NEW ARCHITECTURE OF THE SUPERVISION OF THE INSURANCE

NEW ARCHITECTURE OF THE SUPERVISION OF THE INSURANCE INDUSTRY IN THE EU IS NOT ONLY A REACTION TO CRISIS Júlia Čillíková The insurance in EU on the threshold of the third millennium – May 2011

I. Role of the National bank of Slovakia in the supervision of the insurance market The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 2

NBS organizational structure The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 3

Brief description § Rulemaking activities (regulation department) § generally binding regulations of the NBS - decrees, methodology § Licensing & enforcement (supervision department) § Supervision – Microprudential (supervision department) § Off-site supervision § On-site supervision § Supervision – Macroprudential (financial analyses department) § Analyses– analyses for internal and external users, for supervision purposes and monitoring of insurance market stability § Complaints handling § Data collection, processing, storage and disclosure of information (statistics department) The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 4

Macroprudential analyses Monitoring of risks – macro-stress testing Impact of stress testing on insurance sector (profit & loss as a percentage of total assets) § Focus on early identification of risks and adverse trends in the insurance industry and the whole financial sector § Systemic view § Macroprudential analyses on quarterly and half yearly basis § Monitoring of trends § Identification of risks and threats The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 5

II. Lesson learned from financial crises The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 6

Lessons learned § Macroprudential supervision needed § Important to identify systemically important financial institutions (SIFIs) § Microprudential supervision § More focus on risk – Solvency II on right track § Insurance is different business model as banks § Less important from a systemic point of view § Lower exposition to liquidity risk § More connection to real economy – policyholder behavior § Regulation - no zero failure environment The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 7

New architecture of the European financial supervision The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 8

III. Solvency II The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 9

Highlighted issues § Fifth quantitative impact study showed that for all tested insurance undertakings own funds were higher than required capital (SCR) § However, further work is needed § Open issues: Expected profits included in future premium (EPIFP), Contract Boundaries, CAT risk, too complex methodology, etc. § § More focus on system of governance and disclosure (pillar 2 & 3) Huge administrative work connected to transposition of level 1 directive to Slovak act on Insurance Challenge for supervisors (harmonized supervisory tools, increased EU dimension, well prepared stuff, new IT tools, etc. ) Level 1 – Omnibus II § Pros: Postponed implementation (two months) § Cons: Postponed work on Delegated Acts, Transitional provisions The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 10

Project for implementation of the Solvency II in the Slovak republic § § § § Analysis of the preparedness of the insurance undertakings for the Solvency II (published: November 2010) Analytical data of the fifth quantitative impact study (published: March 2011) Analysis of the impact of the Solvency II on the National bank of Slovakia (published: April 2011) Report on the fifth quantitative impact study (will be soon available) Analysis of the legislation framework after the implementation of the Solvency II (will be soon available) Ongoing work on the Level II, Level III (delegated acts and guidelines) and Omnibus II Transposition of the Solvency II to Slovak act on insurance Other activities (discussions with market, presentations, etc. ) The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 11

Solvency II project- Timetable Ongoing work on Level 1, Level 2 a Level 3 Transposition of the S II to Slovak act on insurance Analyses of the preparedness of the Slovak republic Analysis of the legislation framework QIS 5 Impact of the S II on the NBS Prepar. of the market March April May June July Presentations . The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 12

Issues related to Solvency II Review of the IORP directive April 2011 – Call for advice from EC on review of IORP Directive (deadline: December 2011) Deliverable: advice on principles for Level 1 IORP II Directive Reasons for review: § Remove regulatory obstacles for cross-border operation of IORPS § Implement risk-based supervision § Modernize prudential regulation for DC IORPs Allocation of work: Issue Task force leader Scope & cross-border aspects BE Quantitative requirements (pillar 1) PT Governance (pillar 2) SK Information to members (pillar 3) IT The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 13

IV. Consumer protection The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 14

Current workstreams § Insurance Guarantee Schemes § NBS is against the IGS • Main arguments: moral hazard, not suitable for too concentrated insurance market such as Slovak republic § Highlighted issues: • home vs. host, ex post vs. ex ante, full coverage vs. focus on life or non-live, etc. § Packaged retail investment products (PRIPs) § November 2010 – January 2011: Consultation on PRIPs • Scope: § “with-profits” – grey area § Pensions – out (IORP review) • Pre-contractual disclosures: KIID (UCITS) • Sales: Mi. FID The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 15

Current workstreams § Insurance mediation Directive Conflicts of interest Disclosure of remuneration Review of information requirements Classical Directive structure of the IMD (If the revised IMD provisions in this area are set at a maximum level this could result in a lower degree of protection if this was below the level of protection provided currently by individual Member States. ) § Reducing the administrative burden § Increased efficiency in cross-border business and new notification provisions for IMD 2 § IMD exclusion for reinsurance transactions § § The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 16

Current workstreams § The role of the EIOPA § Article 9, EIOPA Regulation No. 1094/2010 of the European Parliament and of the Council - Tasks related to consumer protection and financial activities § The role of the National bank of Slovakia § Possible solution - Twin peaks model ? ? ? The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 17

V. Discussion The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 18

THANK YOU FOR YOUR ATTENTION Júlia Čillíková Director of the Regulatory and Financial Analysis Department Tel: 00421 2 5787 3300 Fax: 00421 2 5787 1118 E-mail: julia. cillikova@nbs. sk National Bank of Slovakia Imricha Karvaša 1 813 25 Bratislava 1 Slovak Republic The insurance in EU on the threshold of the third millennium – May 2011 Júlia Čillíková 19