Quick update


30th September
Tougher line: Higher capital charges under Solvency II standard formula
Eight of the ‘second wave’ of Solvency II consultation papers (CPs) propose some significant modifications to the ‘European Standard Formula’ for calculating capital requirements. The changes reflect the tougher line on capital adequacy that is emerging from the financial crisis and the findings of the fourth Quantitative Impact Study (QIS4). 11th September 2009
CEIOPS released 21 consultation papers on 2nd July asking the industry for comment. PricewaterhouseCoopers reviewed the CPs and below are our responses to CEIOPS. Each follows the CEIOPS template provided. 4 September
Demystifying internal models for Underwriters
The constraints that Solvency II will impose on business management will feed directly through to how underwriters select and price risks, and how their performance is measured. The required systems and processes are just beginning to be developed, so now is the time for underwriters to influence how their businesses respond to these challenges and how they will be able to write insurance business after Solvency II implementation. 1 September 2009
Making it clear - reporting and disclosure in the Solvency II world
A much greater level of detail on the Pillar 3 requirements is now available following the publication of CP58 (the draft level 2 advice on supervisory reporting and disclosure) by CEIOPS. To help guide firms in understanding the new reporting and disclosure requirements, a team of Solvency II specialists from PricewaterhouseCoopers has reviewed CP58 and highlighted its key implications. The qualitative and quantitative disclosure requirements detailed in CP58 are extensive and diverse and it is certain that producing the necessary information will pose a significant challenge for all insurers. 29 July 2009
Wave 2: Building blocks for the final Directive
CEIOPS published 24 consultation papers on 2nd July. Here we summarise the aims of each, providing an overview of CEIOPS latest wave of CPs. 7th July 2009
How much is enough? Setting the standards for model approval within an integrated approach to risk management
With the publication of two key consultation papers on model approval (CP56 and CP37, earlier in the year) there is now sufficient information in the public domain for insurers to develop detailed plans and start to allocate resources to model approval. PricewaterhouseCoopers summarise some of the key issues raised within these papers for UK firms in 'How much is enough? Setting the standards for model approval within an integrated approach to risk management'.

1st July 2009
Solvency II implementing measures - Taking solvency II to the next level
CEIOPS issued 12 Consultation Papers in March asking key stakeholders for their thoughts. PricewaterhouseCoopers has provided comment and this two pager provides a short summary of both the topics covered and our views.  1st June and 8th June 2009
PwC responds to CEIOPS consultation papers

PwC subject matter experts dedicated to understanding the technicalities and business impacts of Solvency II have reviewed the first wave of CEIOPS consultation papers. These comments have been submitted to CEIOPS to generate debate, hone policy and aid the development process. 19th May 2009
CEIOPS feedback statement on Issues Paper on system of governance

CEIOPS has published the feedback statement in response to comments received on its Issues Paper "Implementing Measures on the System of Governance". The feedback statement presents CEIOPS' view on the comments received from stakeholders and how they have been taken into account in the development of Level 2 advice. CEIOPS recognises that the System of Governance draft Level 2 advice, which takes into account the comments received, is currently being consulted upon (Consultation Paper no. 33 – “Draft CEIOPS Advice for Level 2 Implementing Measures on Solvency II: System of Governance”), however there are some key issues which CEIOPS believes warrant a specific response in the feedback statement. 11th May 2009
CEIOPS report on convergence 2008 and roadmap for convergence 2009

CEIOPS published today the Report on Convergence 2008 and the Roadmap on Convergence for 2009.
CEIOPS Report on Convergence 2008 offers an overview on CEIOPS’ achievements in respect of the ECOFIN Roadmap on convergence during 2008 and a summary on the status of work undertaken by CEIOPS to implement the ECOFIN Conclusions.
CEIOPS Roadmap on Convergence 2009 presents the different CEIOPS work streams for 2009, in light of ECOFIN Conclusions, G20 Recommendations and the revised Decision of the Commission establishing CEIOPS. The Roadmap will be regularly updated to reflect the status of CEIOPS’ work in response to the emergence of requests at the political level. 8th May 2009
Urgency at centre of Solvency II implementation programmes

The FSA has published its Solvency II Directive update paper, The Path to Solvency II: Feedback to DP 08/4, following the Directive passing its final hurdle at the recent ECOFIN meeting. Review the Solvency II Directive 09/1 update paper 22nd April 2009
Result of the European Parliament plenary vote

