii)
enables as much transparency as
possible
through public reporting
requirements (Pillar 3)
It also consolidates Insurance Directives
Pillar 1 elements of Solvency II
Technical provisions
Own Funds
Solvency Capital requirement
Minimum Capital Requirement
Prudent Person Principal
Group Supervision
Pillar 2 & Pillar 3 elements of
Solvency II
Principles
of Supervision
Governance
Requirements sets out a
series of general framework
principles
Public
Disclosure
Level 2 Delegated Acts
Fleshes out Level 1 Directive
CEIOPS advice provided starting point for
this work
Ongoing engagement with industry both
at local and European level
Commission working group comprised of
Ministries of Finance and technical experts
have formulated draft text
Council and Parliament will have a period
time to consider these Delegated Acts
Will be implemented as Regulations
Further points to note
Proportionality
Solvency II
Efforts
is a key feature of
been made to reduce
complexity
Simplifications
When does Solvency II come into
force
1
January
2013
Transitionals
An aspect of Level 2 measures are transitionals
This area is still being worked upon
General acceptance that transitionals are necessary in
areas such as
(1) Own funds – hybrid capital
(2) Reporting/Public Disclosure
(3) Third country equivalence
Proposals for transitionals in other areas however no
agreement on this issues yet and much resistance to some
of the proposals.
Simplest message for the moment is work towards
implementation on the basis that transitionals will be kept
to a minimum: otherwise you may find yourself not
sufficiently ready on 1 Jan 2013
Purpose of Omnibus II
Change
the date of entry into force
of Solvency II
To facilitate the making of
implementing technical standards
To facilitate the settlement of
disagreements
Specific tasks for EIOPA
Lisbonisation of Solvency II Directive
Transitionals
Transposition of Solvency II
Currently
working on the
transposition project
Maximum harmonisation regime so
little scope for discretion
Will consult with industry
Large exercise: would hope to have
it completed by Oct/Nov next year
Questions?