Transcript Solvency II Forum 12 May 2011

System of Governance
Annet Evara
18 July 2015
Agenda
1. System of governance
2. Summary of industry survey on preparations for
Solvency II (July 2010)
3. ORSA
4. Lessons learned on ORSA
5. Next steps
6. Q&A
1. System of governance framework (Level 1)
General governance requirements (41)
Fit and proper(42) good repute (43)
Risk management (44) ORSA (45)
Functions e.g. internal control (46), internal
audit (47), actuarial (48)
Outsourcing (49)
1. System of governance -Overview
General governance requirements:- Article 41
• Proportionate to the nature, scale and complexity of
operation
• Adequate structure with clear allocation/segregation
of duties
• Written policies, prior
annually reviewed
approval
by
Board
• Continuity of operations and contingency plans
and
1. System of governance -Overview
Fit and proper and proof of good repute:- Article 42 & 43
Applicable to Board and key persons
• Adequate qualifications, knowledge and experience
• Good repute and integrity
• Proof of good repute and/or no bankruptcy from a
Competent Authority
Notify supervisor of changes to key persons e.g. from
replacement......
1. System of governance -Overview
Risk management:- Article 44
• Establish an effective risk management function
• Processes and procedures to identify, measure,
monitor, manage and report all risks
• Integrated into organisational structure and decision
making
• Cover risks included in SCR calculation and all other
risks
• Cover partial or full internal models
1. System of governance –Overview
Functions:- Article 46, 47, 48 and 49
Internal control system (46)
• internal control framework, reporting
and compliance function
Internal Audit function (47)
Actuarial function (48)
Outsourcing (49)
- Responsibility for outsourced functions remains
with company
- Notify supervisor prior to outsourcing critical
functions
1. System of governance – Updates
Omnibus II
proposal
• Initial proposal
published January
2011
• Impact on system of
governance?
Level II
Measures
• To be published
after adoption of
Omnibus II proposal
Level III
Guidelines
• Level III preconsultation closed
March 2011
• System of
governance and
ORSA
1. System of governance – Updates
Omnibus II proposal –systems of governance
a) EIOPA given power to develop binding standards on
(Art 41-49, except 45)
•
Further guidance on Art. 45 (1) a may be provided
b) Possibility of transition - maximum period of 3
years from 1 January 2013: Article 41(1) and
Article 41(3)
1. System of governance - Central Bank paper
Corporate Governance Code
• Effective January 1, 2011 (with extensions to June
and Dec 31st)
• Contains the minimum requirements for promoting
strong and effective governance
• Applicable to credit institutions and insurance
undertakings (excludes captives)
• Submit annual compliance statement to the
Regulator (First submission for 2011 year end).
•
Developing guidance on the compliance statement
1. System of governance - Central Bank papers
Corporate Governance Code - Consultation Paper 53
• Published April 29, 2011, consultation closes
June 10, 2011
• Specifies the minimum requirements for promoting
strong and effective governance, but tailored for the
captives market
• Applicable to captive insurers
• Proportionality principle
1. System of governance - Central Bank papers
Fit and Proper- Consultation Paper 51
• Published March 22, 2011, consultation closes
May 20, 2011
• Covers the standards of fitness and probity to be
met by persons running the undertaking
• Applicable to regulated entities except credit unions
2. Industry Survey on Preparations for Solvency II
Completion of gap analysis
Yes
1%
2%
1%
No
38%
36%
22%
In progress
intends to complete
relying on group gap
analysis
other
88% response rate
2. Industry Survey on Preparations for Solvency II
Summary of main gaps identified
7% 6%
5%
8%
54%
9%
11%
• ORSA main gap
ORSA
Documentation
Governance
Risk management
Internal model
Data
Reporting
2. Industry Survey on Preparations for Solvency II
General comments on ORSA from survey.
2. Industry Survey on Preparations for Solvency II
Summary of timelines to address gaps
4%
20%
2010
2011
2012
76%
76% plan to address their gaps in 2011
3. ORSA
What is ORSA (Art 45)?
• Firms own view of its risks and capital needs
• Part of risk management
• Board responsibility (top –down approach)
Defined “ the processes and procedures employed to
identify, assess, monitor and report the risks and determine
the own funds necessary to ensure overall solvency needs are
met”...... CEIOPS ,Issue paper on ORSA, May 2008
3. ORSA
ORSA PROCESS
(I) Risk
management
system (44)
• Have processes and
procedures to
identify, assess,
monitor, manage
and measure risks
and determine
internal capital
needs
(II) Own
assessment
• Conduct a firm-wide
assessment - output
internal ORSA
documentation
• integrated into the
business strategy
(III) Report
results to
supervisor
• Results of the ORSA
based on the
internal
documentation of
ORSA
3. ORSA
(II) Own assessment - minimum requirements
Board sign off
e) Internally
documented
f) Forward
looking
e) Integrated into
business strategy
a) Overall
solvency needs
b) Compliance on
continuous basis
c) Deviation of
risk profile
3. ORSA
(II) Own assessment- Minimum requirements
a) Overall solvency
needs
• Cover all risks (quantifiable and non
quantifiable)
• Include identification, quantification and
managing/capital allocation for risks
b) Compliance on a
continuous basis
• Sufficient own funds to meet its internal
capital needs, MCR and SCR
• System to estimate changes in capital
c) Deviation of risk
profile from SCR
• Analysis of deviations of risk profile
• Where internal model is used recalibration of
risk numbers into 99.5% VaR over 1 year
3. ORSA
(II) Own assessment- Minimum requirements
d) Integrated into
business strategy
• Taken into account in strategic
decision making
e) Forward looking
• Business plans and capital projections
f) Internally
documented
• ORSA policy
• Record of each ORSA process
• Internal documentation of ORSA
information
• Information to be disclosed and
reported to supervisor
3. ORSA
(III) Reporting ORSA results to supervisor
• Results of ORSA reported as part of Regular
Supervisory Reporting (RSR)
• ORSA reporting will include: findings, conclusions
and quantitative outcome of ORSA. This will be
based on the internal ORSA documentation
3. ORSA
Key issues to note
• ORSA process vs ORSA reporting
• Requires Board sign off
• Should be performed at least annually or more
frequent if risk profile changes
• Internal documentation of the ORSA should be
retained
• Results of ORSA reported to supervisor.
4. Lessons learned on ORSA
• Challenges
• Potential benefits
5. NEXT STEPS
• Dedicated Solvency II resources
• Participation in EIOPA subgroup on governance
(which includes ORSA)
• Solvency II supervisory review approach on ORSA in
progress
• Solvency II Industry preparedness survey (July
2011)
6. Questions
Thank you