27 March 2009
Lessons to be learned from the crisis - Solvency II and Beyond

27 March 2009
Guidelines on preparation for and management of a financial crisis

26th March 2009
CEIOPS has released 12 consultation papers - its first set of advice on Level 2 implementing measures

5th March 2009
IAIS issues paper on group-wide solvency assessment and supervision 5th March 2009
Commission Communication on Driving European Recovery 3rd March 2009
The CEIOPS asked the CEA to provide specific input for their preparations of draft advice on Level 2 measures. On 3 March, the CEA published the five papers it produced:

16th February 2008
CEIOPS’ 2009 Report on the Functioning of the Coordination Committees 28th January 2009
CEIOPS report on the outcome of the stock-taking exercise on the current use of internal models in insurance 27th January 2009
Ten principles for the functioning of supervisory colleges 22nd January 2009
Minimum requirements on risk management for insurers (Ma Risk VA) 21st November 2008
QIS4 Results and messages

30th September
Tougher line: Higher capital charges under Solvency II standard formula
Eight of the ‘second wave’ of Solvency II consultation papers (CPs) propose some significant modifications to the ‘European Standard Formula’ for calculating capital requirements. The changes reflect the tougher line on capital adequacy that is emerging from the financial crisis and the findings of the fourth Quantitative Impact Study (QIS4). 11th September 2009
CEIOPS released 21 consultation papers on 2nd July asking the industry for comment. PricewaterhouseCoopers reviewed the CPs and below are our responses to CEIOPS. Each follows the CEIOPS template provided. 4 September
Demystifying internal models for Underwriters
The constraints that Solvency II will impose on business management will feed directly through to how underwriters select and price risks, and how their performance is measured. The required systems and processes are just beginning to be developed, so now is the time for underwriters to influence how their businesses respond to these challenges and how they will be able to write insurance business after Solvency II implementation. 1 September 2009
Making it clear - reporting and disclosure in the Solvency II world
A much greater level of detail on the Pillar 3 requirements is now available following the publication of CP58 (the draft level 2 advice on supervisory reporting and disclosure) by CEIOPS. To help guide firms in understanding the new reporting and disclosure requirements, a team of Solvency II specialists from PricewaterhouseCoopers has reviewed CP58 and highlighted its key implications. The qualitative and quantitative disclosure requirements detailed in CP58 are extensive and diverse and it is certain that producing the necessary information will pose a significant challenge for all insurers. 29 July 2009
Wave 2: Building blocks for the final Directive
CEIOPS published 24 consultation papers on 2nd July. Here we summarise the aims of each, providing an overview of CEIOPS latest wave of CPs. 7th July 2009
How much is enough? Setting the standards for model approval within an integrated approach to risk management
With the publication of two key consultation papers on model approval (CP56 and CP37, earlier in the year) there is now sufficient information in the public domain for insurers to develop detailed plans and start to allocate resources to model approval. PricewaterhouseCoopers summarise some of the key issues raised within these papers for UK firms in 'How much is enough? Setting the standards for model approval within an integrated approach to risk management'.

1st July 2009
Solvency II implementing measures - Taking solvency II to the next level
CEIOPS issued 12 Consultation Papers in March asking key stakeholders for their thoughts. PricewaterhouseCoopers has provided comment and this two pager provides a short summary of both the topics covered and our views.
1st June and 8th June 2009
PwC responds to CEIOPS consultation papers

PwC subject matter experts dedicated to understanding the technicalities and business impacts of Solvency II have reviewed the first wave of CEIOPS consultation papers. These comments have been submitted to CEIOPS to generate debate, hone policy and aid the development process. 19th May 2009
CEIOPS feedback statement on Issues Paper on system of governance

CEIOPS has published the feedback statement in response to comments received on its Issues Paper "Implementing Measures on the System of Governance". The feedback statement presents CEIOPS' view on the comments received from stakeholders and how they have been taken into account in the development of Level 2 advice. CEIOPS recognises that the System of Governance draft Level 2 advice, which takes into account the comments received, is currently being consulted upon (Consultation Paper no. 33 – “Draft CEIOPS Advice for Level 2 Implementing Measures on Solvency II: System of Governance”), however there are some key issues which CEIOPS believes warrant a specific response in the feedback statement. 21st November 2008
QIS4 Results and messages

