CEA sends joint letter to EC on Solvency II illiquidity premium

CEA presses for further work on Solvency II implementing measures

CEA responds to second wave of Solvency II consultation papers from Ceiops

CEA welcomes European Parliament vote for Solvency II

CEA welcomes informal agreement on Solvency II Framework Directive

As part of the Enterprise Risk Management Framework, Pillar 2 requires firms to undertake an Own Risk and Solvency Assessment (ORSA) to demonstrate “sound and prudent management of the business” and assess overall solvency needs. This article focusses on the impact of ORSA, the guidance to date, where companies currently stand and the key issues and challenges they face. Adhering to this aspect of Solvency II will mean significant and cultural change for many insurance companies. Click here to read full article.

The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) today released for consultation the third set of advice on Solvency II Level 2 implementing measures.

The consultation papers are as follows:
CP 63 — Advice on repackaged loans investments
CP 64 — Extension of recovery period
CP 65 — Partial internal models
CP 66 — Group solvency for groups with centralized risk management
CP 67 — Treatment of participations
CP 68 — Treatment of ring-fenced funds
CP 69 — Design of the equity risk sub-module
CP 70 — Calibration of the market risk sub-module
CP 71 — Calibration of the non-life underwriting risk
CP 72 — Calibration of the health-underwriting risk
CP 73 — Calibration of the MCR
CP 74 — Correlation parameters
CP 75 — Undertaking specific parameters for SCR
CP 76 — Simplifications for technical provisions
CP 77 — Simplification for SCR
CP 79 — Simplifications for Captives
Stakeholders have until 11 December 2009 to submit their responses to CEIOPS.
Click here to download these papers.

The Bermuda Monetary Authority today published three market communications outlining proposals on various enhancements to its regulatory framework for Bermuda (re)insurers. These documents are: Consultation Paper on Eligible Capital, Discussion Paper on the Own Risk and Solvency Assessment (ORSA) Process, and Consultation Paper on the Insurance Code of Conduct. The Authority proposes introducing the enhancements outlined in the papers initially to Class 4 and Class 3B (re)insurers, in line with its risk-based approach to regulation.
Matthew Elderfield, CEO of the Authority said, “The Authority has made significant progress in enhancing Bermuda’s regulatory regime for (re)insurers, consistent with the requirements set under Pillars 1, 2, and 3 of Europe’s Solvency II Directive. The publication of these documents shows that we are keeping pace with international developments in insurance regulation and are on target for achieving regulatory equivalence with Solvency II.”

The Consultation Paper on Eligible Capital outlines the Authority’s planned approach to determining capital resources eligible to meet regulatory capital requirement levels. The Authority is proposing a three-tiered capital system which would classify a capital instrument into a given tier based on its ability to absorb losses. Eligibility limits would then be applied to each tier to determine what proportion of regulatory capital each one should cover for an insurer.
The proposals in the paper supplement the requirements of the Bermuda Solvency Capital Requirement, the Authority’s standard risk-based capital adequacy model that was implemented at the end of 2008.
Craig Swan, Director, Policy, Research and Risk Assessment said, “The Authority proposes to extend the system to Class 3A insurers one year after introduction, in accordance with the proportionality principle. We also propose to apply a three-tiered capital system to our group-wide supervisory regime upon its adoption.” Click here to download full paper

The Discussion Paper on Own Risk and Solvency Assessment (ORSA) relates to Pillar 2 of Solvency II. The ORSA process involves requiring firms to demonstrate the link between their capital model, risk governance and strategic decision-making. This process helps regulators better understand the risk-profile of companies. The Authority acknowledges that while ORSA is becoming a requirement of regulatory regimes worldwide, the concept is still very much in development. Therefore, the Discussion Paper provides high level guidance on the Authority’s approach to implementing an ORSA process suitable for the Bermuda market.
Mr. Swan said, “The Authority views the ORSA process as an opportunity to align management and regulatory reporting where information requested for regulatory purposes can be met to a great extent from existing management information. We also propose to use the ORSA process to consolidate regulatory reporting requirements and encourage sound risk management practices within the jurisdiction.” Click here to download full paper
The Consultation Paper on the Insurance Code of Conduct builds upon and codifies the governance standards already established within the jurisdiction. The Code establishes duties, requirements, and standards to be complied with by (re)insurers, including the procedures and sound principles to be observed by firms. It addresses such pertinent issues as corporate governance, risk management, governance mechanisms, outsourcing and market discipline and disclosure. Click here to download full paper