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Consultation Paper
No. 62 - Draft CEIOPS’ Advice for Level 2 Implementing Measures on
Solvency II:
Cooperation and Colleges of supervisors -
CEIOPS-CP-62/09, 2 July
2009
Annex 1 - Impact
assessment – Supervisory co-operation and co-ordination
A.1. In its Call for Advice of 1 April 2009, the Commission has
asked CEIOPS to contribute to the Commission’s impact assessment
of the Level 2 implementing measures.
To this end, a list of issues has been set up by the Commission
and CEIOPS, identifying the Level 2 implementing measures that
should be accompanied by an impact assessment.
The objectives of the issues have been selected among the list of
objectives used by the Commission in its Level 1 impact
assessment.
On 12 June 2009, the Commission has issued an updated list of
policy issues and options, to which reference is being made.
This impact assessment covers issue 17 of the list of policy
issues and options.
Two summary tables accompany the impact assessment, they are
published in a separate excel document.
1) Description
of the policy issue
A.2. Solvency II aims at making group supervision more effective
and efficient, in particular by strengthening co-operation,
information exchange and co-ordination amongst EU supervisors.
In particular, in the context of group supervision, a number of
decisions will have to be taken jointly (by the supervisory
authorities concerned), or in consultation with other supervisory
authorities, which calls for solid and practical co-ordination
arrangements.
A.3. The issue relates to the further specification at Level 2 of
the principles set out in Level 1 text, in order to provide for an
appropriate legal framework for the following co-operation and
co-ordination arrangements.
A.4. In the following sections two aspects of this policy issue
will be analysed:
Sub-issue A: Participation of branches to the College
Sub-issue B: Frequency of College meetings
A.
Participation of branches to the College
A.5. Article 252 (3) of the Level 1 text states that the
membership to the college shall include the group supervisor and
the other supervisory authorities of all the Member States in
which the head offices of
subsidiary undertakings are situated.
The supervisory authorities of significant branches and related
undertakings shall also be allowed
to participate in the College of Supervisors.
A.6. In its advice to the European Commission on aspects of the
Framework Directive Proposal related to Insurance Groups
(CEIOPS-DOC-25/08), CEIOPS advocated for the membership of all
supervisors in the College, as a way to assure that decisions
taken are transparent and take into account the views and concerns
of all supervisors.
This is consistent with CEIOPS approach under Solvency I regime
where all subsidiaries’ supervisors are invited to participate in
the
Coordination Committees (Co-Cos).
A.7. On this issue, the financial crisis showed that the whole
group, directly or indirectly, may be affected and therefore
coordination and exchange of information among supervisors is
crucial.
Without prejudice to Article 254(2), CEIOPS believes that all
supervisors shall be kept informed about all essential and
relevant information.
Therefore CEIOPS considers that the provisions on exchange of
information in the Sienna protocol remain relevant under Solvency
II.
Those provisions can be reflected in possible level 3 guidance.
A.8. However, the participation of branches to the College shall
only be limited to achieving the objective of efficient exchange
of information.
The effective functioning of the college may require that some
activities will be carried out by a reduced number of supervisory
authorities within the college.
A.9. Hence, the Level 1 text (article 252 (3)) foresees that the
Commission shall adopt implementing measures on the definition of
a significant branch.
B. Frequency
of College meetings
A.10. According to article 252 (1e) of the Level 1 text the rights
and duties assigned to the group supervisor with regard to group
supervision shall comprise the planning and co-ordination, through
regular meetings held at least annually or other appropriate means
of information exchange and decision making, of supervisory
activities in going concern as well as in emergency situations, in
cooperation with the supervisory authorities concerned and taking
into account the nature, scale and complexity of the risks
inherent in the business of all undertakings that are part of the
group.
In other words, Colleges should meet regularly to discuss the
specific activities for the group and set up a working plan in
order to assure a more efficient and effective group and solo
supervision and timely and coordinated action.
2) Detailed
description of policy options and assessment of the relative
impacts on the different affected parties
2a) Detailed policy option description
A. Participation of branches to the College
Option 1
Level 2 measures should include legally binding quantitative
thresholds for the determination of significant branches for
essential decision making processes.
Option 2
Level 2 measures should include non-legally binding indicative
thresholds (quantitative and/or qualitative) for the determination
of significant branches for essential decision making processes.
A.11. According to the Level 1 text, the participation of
significant branches shall be limited to achieving the objective
of efficient exchange of information.
A.12. In case the significance of a branch is assessed by using
quantitative thresholds as binding or indicative criteria, there
is the question which thresholds could be implemented.