The results of Quantitative Impact Study (QIS4) show that there will be some winners and losers in the Solvency II capital game, but almost 90% of participants will be able to meet the new Solvency Capital Requirement (SCR). A majority of insurers see implementing a new internal model as a chance for better risk and capital management – essentially sounder business decision-making, rather than specifically targeting a lower capital requirement. Participation far exceeded the Commission’s targets, a market share of just over 60% across most countries, giving sufficient data to draw meaningful conclusions, however there are still a large number of organisations that did not participate which may hide a greater impact on levels of capital required.

14th September
CEIOPS’ second set of Consultation Papers on Solvency II, Level 2 Implementing Measures: more than 20,000 comments received from stakeholders.
With the deadline for replies expiring on Friday, 11th September 2009, CEIOPS has received more than 20,000 comments from 105 stakeholders on the 26 Consultation Papers. In the coming weeks, CEIOPS will analyse the comments and finalise the advice to be adopted at its Members Meeting at the end of October, together with the final advice from the first set for which the consultation ended earlier this year. A final third set of draft advice will be put forward for approval by CEIOPS Members at this meeting, for consultation until 11th December 2009. 2nd July 2009
CEIOPS second wave of consultation papers released
CEIOPS has released for consultation its second set of advice developed on the basis of the Solvency II Level 1 text adopted by the European Parliament on 22 April 2009. The consultation papers provide advice on key aspects for the future implementation of the Solvency II framework. 19th May 2009
CEIOPS feedback statement on Issues Paper on system of governance

CEIOPS has published the feedback statement in response to comments received on its Issues Paper "Implementing Measures on the System of Governance". The feedback statement presents CEIOPS' view on the comments received from stakeholders and how they have been taken into account in the development of Level 2 advice. CEIOPS recognises that the System of Governance draft Level 2 advice, which takes into account the comments received, is currently being consulted upon (Consultation Paper no. 33 – “Draft CEIOPS Advice for Level 2 Implementing Measures on Solvency II: System of Governance”), however there are some key issues which CEIOPS believes warrant a specific response in the feedback statement. 11th May 2009
CEIOPS report on convergence 2008 and roadmap for convergence 2009

CEIOPS published today the Report on Convergence 2008 and the Roadmap on Convergence for 2009.
CEIOPS Report on Convergence 2008 offers an overview on CEIOPS’ achievements in respect of the ECOFIN Roadmap on convergence during 2008 and a summary on the status of work undertaken by CEIOPS to implement the ECOFIN Conclusions.
CEIOPS Roadmap on Convergence 2009 presents the different CEIOPS work streams for 2009, in light of ECOFIN Conclusions, G20 Recommendations and the revised Decision of the Commission establishing CEIOPS. The Roadmap will be regularly updated to reflect the status of CEIOPS’ work in response to the emergence of requests at the political level. 8th May 2009
Urgency at centre of Solvency II implementation programmes

The FSA has published its Solvency II Directive update paper, The Path to Solvency II: Feedback to DP 08/4, following the Directive passing its final hurdle at the recent ECOFIN meeting. Review the Solvency II Directive 09/1 update paper 22nd April 2009
Result of the European Parliament plenary vote

The European Parliament have adopted their report on Solvency II, 593 MEPs voted in favour of the compromise agreement with the Council of Ministers. The report must now pass through translation and legal services before adoption by the European Council of Ministers, it is expected this will take place on 05 May. The legislation will become official upon publication in the Official Journal of the European Union. 27 March 2009
Lessons to be learned from the crisis - Solvency II and Beyond

CEIOPS identifies potential areas for refinement under Solvency II to ensure that the project fully delivers both under normal circumstances and in times of adversity. CEIOPS' main findings and possible conclusions as to Solvency II Level 2 and 3 advice and measures are reflected in the Lessons to be learned from the crisis - Solvency II and Beyond Report approved this week by the Members' Meeting. 27 March 2009
Guidelines on preparation for and management of a financial crisis

