The Solvency II Experts News

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

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 CEA has sent a letter to CEIOPS expressing strong concerns over CEIOPS’ draft advice on the implementing measures for Solvency II. The CEA is concerned that CEIOPS appears to have abandoned the principles-based and economic approach it originally adopted. CEA comments that the draft advice is characterised by a ’systemic injection of quantitative and qualitative elements of conservatism’. According to CEA a number of the proposed measures are inconsistent with the principles underlying the Framework Directive and inconsistent with the agreed fundamentals of the new regime. Click here to download this letter

Today, CEIOPS is releasing 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. The issues are interlinked although they are presented in separate papers.

CEIOPS would like to highlight, inter alia, some areas in its consultation papers, on which comments and concrete input and proposals from stakeholders are especially welcomed. For example, the choice of discount rates (CP40, including the impact assessment on the risk-free rate), the assessment of the excess of assets over liabilities (CP46), and, in relation to capital add-ons (CP57), the appropriateness of listing the quantifiable risks not covered by the SCR standard formula that can be subject to a capital add-on, and the proposal to base the analysis of the significant deviation only on risks that are underestimated in the SCR, while allowing undertakings to present evidence that an overall approach could be followed.

click here to see a high level summary of papers and here to download these papers and their responses.

The consultation period for the first wave of CEIOPS’ 2009 consultation papers has now passed, with the second wave expected imminently. Although the consultation papers amounted to over 300 pages, across 12 consultation papers, it is probably fair to say that there were no ‘show-stoppers’ arising from the consultations. That is not to say that there were not any important issues arising from the consultations – there have been many comments made by various stakeholders identifying issues which will need to be addressed and considered – but it does demonstrate how an open and co-operative discussions between regulators and industry can help to develop a sensible, workable and more secure supervisory regime.

The remainder of 2009 is likely to be taken up with the remaining Second and Third consultation waves, currently expected to span July-September and November-December. However whilst the remaining consultation papers are awaited, it might be worth reflecting on some of the more salient issues arising from the first wave of consultations, at least from a General Insurance perspective.
The following issues are those that we have identified as some of the concern to our members who are general insurance companies operating in the London commercial insurance market.

Click here to read full article.

The postponement of the CEIOPS’ paper and the vagueness of current available information add to the confusion over how partial internal models might be used. These are however central to Solvency II as they are likely to be the choice of the majority of insurers. This article discusses definition problems and challenges that have been identified by various solvency II experts in relation to the use of partial internal models. Click here to read full article.

The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has released its planned timetable for the next public consultation on Solvency II level 2 implementing measures. The timetable shows the topics to be covered and the dates of consultation.  Click here to download the timetable.

There will be two periods of consultation: July – September 2009 and November – December 2009. The timetable covers 44 topics and CEIOPS will publish its advice prior to each consultation period, although it’s understood that the papers for the first of these periods won’t be released till 1 July.

In its letter of 19 July 2007, the European Commission requested CEIOPS to provide final, fully consulted advice on Level 2 implementing measures by October 2009 and recommended CEIOPS to develop Level 3 guidance on certain areas to foster supervisory convergence.

Today, CEIOPS is releasing for consultation 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. CEIOPS will make all comments available on its website, except where respondents specifically request that their comments remain confidential.

Two further sets of advice on Level 2 measures are foreseen to be released at the beginning of July 2009 and in Autumn 2009.

Click here to read entire article

CEIOPS announced the publication of its Report on the outcome of the stock-take exercise on the current use of internal models in insurance, following its’ approval in the Members’ Meeting of January 21st, 2009.

The report is the result of an exercise initiated in late 2007 by the CEIOPS’ at the request of the European Commission.
The stock-take exercise itself and the report itself have fully delivered on their initial purpose, significantly improving supervisors’ understanding of current industry practices on internal models and fostering discussions about the application of models both for risk management and regulatory purposes.
Also, 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).
The data available in this report was collected by CEIOPS from industry associations, rating agencies, banking and insurance supervisors, consultants and firms themselves. CEIOPS would like to highlight the fact that parts of this ‘factual’ report clearly need to be understood as a reflection of state of play of internal models at a given point in time and that industry practices of internal models use are evolving. Click here to download this report 

CEIOPS published the report on its Fourth Quantitative Impact Study (QIS4). One of the main objectives of QIS4 was to collect detailed information on the impact of the testing proposals on the insurance industry’s balance sheet, in order to help develop Level 2 implementing measures in line with the Level 1 Framework Directive Proposal.

Areas of particular relevance in this exercise were the impact on groups’ balance sheets, including diversification effects and transferability of own funds, the use of simplifications and undertaking-specific parameters, the design and calibration of the MCR, and the comparability of the standard formula and internal models for the calculation of the solvency requirements.

The basic architecture of Solvency II seems to be well received, and various improvements have been made on detailed technical aspects. A decisive factor to the success of the exercise has been the impressive participation rate by the insurance industry, especially of smaller insurers and groups. Participation has shown that the industry is keen to contribute to the further development of the Solvency II framework.

The results of the study show that measured against the level of stress embedded in the QIS4 simulations, as of year end 2007 the European insurance industry appeared to be well capitalized. Under QIS4, the aggregated capital surplus of participating undertakings remains fairly stable.

Click here to read the report.

CEIOPS conducted a survey to assess the current level of Risk Management Standards on Assets applicable to insurance and reinsurance undertakings within the European Economic Area (EEA), under the current regulatory framework and in the future Solvency II framework, and to institutions for occupational retirement provision (IORP) under current legislation.

The results from this survey, to which 27 jurisdictions have answered, are presented in chapters 4 and 5 of this report.