Welcome to the April 2009 edition of the Solvency ii Association Newsletter.
April 1st 2009
Solvency II without group support - It will be discussed again in 2015
A new era of national protectionism, one step back for the European Common
Market
The European Parliament has agreed to delete the group support regime from the
Solvency II directive.
"We are very disappointed that an opportunity has been missed to enhance the
regulation of groups that operate across borders. Capital requirements will
still be set in each country a firm operates in, and not set centrally by
their lead supervisor"
Stephen Haddrill, director-general at Association of British Insurers (ABI)
What it really means?
Group support is a
commitment (a legally binding declaration)
by a parent undertaking to transfer capital to the subsidiaries if it is
needed, subject to supervisory approval.
The Group Support Regime introduces a group support system so that
cross-border companies calculate a single sum for the whole group and it
simply means a smaller amount of capital
allocated for the risks of the group.
The
home country has
the final say so that host country can not force companies to top up capital
locally.
Many EU states opposed this as they will
lose power as host countries.
The Group Support Regime of Solvency II ( and the similar Group Support Regime
proposed for cross-border banks) is
the big test:
Will European member states accept to give up some sovereignty to a home
country for an integrated financial market? This is one of the most important
and interesting parts for solvency II, and many EU and non-EU countries are
absolutely affected.
The difference
between the solo Solvency Capital Requirement (SCR) and solo Minimum Capital
Requirement (MCR) can be covered by
either the subsidiary's own funds or group support.
In technical terms, group support is comparable to a non paid-up capital
instrument (dated or undated), with the solo Minimum Capital Requirement (MCR)
of the subsidiary as the ultimate trigger point.
In the situation that a subsidiary holds no longer sufficient own funds to
cover the solo Minimum Capital Requirement (MCR), the local supervisor of the
subsidiary
may make a call to the parent undertaking to inject an appropriate amount of
own funds,
up to the level of group support agreed, to bring the own funds of the
subsidiary again to the level of the Minimum Capital Requirement (MCR).
In fact it could be argued that this is superior, as these capital resources
will have been validated to a known standard under group supervision and it
ensures that capital is available for use by the solo undertaking exactly when
needed, without any restrictions.
While all insurance groups will be subject to group supervision,
each group can choose whether to apply for permission to be regulated under
the Group Support Regime.
The permission to operate under the Group Support Regime is subject to a
number of conditions that need to be verified by the supervisory authorities
concerned.
Insurance groups want to use the Group Support Regime because it enables the
group to organise its capital management in a more efficient manner.
It provides
flexibility to move capital to where it is needed when it is needed.
CEIOPS Consultation Paper No. 33
Advice for Level 2 Implementing Measures on Solvency II: System of Governance
There are very interesting details there, that have to do with the system of
risk management and corporate governance:
3.1. Article 41(1) of the Level 1 text states:
"Member States shall require all insurance and reinsurance undertakings to
have in place an effective system of governance which provides for a sound and
prudent management of the business.
That system shall at least include an adequate transparent organisational
structure with a clear allocation and appropriate segregation of
responsibilities and an effective system for ensuring the transmission of
information. It shall include compliance with the requirements laid down in
Articles 42 to 48.
The system of governance shall be subject to regular internal review."
Comments from CEIOPS
3.2. It is important that undertakings ensure an organisational culture that
enables and supports the effective operation of the system of governance.
This requires an appropriate "tone at the top" with the administrative or
management body and senior management providing appropriate organisational
values and priorities.
3.3. The undertaking's system of governance should:
a) Establish, implement and maintain effective cooperation, internal
reporting and communication of information at all relevant levels;
b) Be robust with a clear and well-defined organisational structure that has
well-defined, clear, consistent and documented lines of responsibility across
the organisation;
c) Ensure that the members of the administrative or management body possess
sufficient professional qualifications, knowledge and experience in the
relevant areas of the business to give adequate assurance that they are
collectively able to provide a sound and prudent management of the
undertaking;
d) Ensure it employs personnel with the skills, knowledge and expertise
necessary for the proper discharge of the responsibilities allocated to them;
e) Ensure all personnel are aware of the procedures for the proper discharge
of their responsibilities;
f) Establish, implements and maintains decision-making procedures;
g) Ensure that any performance of multiple tasks by individuals does not and
is not likely to prevent the persons concerned from discharging any particular
function soundly, honestly and professionally;
h) Establish information systems that produce sufficient, reliable,
consistent, timely and relevant information concerning all business
activities, the commitments assumed and the risks to which the undertaking is
exposed;
i) Maintain adequate and orderly records of its business and internal
organisation;
j) Safeguard the security and confidentiality of information, taking into
account the nature of the information in question;
k) Introduce clear reporting lines that ensure the prompt transfer of
information to all persons who need it in a way that enables them to recognise
its importance; and
l) Establish and maintain adequate risk management, compliance, internal audit
and actuarial functions, the characteristics of which are set out below.