Following the publication of the Survey on Coordination Committees in January 2009 and building on the lessons learned from the crisis, CEIOPS Members have approved the 'Guidelines on preparation for and management of a financial crisis'.They stand as a complement to the existing Guidelines for Coordination Committees and are aimed at further developing the cooperation and coordination between supervisory authorities. Further information is available in the Press Release. 26th March 2009
CEIOPS has released 12 consultation papers - its first set of advice on Level 2 implementing measures

These drafts have been developed on the basis of the General approach on the Solvency II Directive proposal adopted by the ECOFIN Council on 2 December 2008 (“Level 1 text”). CEIOPS invites comments from stakeholders on the Consultation Papers. CEIOPS will finalise the papers for submission to the European Commission, taking into account the comments received, the lessons learned from the crisis, and the adopted Directive text.

CP26 -Technical provisions - Elements of actuarial and statistical methodologies for the calculation of the best estimate: Article 85(a) of Level 1 text
Response due 1 June 2009
The objective of this paper is to give draft advice on the valuation techniques which shall be considered as appropriate methodologies for the calculation of the best estimate and how these shall satisfy the requirements of the Level 1 text. This would include the application of approximations and simplified methods and techniques.

CP27 -Technical Provisions - Lines of business on the basis of which (re)insurance obligations are to be segmented: Article 85(e) of Level 1 text
Response due 3 May 2009
This consultation paper aims to provide advice with regard to the lines of business on the basis of which insurance and reinsurance obligations are to be segmented in order to calculate technical provisions. Insurance and reinsurance undertakings should segment insurance and reinsurance obligations into homogenous risk groups when calculating technical provisions. Undertakings in different Member States and even undertakings in the same Member State offer insurance products covering different sets of hazard. Therefore it will be appropriate for each undertaking to define the homogenous risk group and the level of granularity most applicable to their business.

CP28 - SCR standard formula -Counterparty default risk module: Article 109 of Level 1 text
Response due 1 June 2009
The objective of this paper is to give draft advice on the scope of the module and the calculation of the capital requirement for counterparty default risk. CEIOPS will continue working on following aspects:
  • the calibration of the parameters used in the calculation of the capital requirement,
  • the determination of the risk mitigation effect that is part of the calculation of the loss-given-default for risk mitigating contracts,
  • the determination of the probability of default of a counterparty default exposure and the definition of rating classes,
  • the treatment of the loss-absorbing capacity of technical provisions and deferred taxes in the module calculation,
  • requirements on risk mitigating techniques like collaterals, nor
  • any simplifications according to Article 109 of the Level 1 text which may be necessary to calculate the capital requirement.
CP29 - Own funds - Supervisory approval of ancillary own funds: Article 92 of Level 1 text
Response due 1 June 2009
The objective of the paper is to provide a framework that specifies the criteria for granting supervisory approval of ancillary own funds.

CP30 - Technical Provisions - Treatment of Future Premiums: Article 85 of Level 1 text
Response due 1 June 2009
This consultation paper aims to provide advice with regard to the treatment of future premiums in the assessment of technical provisions, based on the projection of all expected future cash in- and out-flows required to settle the insurance and reinsurance obligations. The Level 2 implementing measures should give advice on the recognition of an insurance or reinsurance obligation as well as on the boundaries of these obligations.

CP31 - SCR standard formula - Allowance of Financial Mitigation Techniques: Article 109(1)(f) of Level 1 text
Response due 1 June 2009
This consultation paper aims to provide advice with regard to mentioned in article 109 (1) (f), including in its scope instruments such as financial derivatives (i.e. futures, options, credit derivatives). Nevertheless, regarding ‘securitisation’ this advice should be understood as a first step. The approach will be further refined, taking into account initiatives that are currently being discussed at EU level in order to ensure cross-sectoral consistency.

CP32 - Technical Provisions -Assumptions about Future Management Actions: Article 85(a) of Level 1 text
Response due 1 June 2009
This consultation paper aims to provide advice with regard to the use of management actions in the assessment of the technical provisions. The objective of the paper is to propose a framework which identifies the circumstances in which it is appropriate for undertakings to take account of future management actions in the calculation of their technical provisions.

CP33 - System of Governance: Article 49 of Level 1 text
Response due 8 June 2009
This Consultation Paper aims to provide advice for Level 2 measures with regard to the System of Governance. It also includes material that could be considered for the future when developing Level 3 guidance.