Aiming to have as much as possible an adequate level of
cross-sector consistency,
CEIOPS took
into consideration the Capital Requirements Directive (CRD)
framework and its recent amendments as well as the Financial
Conglomerates Directive (FCD).
According to the CRD a branch of a credit institution is
considered to be systemically relevant if, inter alia, its market
share in terms of deposits held exceeds 2% in the host Member
State (article 129 (1)). Regarding the FCD (article 2.17),
regulated entities of the conglomerate are relevant if, for
instance,
their market share in other Member States exceeds 5% (see page 6
for further discussion).
A.13. Other possible non-legally binding criteria could be the
significance of a branch for its local market or the specificity
of its risk profile.
B. Frequency
of College meetings
Option 1
Level 2 measures shall establish a minimum frequency of College
meetings.
Option 2
Frequency of college meetings and contacts between supervisors
shall depend on the work plan and the risk-based assessment made
by the College, but should take place at least annually.
2b) Impact on
industry, policyholders and beneficiaries and supervisory
authorities
A. Participation of branches to the College
Likely Industry Response
A.14. As the supervision of branches will continue to be exercised
by the group supervisor, the additional participation of
significant branches to the College – whether derived from
quantitative or indicative thresholds - generates no direct impact
on the industry in terms of operational costs.
Costs and Benefits
A.15. As the local supervisor has – apart from the market
supervision – only a few prudential powers concerning a branch,
neither for the insurer nor the policyholder any incremental costs
are expected. In contrast, a non-measurable benefit could evolve
from the fact that the local supervisor participates in the
discussion about the supervisory standard in general and the
impact in each local country of the group.
In this way, the policyholder could also benefit from the
participation of their local supervisor in case they (indirectly)
represent the policyholders` interests.
A.16. A quantitative threshold for assessing the significance of
branches by the group supervisor (option 1) would facilitate
co-operation between insurance supervisory authorities assuring a
high level of harmonisation, but, on the other hand, could prevent
an adequate level of flexibility.
If a branch does not fulfil quantitative thresholds, but is
nevertheless significant for the local market (e.g. in case of a
specific risk profile), the solo supervisor cannot even indirectly
pursue his
objectives (protection of the policyholders and stability of the
financial market).
A.17. Assuming that option 2 by establishing quantitative and/or
qualitative aspects for the determination of significant branches
is associated with a higher number of participants, the
preparation of a College is more costly , more time-consuming, and
the outcome of a College
meeting is likely to be less efficient.
B. Frequency
of College meetings
Likely Industry Response
A.18. The industry could argue that option 1, i.e. establishment
of a minimum frequency of College meetings, is not in line with
the risk-oriented approach of Solvency II.
Therefore, the industry prefers a continuous, well organised and
risk-based supervisory review
process (option 2) so that potential weaknesses can be eliminated
promptly, more effectively and in a good coordinated way.
Costs and Benefits
A.19. For policyholders and insurers, there is no direct impact
recognisable.
If Level 2 measures provide that college meetings are to be held
more than once annually (option 1), the indirect burden on the
insurer will tend to be higher.
As the frequency of College meetings depends on the risk situation
of the insurer, there is no clear cost effect derivable from
option 2.
A positive aspect is that the College has to set up a work plan
and to evaluate the risk situation of the insurer on a continuous
basis.
This commitment ensures that the group is informed about the
relevant shortfalls at any time.
A.20. From the perspective of the policyholder option 1 would
prevent that the number of College meetings depends on the risk
assessment of the College.
A risk-oriented supervisory approach (option 2) contributes to an
improved protection of the policyholder.
A.21. Principle applies: The more frequent College meetings take
place, the more operational costs incurred by the group
supervisor.
In this context, a legally binding frequency as foreseen by option
1 is inflexible and not risk-sensitive.
If the frequency of college meetings depends on the work plan and
the risk-based assessment made by the college (option 2), the
quality of supervision, e.g. the exchange of information,
improves.
However, the group supervisor has to evaluate the risk situation
of the group continuously, in order to
convene the College, whenever appropriate.
3) Specific
and Operational objectives
A.22. The “Processes and procedures to enhance supervisory
co-operation and co-ordination” falls under the scope of
objectives with different levels.
Firstly, the specific objectives relevant for this policy option
are “Advance supervisory convergence and co-operation” and
“Increase transparency”.
Finally, the relevant operational objectives are “Harmonise
supervisory powers, methods and
tools” and “Ensure efficient supervision of insurance groups and
financial conglomerates”.
The last two objectives also consider the compatibility with
prudential standards for the European
banking sector and compatibility with the IAIS9 principles and
standards that are fundamental to effective insurance supervision.