3.4. Sound and prudent management of the business implies among other things a
consistent application of risk management and internal control practices
throughout the entire organisational structure of the undertaking.
In order to support this goal, consideration should be given to drawing up and
implementing a code of conduct for all staff.
3.5. Undertakings should ensure that any potential source of
conflicts of interest
is identified and procedures are established so that those involved with the
implementation of the strategies and policies understand where conflicts of
interest could arise and how these should be addressed, e.g. by establishing
additional controls.
3.6. Undertakings should adopt an overall remuneration policy that is in line
with its business strategy, risk profile and objectives. It should avoid
potential incentives for unauthorised or unwanted risk taking.
The remuneration policy should cover the undertaking as a whole and contain
specific arrangements that
take into account the respective roles of the administrative or management
body and persons who have key functions.
3.7. Undertakings have to ensure that the system of governance is internally
reviewed on a regular basis. To this purpose they have to determine the
appropriate frequency of the reviews taking into account the nature, scale and
complexity of their business and assign responsibility for the review.
3.8. In order to allow an adequate revision of the system of governance
appropriate reporting procedures encompassing at least all key functions
should be established.
The reports to be produced shall encompass an assessment of the effectiveness
of the system of governance and should contain suggestions for improvements.
They should be
presented to the administrative or management body at least annually,
according to the principle of proportionality, and discussions on any
challenge provided or improvements suggested should be documented as
appropriate.
Suitable feedback loops should exist to ensure follow-up actions are
continuously undertaken and recorded.
3.9. In particular the report(s) mentioned in the previous paragraph should
include the conclusions drawn from the own risk and solvency assessment and
should include all relevant information on the risks the undertaking faces in
the short and long term and to which it is or could be exposed.
Dear members,
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The Solvency ii Association develops and maintains a compendium of Solvency ii
related risk and compliance topics. Subject matter experts review and update
this body of knowledge.
The Solvency ii Association offers two Solvency ii certifications:
A. Certified Solvency ii Professional (CSiiP) for professionals working in the
EEA countries
B. Certified Solvency ii Equivalence Professional (CSiiEP) for professionals
working in non-EEA countries
The Solvency ii Association has signed an exclusive worldwide partner
agreement with Solvency II Training Ltd, so the Association will provide
Solvency II Training classes worldwide only in cooperation with Solvency II
Training Ltd.
Solvency II Training Ltd is a niche training consultancy, specialising in the
provision of Solvency II training programs to organisations & individuals
within the European Union (EU), European Economic Area (EEA) & Non-EEA
Countries, including the Offshore Financial Centres (OFCs).
Last month Solvency II Training Ltd successful conducted two Solvency II
Equivalence training courses in Bermuda. The first of which was a three-day
training session conducted at the Bermuda Monetary Authority (BMA).
The second training session entitled "Due Diligence for the Board of Directors
& Executive Management" was held for members of The Association of Bermuda
Insurers & Reinsurers (ABIR).
Both events were a resounding success and as a result of increased demand,
further public training courses have been scheduled for Bermuda which will
take place in
June 2009.
Solvency II Training Ltd has also received a great deal of interest from some
of Bermuda's major Insurers/ Reinsurers, who are seeking tailored in-house
Solvency II training sessions.
Testimonials at:
www.solvencyiitraining.eu
For further Information or to Register for one of our Solvency II Training
courses you may contact:
Solvency II Training Ltd.
Level 33, 25 Canada Square
Canary Wharf, London E14 5LQ
Tel: +44 (0) 207 060 3312
Fax: +44 (0) 207 681 3317
Email:
info@solvencyiitraining.eu
Web:
www.solvencyiitraining.eu
Best Regards,
George Lekatis
President of the Solvency ii Association
General Manager, Compliance LLC
1200 G Street NW Suite 800, Washington DC 20005, USA
Tel: (202) 449-9750
Email:
lekatis@solvency-ii-association.com
Web:
www.solvency-ii-association.com
HQ: 1220 N. Market Street Suite 804, Wilmington DE 19801, USA
Tel: +1 (302) 342-8828