CP34 - Transparency and accountability: Article 30 of Level 1 text
Response due 8 June 2009
This Consultation Paper aims to provide advice for Level 2 measures with regard to Transparency and Accountability which provides that “the supervisory authorities shall conduct their tasks in a transparent and accountable manner with due respect for the protection of confidential information”. It also presents some ideas as to how the accessibility of information could be improved through Level 3 guidance.

CP35 - Valuation of Assets and “Other Liabilities”: Article 74 of Level 1 text
Response due 8 June 2009
The European Commission recommended CEIOPS to develop Level 3 guidance on certain areas to foster supervisory convergence taking into account the results of the Quantitative Impact Studies (QIS3 and QIS4) and international supervisory and accounting developments. The Paper aims to provide advice for Level 2 implementing measures with regard to the valuation of assets and liabilities other than technical provisions which is applied both at solo and group level (Article 222), helpful to build a “Solvency II balance sheet”.

CP36 - Special Purpose Vehicles: Article 209 of Level 1 text
Response due 8 June 2009
This Paper aims to provide advice for Level 2 measures with regard to Special Purpose Vehicles (SPVs), as required in Article 209 of the General approach on the Solvency II Directive proposal adopted by the ECOFIN Council on 2 December 20081 (“Level 1 text”), addressing the authorisation, regulatory requirements and scope of supervisory review that relate to the establishment of SPVs under Solvency II. It also includes material that could be considered for Level 3 guidance.

CP37 - Approval procedure for internal models: Article 112(1) of Level 1 text
Response due 1 July 2009

The main objective of this document is to provide the European Commission with sufficient technical advice so that it is in a position to finalise its proposal for the ‘Level 2’ implementing measures setting out: “The procedure to be followed for the approval of an internal model” 5th March 2009
IAIS issues paper on group-wide solvency assessment and supervision

The financial crisis has served to emphasise the importance of supervisors taking both a solo and group-wide approach to supervision, and the International Association of Insurance Supervisors (IAIS) has produced a paper elaborating on these challenges from a group-wide perspective, including:

  • intra-group transactions and gearing of capital
  • fungibility of capital and transferability of assets
  • complexity of group structures, including non regulated entities
  • diversity of legal and regulatory frameworks and regulatory arbitrage
  • measurement of risk dependencies and aggregation of risks
The IAIS acknowledges that the financial crisis is evolving and that supervisory lessons are still emerging. The IAIS intends to develop a comprehensive suite of supervisory papers on group-wide solvency assessment and supervision, and this paper is the first.
5th March 2009
Commission Communication on Driving European Recovery

The Commission has endorsed the revised approach to regulation and supervision approach put forward in the De Larosière report. These latter recommendations have already received endorsement from some Member States: however, there have been concerns expressed in some quarters with regards to answered questions raised by the report (e.g. how the new supervisory structure will operate in practice).

Some measures such as initiatives related to substitutable products, insurance guarantees, director compensation will have a direct impact on insurance companies; as will the revised supervisory infrastructure. It should be noted that the Commission has proposed to accelerate the timeframe for the new infrastructure from the recommendation in the De Larosière report to next year (2010). The De Larosière report recommended that this be in place by 2012.

The summary of the 5 objectives highlighted in the Communication is reproduced in the section below. These are discussed in detail in the annex.

Simplified, the 5 objectives for financial market reform are:
  • to reform European supervisory framework
  • to develop stronger, more comprehensive and 'safety-first' regulation
  • to reinforce the protection of investors, consumers and small companies
  • to improve risk management and to get pay incentives right
  • to make sanctions more of a deterrent
Each objective is discussed in detail in the Annex.

16th February 2008
CEIOPS’ 2009 Report on the Functioning of the Coordination Committees

Industry, supervisors and stakeholders have high expectations regarding the Cooperation between insurance supervisory authorities and progress made, particularly regarding cross-border supervision of insurance groups. In this context, CEIOPS has conducted a survey on the 2007 - 2008 practical supervisory co-operation within the Coordination Committees (CoCos) under the current Solvency I framework as well as on the expectations for 2009. Further details are available in the press release.
28th January 2009
CEIOPS report on the outcome of the stock-taking exercise on the current use of internal models in insurance

CEIOPS has published 'Stock-taking report on the use of Internal Models in Insurance', its report on the outcome of the stock-taking exercise on the current use of internal models in insurance.