4) Comparison
between the different options based on the efficiency and
effectiveness in reaching the relevant objectives defined in
section (3)
A.23. The comparison and ranking of the policy options will be
based on the effectiveness and efficiency of each of them in
reaching the relevant objectives defined in point (3), especially
the operational objectives.
The source of evidence to assess this aim will be the qualitative
information gathered from the different Co-Co-surveys,
complemented by a qualitative judgement.
A.
Participation of branches to the College
A.24. When limiting the participation of branches to the College,
further consideration is needed in order to assess which
quantitative thresholds should be applied, or even, if
quantitative thresholds can
be established.
On this issue, CEIOPS acknowledges that a legally binding
quantitative threshold (option 1) would facilitate co-operation
between insurance supervisory authorities assuring a high level of
harmonisation and promoting consistency with the CRD and FCD
prudential frameworks, but, on the other hand, could prevent an
adequate level of flexibility and efficiency.
A.25. The participation of branches’ supervisory authorities in
the Colleges meetings may be necessary in order to assure a
permanent platform for cooperation and the coordination of
appropriate supervisory actions.
The participation of branch supervisors could be especially
foreseen in College’s meetings where issues specific to that
branch are discussed or where their participation is relevant in
terms of risks for
the group or its systematic relevance to local markets.
A.26. CEIOPS considers that there are two different approaches to
the participation of any branch’ supervisor in the College:
• The branch’ supervisor requests on its own initiative to
participate in the College (unless the decision of the group
supervisor), or, in the absence of this request, the group
supervisor considers that its participation is relevant given the
significance of the branch within the group.
Where a supervisor from a Member State with a branch of the group
presents a reasoned request to participate in the College, CEIOPS
considers that the branch supervisor should be able to participate
in the College unless properly justified by the group supervisor
following consultation with the other supervisory authorities
within the College.
In the case of diverging views, the branch supervisory authority
may refer the matter to the CEIOPS following the procedure
foreseen in article 252 (4) of the Level 1 text.
• Where no such request has been made, the branch supervisor’s
participation should be based on the judgment of the group
supervisor following the consultation with the other supervisory
authorities within
the College.
This judgment should be supported on quantitative and/or
qualitative criteria (option 2) related to the significance of the
branch within the group and/or in their local market, as for
example:
- 2% threshold: if the market share in terms of gross written
premiums exceeds 2% in the members state or if its gross written
premium volume exceeds 2% of the consolidated gross written
premium volume of the group;
- Importance of the branch given the global risk profile of the
group (e.g. where the potential contribution of the branch to the
group SCR is above a material level);
- Supervisory authorities of newly entered branches in the group,
taking into account the ultimate impact to the group’s overall
operations;
- Supervisors that bring insight into the specific nature of
local governance cultures that may have an impact both locally
and/or the group as a whole.
A.27. CEIOPS has undertaken some discussions on the
appropriateness of using 2% (CRD) or 5% (FCD) as the indicative
threshold.
Although the Solvency II proposal and the CRD are built on
different business models and the importance of branches can have
different meanings in each sector, CEIOPS considers that the
outcome of option 2 would still contribute to achieving
compatibility with the CRD and FCD
prudential frameworks..
A.28. The above mentioned set of combined criteria would require
further development.
B. Frequency
of College meetings
A.29. The Level 1 text foresees that the College of Supervisors
shall meet regularly.
A.30. Since the establishment of a minimum frequency according to
option 1 is inflexible and thus inefficient, the frequency of
College meetings
should depend on the workplan and the risk-based
assessment made by the College (option 2).
This should be
at least annually, as required by the Level 1 text.
A.31. However, considering the proportionality principle, the
meeting may take different forms.
The College may consider it appropriate in some cases to exchange
information by other channels,
including the use of telephone
conference, video conference, email and letter.
Face-to-face meetings are nevertheless considered essential for
more complex groups, at least for an initial meeting, or for
extraordinary circumstances (e.g. restructuring of the group which
affects significant parts of the group, crisis situation (see
3.6.)).
A.32. The group supervisor after dialogue within the College
should be responsible for the communication with the group at its
top level (parent level).
Solo supervisors should then communicate any measures applied at
top level to the subsidiaries.
A.33. The initiative to convene the College of Supervisors shall
be taken by the group supervisor except in justified
circumstances.
Colleges of Supervisors:
Colleges of Supervisors - Introduction
Colleges of Supervisors - Advice
Colleges of Supervisors - Membership and Participation in the
College
Colleges of Supervisors - Coordination Arrangements
Colleges of Supervisors - Professional Secrecy and Confidentiality
Colleges of Supervisors - Coordination Cooperation
  
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