The stock-take exercise and the report were designed to improve supervisors’ understanding of current industry practices on internal models and foster discussions about the application of models both for risk management and regulatory purposes. The exercise provided CEIOPS with the information it needed for the preparation of its proposals for the Level 2 implementing measures for the Solvency II Framework Directive Proposal (in respect of Internal Models).

27th January 2009
Ten principles for the functioning of supervisory colleges

The Committee of European Banking Supervisors (CEBS) and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), together with their Interim Working Committee on Financial Conglomerates (IWCFC), published today 'ten principles for the functioning of supervisory colleges'.

The ten principles are:

Principle 1: The supervisors of the Member States involved in the supervision of any of the relevant activities of a cross-border insurance group, banking group or a financial conglomerate, hereinafter called a “Group” shall form a “College” (College of supervisors).

Principle 2: The College of supervisors shall provide an effective and flexible permanent forum for cooperation and coordination among the authorities responsible for and involved in the supervision of the Group. Where appropriate, Colleges may cooperate with other authorities.

Principle 3: The organization of the Colleges of Supervisors is proportionate to the organization, nature, scale and complexity of the Group and to the assessment of the Group’s soundness, and reflects the activities, risks and the legal structure of the Group.

Principle 4: When forming the College of supervisors, the involved Supervisors shall communicate to each other their assessment of their respective supervised entity’s significance and risks for the Group and systemic relevance for local financial markets, and take into account each other’s assessments.

Principle 5: The Colleges of supervisors shall have agreements in place, laying out the basis for the cooperation between the involved authorities and the practical organisation of the supervisory activities of the Group on a on-going basis and in a crisis situation, including engagement with Cross Border Stability Groups.

Principle 6: The Group Supervisor (for an Insurance Group) or Consolidating Supervisor (for a Banking Group) or the Coordinator (for a Financial Conglomerate), shall initiate the cooperation process, chair the meeting of the College of supervisors, and be responsible for designing a work programme for the supervision of the Group, which shall be approved by the College of Supervisors.

Principle 7: The Colleges of Supervisors provide an efficient platform for the gathering and dissemination of relevant or essential information in going concern and emergency situations, developing a common understanding of the risk profile of the Group, achieving coordination of supervisory review and risk assessment at Group level as well as establishing supervisory plans for the mitigation of risks at Group level.

Principle 8: The Colleges of supervisors promote harmonization of approaches and coordinates input to major supervisory decisions taken by individual authorities as far as possible and practicable, and draw their conclusions where appropriate.

Principle 9: The Colleges of supervisors shall have on their regular agenda, planning and coordination of supervisory on-site inspections, including joint supervisory examinations, and the findings of such visits will be shared by the Group Supervisor/Consolidated Supervisor/Coordinator with the other supervisors in the College of supervisors according to their respective needs and subject to confidentiality provisions.

Principle 10: Within the College of supervisors, the supervisors review and evaluate risks to which the group and its entities are or might be exposed to ensure a prospective supervision and foster early-warning of major risks to the extent possible.

22nd January 2009
Minimum requirements on risk management for insurers (Ma Risk VA)

With the amendment of the Insurance Supervisory Act (9th amendment in 2007) and the publication of the MaRisk (VA) in January 2009, German insurers now have more understanding of BaFin's expectations. Germany has anticipated the implementation of qualitative minimum requirements in looking ahead to future risk-oriented European or national solvency regimes.

The BaFin has published the MaRisk (VA) - the BaFin-circular on supervisory minimum requirements on risk management of insurers. The MaRisk (VA) now forms a consistent basis and to the BaFin a binding interpretation for the regulations of sections 64a and 104s of the German Insurance Supervisory Act for appropriate risk management of insurers as well as financial conglomerates (with focus on insurance business).

The main consequences of the MaRisk (VA) are both the convergence with banking regulation as well as effective monitoring and control of business processes, a risk-oriented circuit of monitoring, control and management of risks, increased documentation requirements and the regimentation of the internal audit function.

Review links to the German PricewaterhouseCoopers website (in German):

3rd March 2009

The CEIOPS asked the CEA to provide specific input for their preparations of draft advice on Level 2 measures. On 3 March, the CEA published the five papers it produced: