Welcome to the February 2010
edition of the Solvency ii Association
newsletter
Dear Members,
CEIOPS has been pretty active since
November 2009.
I could never imagine that I would need so many days
to study the Level 2 papers. Having led Basel ii classes in 36
countries, I had the feeling that Solvency ii would not be that
difficult for me.
I was wrong.
Basel ii is very different.
Yes, I knew it, but even the parts
that could be similar (corporate governance, internal models) are
very different. In general, Solvency ii is much more advanced, and
CEIOPS tries hard to avoid the Basel ii implementation mistakes.
The time needed to study Solvency ii
is... I believe 3 to 4 times more than the
time needed to study Basel ii (even with the addition of the
specifics of the Capital Requirements Directive plus options and
national descriptions).
Although it is very important to
read the new papers, it is even more important to have all the
necessary knowledge and understanding of the European Union, the
way things are working, and especially what has happened before
Solvency ii.
If you do
not start from the basics of the European Union, the rulemaking
process, the protocols, the memorandum of understanding with third
countries, the Reinsurance Directive and the directives of the
Financial Services Action Plan, you will never be able to
understand what to do for the implementation of Solvency ii.
For example, we can not discuss
about supervisory cooperation and equivalence, if we do not
understand the Helsinki Protocol (Protocol
relating to the collaboration of the supervisory authorities of
the Member States).
What? You
have never heard of it? You must read what we cover in this
newsletter.
We will try to return to the
basics every month.
Enjoy.
Download the 190 pages e-book: "Discover 100 Job Descriptions in
Risk and Compliance Management and what it takes to get hired. Which
factors matter"
It is a great reference book, developed in 2010, free to all
members of the Association.
Contents
1.
Risk
Professionals
2.
Compliance
Professionals
3.
Sarbanes Oxley
Professionals
4.
Basel ii
Professionals
5.
Solvency ii
Professionals
6.
Hedge Funds
Professionals
7. Members of the
Board of Directors
Breaking News
CEIOPS Members find the SWISS supervisory
regime of reinsurance undertakings equivalent
CEIOPS and Swiss Financial Market
Supervisory Authority agree to further enhance supervisory
cooperation
CEIOPS Members have agreed to further enhance supervisory
co-operation with the Swiss insurance supervisor.
Supervisory cooperation between CEIOPS Members and the Swiss
insurance supervisor is based on a
2005 Multilateral Memorandum of
Understanding.
The Memorandum is
one of the most efficient instruments
available to supervisors in order to foster the cooperation
required for supervising insurance groups and financial
conglomerates.
It also facilitates the assistance and exchange of information
needed to fulfill all insurance supervisory tasks.
Following the changes made in 2009 to the Swiss institutional
framework on financial supervision,
CEIOPS Members have agreed to fully
recognise the Swiss Financial Market Supervisory Authority (FINMA)
as a legal successor of the former Swiss Federal Office of Private
Insurance (FOPI).
CEIOPS Members find the Swiss supervisory
regime of reinsurance undertakings equivalent.
CEIOPS has pursued, throughout the course of 2009, an
equivalence assessment of the supervisory
regime applicable in Switzerland to reinsurers to determine
whether the regime
could be considered equivalent to that
applying to EU reinsurers under the current Reinsurance Directive.
[Be careful: The Reinsurance Directive, not the Solvency II
Directive, although this is a major step towards equivalence under
Solvency ii as well]
FINMA provided CEIOPS with detailed
information and access to supporting documentation. [This is very
very important - Equivalence starts from the exchange of
information. Third countries that want to be equivalent, must
agree to disclose information to the European Union.]
CEIOPS notes that this equivalence determination is without
prejudice to the
separate equivalence assessment that will be required
under the Solvency II Directive, although certain
elements of the assessment may be relevant to that further work.
Let's understand better
this
"equivalence assessment"
Criteria for the assessment of
supervisory equivalence under Directive 2005/68/EC (‘Reinsurance
Directive’)
The methodology for the assessment of supervisory equivalence for
the purposes of the application of Article 49 of the Reinsurance
Directive.
The results of any such
assessments will also be relevant should the European Commission
submit proposals to the Council for the negotiation of an
agreement with a third country under Article 50 of the
aforementioned Directive.
The methodology adopts a similar approach to that pursued by the
Interim Working Committee on Financial Conglomerates in assessing
the equivalence of third country regimes under Directive
2002/87/EC (Financial Conglomerates Directive); namely it
identifies the key supervisory principles encapsulated in the
Reinsurance Directive and the objectives each supervisory
principle seeks to achieve.
It is against these
principles and objectives that the third country regime will be
assessed.
The methodology also
outlines the key ‘indicators’ of equivalence - namely, those
factors which provide guidance in determining whether the relevant
principles and objectives are achieved.
A. Principle – Supervisory Authority
Objective
The supervisory authority must be fully empowered to enable the
effective carrying out of the supervisory authority’s
responsibilities.
Indicators - The supervisory authority
should be/have:
1. Legal basis
Description: Legal basis specifying supervisory responsibilities
and enforcement powers
2. Independence and accountability
Description: Freedom from undue political, governmental and
industry interference in the performance of supervisory
responsibilities
3. Transparency
Description: Transparency of supervisory processes/procedures
4. Adequate Resources
Description: Financial and non-financial (e.g. sufficient numbers
of appropriately skilled staff) resources
5. Legal protection
Description: Appropriate protection from being liable for actions
taken in good faith
B. Principle – Authorisation
Requirements
Objective
To ensure the reinsurance undertaking satisfies basic standards
(which are clear, objective and accessible), prior to becoming
authorised to undertake regulated activities and on a continuous
basis thereafter.
Indicators – Existence of standards in respect of:
(i) Conditions for authorisation
1. Legal Entity
Description:
• Legal form
• Location of head office
• Articles of Association
2. Operations
Description:
• Limitation to reinsurance and related operations
• Scheme of operations (including, for the first three years,
estimates regarding:- cost, premiums, claims and financial
resources to cover underwriting liabilities)
• Minimum guarantee fund
3. Controls
Description:
• Sound management
• Adequate internal control mechanisms
• Sound administrative/accounting procedures
(ii) Connections
1. Shareholders/Members
Description:
Provision of information on:
• identity of shareholders/members with qualifying holdings
• amount of holdings
2. Close links
Description:
• Continuous monitoring of close links
(iii) Refusal / withdrawal of
authorisation
1. Refusal / withdrawal of authorisation
Description:
Refusal/withdrawal of authorisation possible:
• legally
• due to qualifications of shareholders/members
• where close links prevent effective supervision
C. Principle – Business Change
Assessment
Objective
To ensure the
acceptability of any proposed changes to the business from an
operational, management and supervisory perspective.
Indicators –
Existence/extent of provisions in respect of:
1. Acquisitions
Description:
• Notification of intention to hold and/or increase
directly/indirectly a qualifying holding
• Right of supervisory authority to oppose proposed acquisition
• Existence of thresholds prompting notification
• Possibility for assessment of acquisition by financial
undertakings to be subject to prior consultation
2. Disposals
Description:
• Notification of intention to dispose directly/indirectly of a
qualifying holding
• Thresholds prompting notification
3. Information obtainable from undertaking
Description:
• Thresholds prompting notification of acquisitions/disposals
• Regular notification (e.g. annual) of qualifying holdings,
including size
4. Ongoing disclosure of relevant
information
Description:
Disclosure of information, including information in respect of:
• portfolio transfers
• changes to Board/senior management
• scheme of operation
D.
Principle – Supervisory Cooperation and Exchange of information
Objective
To ensure co-ordination
and proper exchange and use of information between supervisory
authorities involved in the supervision of reinsurance
undertakings and others, where relevant.
Indicators – The
existence and extent of provisions in respect of:
(i) Practical Cooperation
1. Authorisation/ongoing assessment of
compliance with operating conditions
Description:
• Preauthorisation consultation in respect of undertakings which
form part of a cross-border group
2. Supervisory Activity
Description:
• Communication of concerns regarding the reinsurance undertaking,
including those relevant to the soundness of the undertaking’s
financial position, policies and procedures.
3. Suitability Assessments
Description:
Ability and willingness to cooperate in respect of the assessment
of:
• shareholder suitability
• reputation/experience of directors
4. Cooperation agreements
Description:
• Ability to enter into cooperation agreements (subject to
guarantees of professional secrecy – see (iii) below)
5. Crisis situations
• Information sharing
(ii) Exchange of Information
1. Information Exchange
Description:
Exchange of information with:
• supervisory authorities
• other authorities/bodies/persons/institutions responsible for,
or having oversight of:
- supervision of financial organisations/markets
- liquidation/bankruptcy proceedings
- carrying out statutory audits of accounts
- detection/investigation of breaches of company law
• central banks
• government administrations responsible for financial legislation
(iii) Professional Secrecy
1. Conditions of obligation
Description:
• Ability to protect confidential information
• Applicable to relevant individuals (i.e. those who work, have
worked or act(ed) on behalf of the supervisory authority)
• Ongoing obligation (applicable whilst working/acting on behalf
of the supervisory authority and on continuous basis thereafter)
• Use of confidential information only in the course of
supervisory duties:
- compliance monitoring (including monitoring of technical provisions,
solvency margins, administrative/accounting procedures and
internal controls)
- imposition of penalties
- court proceedings/appeals
2. Exceptions to obligation
Description:
• Express agreement to disclose/use
• Summary/aggregate disclosure (individual undertaking not
identifiable)
• Civil/criminal proceedings
E. Principle – Supervisory and Enforcement Powers
Objective
To ensure that
authorities responsible for the supervision of reinsurance
undertakings possess adequate supervisory powers (including
enforcement powers) and that these are properly exercisable.
Indicators – Existence/extent of powers in respect of:
1. Ensuring compliance
Description:
• Ensuring compliance with laws, regulations and administrative
provisions (including through onsite inspections)
2. Financial supervision
Description:
Verification of:
• state of solvency of undertaking
• establishment of technical provisions and covering assets
• administrative/accounting procedures
• internal controls (including those applied to ensure that data
received from cedents is reliable and timely)
3. Information obtainable from the
undertaking
Description:
• Accounting, prudential, statistical and other information (e.g.
contracts with affiliates, outsourcing arrangements, assessment of
the quality of data received from cedents)
4. Qualifying holdings
Description:
Persons (natural/legal) whose actual/proposed qualifying holding
may operate against prudent/sound management:
• injunctions
• penalties against directors/managers
• suspension of voting rights attaching to shares held by relevant
shareholders/members
Qualifying holding acquired despite opposition of supervisory
authority:
• suspension of voting rights
• nullity of votes cast/possibility of annulment
5. Undertakings in difficulties
Description:
• Prohibit disposal of assets
• Financial recovery plan
• Higher solvency margin
• Downward revaluations
• Withdrawal of authorisation
• Measures relating to directors, managers, controllers and other
relevant persons
6. Non-compliance with legal provisions
Description:
• Measures to prevent/penalise further infringements including
preventing the conclusion of new contracts
7. Enforcement
Description:
• Cooperation in respect of enforcement action
F.
Principle – Financial Supervision and Solvency Requirements
Objective
To ensure that
reinsurance undertakings act prudently in maintaining adequate
financial resources in order to prevent disorderly failure.
Indicators – Existence/extent of provisions in respect of:
1. Financial supervision
Description:
• Communication of concerns, including those relating to the
undertaking’s financial position
• Obligation on undertaking to respond to concerns raised
2. Information obtainable from undertaking
Description:
Accounting, prudential, statistical information:
• annual accounts (covering all operations, financial situation
and solvency)
• returns/statistical documents
• information regarding contracts held with intermediaries
3. Technical Provisions and investment of
assets covering technical provisions
Description:
Adequate technical provisions in respect of entire business:
• the amount:
- at all times such that an undertaking can meet any reasonably
foreseeable liabilities
- in principle computed separately for each contract
- for provision for claims outstanding, computed on the basis of costs
expected to arise (including claim settlement costs).
Alternatively, provision for claims outstanding computed in
accordance with recognised statistical/mathematical 7/9
methods, resulting in adequate provision, having regard to the
nature of the risk, subject to prior approval
• equalisation reserves for classes of risk
• rules for investment of assets:
- take account of business type including the pattern of claims payments
so as to secure the sufficiency, liquidity, security, quality,
profitability and matching of its investments
- diversified and adequately spread
- prudent levels of investments in assets not admitted to trading
- investment in derivative instruments possible insofar as they contribute
to reduction of investment risks or facilitate efficient portfolio
management; valued on prudent basis; included in valuation of
institution's assets, avoidance of excessive risk exposure to
single counterparty/other derivative operations
- avoid excessive reliance on any one particular asset, issuer or
accumulations of risk; no excessive risk concentration
• establishment of quantitative rules provided they are
prudentially justified (amounts in brackets reflect limits EU
Member States may lay down under the Reinsurance Directive):
- limitations on investments of gross technical provisions in, for
example: – other currencies (30%); shares and other negotiable
securities treated as shares/bonds/debt securities not admitted to
trading (30%), including those treated as shares etc from the same
undertaking (5%) or undertakings which are members of the same
group (10%)
4. Solvency Margin
Description:
• Adequate solvency margin in respect of entire business at all
times
• Eligible items
- Components (conditions applicable)
- Deductions - own shares, participations
• Required Solvency Margin:
- equivalent to Solvency I for reinsurers (articles 37-38 Reinsurance
Directive), where appropriate taking into account the
supplementary supervision of reinsurers forming part of a group
- undertakings simultaneously conducting non-life reinsurance and life
assurance activities
must have available solvency margin to cover the total sum of
required solvency margins in respect of both non-life and life
insurance activities.
5. Guarantee Fund
Description:
Amount:
• not less than the guarantee fund requirement
6. Auditors' duty to report
Description:
Duty to report:
• breach of laws, regulations, administrative provisions
• issues which may affect the continuous functioning of the
undertaking
• refusal (or reservations) in respect of certification of
accounts
Now, it will be easy to understand the Equivalence
Assessment
of the Swiss Financial Markets Supervisory
Authority
Equivalence assessment of the Swiss
Financial Markets Supervisory Authority (‘FINMA’) in relation to
Directive 2005/68/EC (‘Reinsurance Directive’)
Introduction:
At the beginning of 2009, CEIOPS published the methodology it will
adopt for the assessment of the equivalence of third country
reinsurance regimes.
The methodology identifies the key
supervisory principles encapsulated in the Reinsurance Directive
and the objectives each supervisory principle seeks to achieve.
It is against these principles and objectives that CEIOPS Members
assess the equivalence of a third
country regime.
The methodology also elaborates upon the core ‘indicators’ of equivalence -
namely, those factors which provide guidance in determining
whether the relevant principles and objectives are achieved.
In May 2009, FINMA was invited to undertake an assessment of the
supervisory regime applicable in Switzerland to reinsurers, in
order to determine if the regime could be considered equivalent to
that applying to EU reinsurers under the Reinsurance Directive.
FINMA agreed to be assessed and provided
CEIOPS with a detailed response to a questionnaire modelled on the
methodology, and access to supporting documentation.
The assessment was performed by the
CEIOPS’ Equivalence Subcommittee.
The findings and conclusions are based on the information provided
by FINMA in its response to the questionnaire and subsequent
request for further information.
CEIOPS’
conclusions:
CEIOPS Members agree that
FINMA’s supervision of reinsurers is
equivalent to that applying to EU
reinsurers under the Reinsurance Directive.
It is noted that this equivalence
determination is without prejudice to the separate equivalence
assessment that will be required under the Solvency II Directive,
although certain elements of the assessment may be relevant to
that further work.
The results of this assessment will be communicated to FINMA.
Main findings of
assessment of the reinsurance regime applicable within
Switzerland:
Principle I: Supervisory authority:
Objective
The supervisory
authority must be fully empowered to enable the effective carrying
out of the supervisory authority’s responsibilities
Findings
CEIOPS finds that FINMA
has at its disposal the necessary legal and material means to
enable the effective carrying out FINMA’s responsibilities in
relation to reinsurance undertakings.
The CEIOPS also finds that FINMA is sheltered from the threat of
legal and financial liability if FINMA’s activities are performed
without breach of FINMA’s fundamental duties.
The Swiss legal framework is therefore considered to offer an
equivalent regime to that applicable under the Reinsurance
Directive, and in particular article 17.
CEIOPS finds the Swiss supervisory regime applied to Swiss
authorised undertakings to be equivalent.
We note that Switzerland does not supervise the Swiss branches of
3rd countries reinsurers but we also note that there is no single
regulatory structure for branches of 3rd country reinsurers in the
EU.
Principle II: Authorisation
Requirements:
Objective
To ensure the
reinsurance undertaking satisfies basic standards (which are
clear, objective and accessible), prior to becoming authorised to
undertake regulated activities and on a continuous basis
thereafter.
Findings
The relevant legislation
is considered to enable FINMA to develop an understanding of the
undertaking in terms of business processes and financial matters,
as well as in relation to any relevant natural or legal person.
CEIOPS finds the licensing process applied by FINMA in respect of
reinsurance undertakings, is equivalent to that applicable under
the Reinsurance Directive.
Principle III: Business Change
Assessment
Objective
To ensure the
acceptability of any proposed changes to the business from an
operational, management and supervisory perspective.
Findings
CEIOPS considers that
FINMA has the necessary supervisory powers to ensure proper
oversight and the ability to respond, as appropriate, to any
relevant changes in relation to a reinsurance undertaking it has
authorised.
Principle IV: Supervisory
Cooperation and Exchange of information
Objective
To ensure co-ordination
and proper exchange and use of information between supervisory
authorities involved in the supervision of reinsurance
undertakings and others, where relevant.
Findings
CEIOPS considers that
the Swiss legislation offers a satisfactory framework for FINMA to
cooperate with national and non-national authorities.
In relation to professional secrecy requirements, CEIOPS is
satisfied that FINMA 2 Directive 2005/68/EC of the European
Parliament and of the Council of 16 November 2005 on reinsurance
(…)
meets EU standards. CEIOPS recognises that FINMA already
co-operates closely with its Members in supervisory colleges.
Principle V: Supervisory and
Enforcement Powers:
Objective
To ensure that
authorities responsible for the supervision of reinsurance
undertakings possess adequate supervisory powers (including
enforcement powers) and that these are properly exercisable.
Findings
CEIOPS finds that
FINMA has comprehensive statutory powers in relation to person(s)
and/or entities subject to FINMA’s supervision - equivalent to
those required under the Reinsurance Directive (notably article
17(4)).
Principle VI: Financial Supervision and
Solvency Requirements
Objective
To ensure that
reinsurance undertakings act prudently in maintaining adequate
financial resources in order to prevent disorderly failure.
Findings
CEIOPS finds that the
Swiss legal framework provides FINMA with equivalent powers to
ensure that reinsurance undertakings act prudently in maintaining
adequate financial resources in order to prevent disorderly
failure.
Additional information - CEIOPS finds that the applicable Swiss
regimes/frameworks (e.g. legal, institutional) seek to
achieve/maintain compatibility with EU legislation.
Important parts of the Helsinki Protocol
Helsinki Protocol (Protocol relating to the collaboration of the
supervisory authorities of the Member States of the European Union
with regard to the application of Directive 98/78/EC on the
supplemetary supervision of insurance undertakings in an insurance
group)
11 May 2000
PART I
GENERAL CONSIDERATIONS
General aims
On 27 October 1998, Directive 98/78/EC of the European Parliament
and of the Council on the supplementary supervision of insurance
undertakings in an insurance group (further: the Directive) was
adopted.
The supplementary supervision of insurance undertakings in an
insurance group enables the supervisors involved to form a more
soundly based judgement on the financial situation of insurance
undertakings being part of that group, thus providing additional
safety to policyholders.
Furthermore, the Directive aims to
prevent distortion of competition, and will contribute to the
stability of financial markets.
The adoption of the Directive necessitates a deepening of the
co-operation between supervisors which is already covered by the
Protocol relating to the collaboration of the supervisory
authorities of the Member States of the European Community in
particular in the application of the Directives on life assurance
and non-life insurance.
The supervisory authorities of the Member States wish to lay down
this additional co-operation in a further Protocol with regard to
the application of Directive 98/78/EC.
This Protocol encourages and facilitates the deepening of the
practical co-operation between the relevant supervisory
authorities, where the supplementary supervision as required in
the Directive concerns undertakings in more than one Member State.
Furthermore, whereas the Directive brings about the need for a
closer co-operation between the supervisory authorities, the
recommendations of the Joint Forum on Financial Conglomerates and
the International Association of Insurance Supervisors (IAIS) are
also being taken into account where these recommendations do not
go beyond the scope of the Directive.
Background and content of Directive 98/78/EC
The Directive must be seen as
an addition to existing
EC-legislation with regard to the life and non-life insurance
sector.
The aim of the Directive is to make insurance supervisors better
equipped to assess the solvency of an insurance undertaking that
is part of an insurance group. Although insurance undertakings are
separate legal entities and are required to meet solvency
requirements on an individual basis, the financial position of an
insurance undertaking may be affected and come under pressure by
belonging to a wider group of undertakings.
The earlier EC-legislation – especially the Third Non-Life
Directive (92/49/EEC) and the Third Life Directive (92/96/EEC) -
limits the scope of the supervision on an insurance company to the
financial situation of that individual insurance company as such
(“solo supervision”).
If an insurance undertaking is a member of a group, the earlier
insurance directives do not specifically oblige to take the group
environment into account.
The financial situation and especially the solvency margin of such
an insurance company may, however, be affected by the financial
resources of the group of which it is a part and by the
distribution of financial resources within that group.
Therefore, the Directive requires the supervisory authorities not
to limit themselves in such a situation to merely (solo)
supervision on individual insurance companies, but also to take
into account explicitly the relevant financial affiliations
between the insurance company and other parts of the insurance
group (solo-plus supervision), without, however, undertaking
supervision of the group itself as a whole.
It should be stressed that any new supervisory requirements are
additional to existing “solo” supervisory requirements. They are
not intended to replace the principle of “solo” supervision or
“solo” requirements.
This supplementary supervision is aimed at, first of all, the
protection of the interests of insured persons.
Moreover, it will also help to prevent distortions of competition
between insurance undertakings in the European Union and
contribute to the stability of financial markets.
In order to reach the objectives of the Directive, the competent
authorities must be provided with the means of exercising
supplementary supervision and of taking appropriate measures at
the level of the insurance undertaking where its solvency is or
may be jeopardised.
The activities of a number of European
insurance groups are not limited to one Member State but extend
over several member countries.
Therefore, it becomes more and more difficult for the individual
national supervisors to assess the financial soundness of an
individual company under their supervision in the light of the
international activities of the group.
Also, the national supervisors in the Member States involved in
the supervision of the different companies of the group will, to a
large extent, need the same information in order to be able to
take into account the influences of the group environment on the
individual company they supervise.
Therefore, especially with regard to the supplementary
supervision, it is more efficient, for both the supervisors and
the companies under supervision, if supervisors co-operate in
order to obtain – in an efficient way – the necessary information
on the group and share, as much as possible, the supervisory
information available.
Cases of application and competent authorities for supplementary
supervision
The Directive distinguishes in article 2 three different cases in
which supplementary supervision should be exercised, and the
content of such supplementary supervision:
• An insurance undertaking which is a participating undertaking in
at least one insurance undertaking, reinsurance undertaking, or a
non-member-country insurance undertaking
• An insurance undertaking the parent undertaking of which is an
insurance holding company, a reinsurance undertaking or a
non-member-country insurance undertaking
• An insurance undertaking the parent undertaking of which is a
mixed-activity insurance holding company
Enabling protocol
The present Protocol must be seen as an
enabling protocol.
The competent supervisory authorities take upon themselves to put
in all reasonable efforts to co-operate in order to exercise the
supplementary supervision
Responsibility of the supervisory authorities
The supervisory authorities acknowledge that efficient and
effective co-operation does in no way diminish their own
supervisory responsibility.
The “solo” supervision
will remain unimpaired the sole
responsibility of the national authorities empowered by law or
regulation to supervise insurance undertakings.
As outlined in paragraph 2.2 , the relevant competent authorities
of the Member States should strive to co-operate in a
Co-ordination Committee formed by the competent authorities
involved with an insurance undertaking.
Furthermore, whenever the
Directive leaves a choice as to which authority should exercise
supplementary supervision, the competent authorities should strive
for agreement as to which of them will be responsible for
exercising supplementary supervision.
This does not take away the fact that it will be the
responsibility of the competent supervisor, i.e. the supervisor
responsible for the “solo” supervision, to take any measures, if
deemed necessary, at the level of the insurance undertaking.
Flexibility of the supplementary supervision of insurance
undertakings in an insurance group
The insurance supervisory authorities should at all times take
into account possible developments with regard to an insurance
undertaking in or becoming part of an insurance group and if
necessary adjust the supplementary supervision and co-operation.
This may imply a reconsideration of the composition of a
Co-ordination Committee, the responsibility for the supplementary
supervision, and the assignment, by agreement, of various tasks as
described in paragraph 2.2.
Non-emergency situations, emergency situations and conflicts of
interests
In essence, two kinds of supervisory situations can be
distinguished: non-emergency situations and emergency situations.
This Protocol applies in both situations.
An emergency situation may originally arise or be identified in
relation to either the “solo” supervision or the supplementary
supervision, and consequently further action may be urgently
required.
Since the supplementary supervision, just as the “solo”
supervision, is directed at the authorised insurance undertaking,
the competent supervisory authority, i.e. the supervisor
responsible for the “solo” supervision on the insurance
undertaking, shall take the appropriate measures at the level of
the insurance undertaking.
However, because of the fact that the situation and measures taken
are relevant for all the supervisory authorities within the
Co-ordination Committee, the competent authority taking the
measures will inform the other members of the Co-ordination
Committee on a timely basis and (if possible) beforehand.
If necessary, an emergency meeting of the Co-ordination Committee
can be arranged in order to co-ordinate the measures taken by the
relevant competent authority.
Also, especially in emergency situations, it is possible that
conflicts of interests between the members of the Co-ordination
Committee occur.
In order to avoid these situations as much as possible, and be
well prepared for any action which may be required, the
Co-ordination Committee should analyse beforehand any emergency
situations that may arise and any potential conflicts of
interests.
Furthermore, the Co-ordination Committee should
endeavour to agree on adequate emergency schemes, including the
co-operation and co-ordination in these kinds of situations, as
indicated in paragraph 2.2.
Relation with the general collaboration Protocol
The present Protocol must be seen as an addition to the earlier
protocols concluded between the supervisory authorities of the
Member States, especially to the Protocol relating to the
collaboration of the supervisory authorities of the Member States
of the European Community in particular in the application of the
directives on life assurance and non-life insurance.
The earlier
collaboration protocols thus remain unimpaired effective.
Rules on professional secrecy
The supervisory authorities agree to exchange confidential
information within the limits of the rules laid down in the Third
Directives (Articles 16.1 and 16.2 of the Third Non-life Directive
and 15.1 and 15.2 of the Third Life Directive) in order to improve
the effectiveness of insurance supervision in the European Union.
Co-operation with non-European Union States that are parties to
the EEA Agreement
This Protocol applies also to the supervisory authorities of
non-European Union States that are parties to the EEA Agreement as
laid down in the second Protocol of 26 October 1995 on the
collaboration of the supervisory authorities of the European
Economic Area with a view to the application of directives
concerning life assurance and non-life insurance.
Consequently,
where in the Protocol the term “Member States” is used, the
non-European Union States that are parties to the EEA Agreement
are also included.
Furthermore, where the terms “European Union”
or “European Community” are used, this should be understood to
apply to the whole European Economic Area.
Co-operation with authorities responsible for the supervision of
credit institutions and supervision of security and investment
firms
As described in point 1.2 of this Protocol, the supervisory
authorities must have access to all the information relevant to
the exercise of supplementary supervision.
Especially with regard
to financial conglomerates, not only co-operation between the
authorities responsible for the supervision of insurance
undertakings but also between those authorities and the
authorities responsible for the supervision of other financial
sectors is necessary.
PART II
CO-OPERATION AND CO-ORDINATION BETWEEN SUPERVISORS RESULTING FROM
DIRECTIVE 98/78/EC ON THE SUPPLEMENTARY SUPERVISION OF INSURANCE
UNDERTAKINGS IN AN INSURANCE GROUP
Principle
The supervisory authorities support the principle of supplementary
supervision as prescribed in the Directive, and will co-operate to
implement the requirements of the Directive.
The supervisory authorities realise that the aim of co-operation
is to improve supervision on the insurance undertakings.
The following paragraphs elaborate the possible organisational
forms of co-operation, the content of supplementary supervision,
and the prerequisites for an unimpaired gathering and exchange of
information.
The supervisory authorities agree that the aim of co-operation is
to ensure optimal supplementary supervision.
The supplementary
supervision should be carried out efficiently and effectively, and
should form no unnecessary burden for the insurance undertakings
subject to supplementary supervision nor for the supervisory
authorities involved.
The supervisory authorities agree on the need and importance of
co-operation in order to carry out their responsibilities in an
optimal manner.
They will put in all reasonable efforts to exercise the
co-operation as referred to in the present Protocol.
They will promptly and positively reply to requests for relevant
information and provide any relevant information at their own
initiative.
They will carry out the co-operation and co-ordination as
prescribed by and indicated in the Directive in a spirit of mutual
trust, aiming for an optimal rather than minimalist implementation
of the Directive.
The supervisory authorities share the ultimate
aim of ensuring optimal, effective and efficient supervision.
Furthermore, the supervisory authorities agree that the
supplementary supervision is aimed at the insurance undertaking,
and should be fully based on that viewpoint.
The risk analysis will also
make clear if, and to what extent and in which form, the relevant
banking or securities supervisors should be involved in the work
of the Co-ordination Committee.
Organisational forms for exercising supplementary supervision
The Directive prescribes in Article 2 the cases in which an
insurance undertaking is subject to supplementary supervision.
Such undertakings may be part of a fairly straightforward group
structure, or may indeed be part of a complex and wide-ranging
conglomerate.
Also, the legal structure of the group or conglomerate will often
not be static, but may be altered as a consequence of e.g. a
change in business strategy or in response to developments in the
business and financial environment.
At the same time, the business structure of a complex group may
not correspond with the structure of legal entities, licensed or
otherwise.
As a consequence, the supervisors of the Member States concerned
should strive for forms of co-operation in the exercise of the
supplementary supervision which are sufficiently flexible, and
which are based on a genuine wish to work together.
As a first step, in order to initiate the co-operation process,
the supervisors of the Member States involved should form a
committee of the supervisors involved: the Co-ordination
Committee.
In principle, an initiating meeting should be convened unless the
supervisors all agree otherwise.
The initiative to convene the Co-ordination Committee and to
initiate the co-operation process can be taken by any of the
supervisors involved.
In practice, however, the initiative will usually be taken by the
competent authority supervising the apparently dominant insurance
undertaking within a group.
If this supervisor does not take the initiative to convene the
relevant supervisory authorities, any of the other supervisors
involved can do so.
As far as the exercise of the supplementary supervision is
concerned, all supervisors concerned share a mutual duty to
co-operate. Therefore, every supervisor involved has the
obligation to make themselves known to and be available to
participate in the Co-ordination Committee.
The Co-ordination Committee should at least consist of
(preferably) the staff members who are, within their organisations,
responsible for the day-to-day supervision of the group members
established in their state.
One of the supervisors forming the Co-ordination Committee should
be chosen chairman of the meetings of the Co-ordination Committee.
The first task of the Co-ordination Committee is to produce an
overview of the group in terms of its formal and operational
structure.
In order to achieve efficient and effective co-operation and
supervision, it will be helpful if at this stage the Co-ordination
Committee also carries out a risk analysis of the group
environment, identifying the most relevant undertakings and the
most important relationships in the group.
This analysis will also make clear which supervisors are most
involved, which information is most relevant to be gathered and
exchanged, and which organisational form of co-operation is most
practical.
In particular where the group environment is large and complex, it
will be necessary to consider carefully and limit both the amount
of information gathered and the exchange thereof.
In such cases it will be practical if a small number of key
supervisors have more intensive supervisory contacts, and if the
exchange of information focuses on noteworthy exceptions which
give rise to supervisory concern rather than on confirmation of
standard issues.
The next step for the Co-ordination Committee is to agree on how
the co-operation and co-ordination process as far as the
supplementary supervision is concerned will be arranged, taking
into account the group structure.
Often, in practice, it will be useful for the members of the
Co-ordination Committee to agree on one or more supervisors acting
as key co-ordinator(s).
The role of the key co-ordinator is to arrange and manage the
co-ordination of the activities necessary to carry out the
supplementary supervision. The key co-ordinator will in practice
chair the meetings of the Co-ordination Committee.
The key co-ordinator does not, however, assume any of the
responsibilities for supplementary supervision from other
supervisors, as indicated in Article 4.2 of the Directive.
The responsibility for the exercise of the supplementary
supervision thus remains with the competent authorities of the
Member States in which the insurance undertaking subject to
supplementary supervision has received official authorisation.
Although the supervisors involved share a mutual duty to
co-operate as far as the supplementary supervision is concerned,
in practice it will often be useful to strive for one of the
supervisors to carry out most or all of the supplementary
supervision, and assume the responsibility to do so, whenever the
Directive leaves a choice in that respect.
This supervisor will be called the lead supervisor
for
supplementary supervision (further: lead supervisor) .
The lead supervisors will share its findings with the other
supervisors in the Co-ordination Committee.
In practice the supervisors involved may wish to appoint as the
lead supervisor, the supervisor of the Member State where the
dominant insurance undertaking of the group, for example in terms
of premium income, is established.
However, a lead supervisor can only be appointed if there is
unanimity within the Co-ordination Committee.
Equally, depending on the group structure, the Co-ordination
Committee may decide to appoint two (or more) joint lead
supervisors. In practice, it will often be preferable if the lead
supervisor, if any, will also be chosen to chair the Co-ordination
Committee, and act as key co-ordinator.
The supervisors acknowledge and are fully aware that, as indicated
in article 4.1 of the Directive, the responsibility for exercising
supplementary supervision will, as a starting point, have to
remain with the competent authorities of the Member State in which
the insurance undertaking has received official authorisation.
Article 4.2 of the Directive specifies in which cases the
competent authorities of the Member States concerned may reach
agreement as to which of them will be responsible for exercising
supplementary supervision.
More generally, the supervisors acknowledge that any arrangements
made must be within the scope of the Directive.
The Co-ordination Committee will be the co-ordination platform,
irrespective of whether the members of the Committee have agreed
on the election of a key co-ordinator or a lead supervisor.
The Co-ordination Committee will not only agree on the
organisational form of supplementary supervision as described
above, but also on how the information gathered will be exchanged,
in which form and at which frequency.
Such supervisory information will then be discussed further in the
Co-ordination Committee.
Furthermore, without prejudice to the responsibilities of the
supervisors involved under their national legislation, the
Committee should discuss and co-ordinate any measures, if
necessary, to be taken by the relevant competent authority against
any insurance undertaking being part of a group, both in regular
and emergency situations.
The Co-ordination Committee will meet as often as the members deem
necessary.
The members of the Co-ordination Committee may wish to lay down
any arrangements on the supplementary supervision in written
bilateral or multilateral agreements, addressing both the regular
and any emergency situations.
In case an insurance undertaking and either a credit institution
as defined in Directive 77/780/EEC or an investment firm as
defined in Directive 93/22/EEC, or both, are directly or
indirectly related or have a common participating undertaking,
staff members of the relevant banking or securities supervisors
should at least be invited to attend the meetings of the
Co-ordination Committee, or may become full members.
Without prejudice to their respective responsibilities, and within
the limits of the rules on professional secrecy, those authorities
shall provide one another with any information likely to simplify
their task.
In case the insurance undertaking subject to supplementary
supervision belongs to an insurance group or a financial
conglomerate in which also companies established in
non-member-countries participate, the insurance, banking and/or
securities supervisors of the latter countries may, if
practicable, and within the limits of the rules on professional
secrecy, also be invited to participate in the meetings of the
Co-ordination Committee.
In practice, it may also prove efficient if the meetings of
Co-ordination Committees concerning different insurance groups, in
which the same supervisory staff are represented, can be combined.
Content of supplementary supervision
The competent authorities shall communicate to one another on
request all relevant information which may allow or facilitate the
exercise of supervision pursuant to the Directive and shall
communicate on their own initiative any information which appears
to them to be essential for the other competent authorities.
The supervisory authorities acknowledge that the supplementary
supervision, and thus the co-operation and co-ordination, will not
limit itself to the two specific issues addressed in the
Directive, i.e. the supervision of intra-group transactions and
positions, and the additional adjusted solvency calculations
alternatively the method of supplementary supervision provided for
in article 10 of the Directive, but extends to the gathering and
sharing of any information which they feel is of assistance in the
exercise of adequate supervision.
Supervision on intra-group transactions and positions
The supervisor, or supervisors, which carry out the supplementary
supervision on an insurance undertaking3, as agreed by the
Co-ordination Committee, shall include in its supervision the
transactions and positions between this insurance undertaking and:
(i) a related undertaking of the insurance undertaking;
(ii) a participating undertaking in the insurance undertaking;
(iii) a related undertaking of a participating undertaking in the
insurance undertaking;
(iv) a natural person who holds a participation in:
(i) the insurance undertaking or any of its related undertakings;
(ii) a participating undertaking in the insurance undertaking;
(iii) a related undertaking of a participating undertaking in the
insurance undertaking;
These transactions and positions concern in particular:
- loans;
- guarantees and off-balance-sheet transactions;
- elements eligible for the solvency margin,
- investments;
- reinsurance operations;
- agreements to share costs.
The supervisory authorities agree that, whilst the Directive
refers to transactions between the insurance undertaking and the
other parties mentioned, it is necessary to include in their
supervision both intra-group positions and transactions, i.e.
changes in positions.
The supervisor(s) exercising the supplementary supervision as
agreed by the Co-ordination Committee will require the insurance
undertakings concerned to submit at least annually a report
containing all significant transactions and positions as outlined
above.
This report will in principle be distributed to all members
of the Co-ordination Committee.
If, on the basis of this information on intra-group transactions
and positions, it appears that the solvency of an insurance
undertaking is, or may be, jeopardised, the competent supervisory
authority, i.e. the supervisor responsible for the “solo”
supervision on the insurance undertaking, shall take appropriate
measures at the level of that insurance undertaking.
The
Co-ordination Committee, however, should without delay, and if
possible beforehand, without prejudice to the responsibilities of
the supervisors involved under their national legislation, discuss
and co-ordinate any such measures taken by the relevant competent
authority.
Adjusted solvency calculations and calculations prescribed by
article 10 of the Directive.
The Co-ordination Committee will agree on which supervisor or
supervisors carry out the supplementary supervision as prescribed
by the Directive, whenever the latter leaves a choice.
All members
of the Co-ordination Committee will be adequately informed of the
calculation method applied and the outcome of the calculations.
If the outcome of the adjusted solvency calculations is negative,
or if the calculations prescribed by article 10 of the Directive
make the competent authorities conclude that the solvency of the
insurance undertaking is or may be jeopardised, the competent
supervisory authority, i.e. the supervisor responsible for the
“solo” supervision on the insurance undertaking, shall take
appropriate measures at the level of the insurance undertaking.
The Co-ordination Committee, however, should without delay, and if
possible beforehand, without prejudice to the responsibilities of
the supervisors involved under their national legislation, discuss
and co-ordinate any such measures taken by the relevant competent
authority.
Further co-ordination and co-operation
Where insurance undertakings established in different Member
States are directly or indirectly related or have a common
participating undertaking, the supervisors of each Member State
shall communicate to one another on request all relevant
information concerning a member of the group which may allow or
facilitate the exercise of the supplementary supervision and shall
communicate on their own initiative any information which appears
to them to be essential for the other supervisors.
The supervisor(s) exercising the supplementary supervision as
agreed by the Co-ordination Committee will communicate to all
supervisors involved his (their) needs for data and information
for the purposes of the supplementary supervision.
The supervisors
involved will take, within the limits of their jurisdiction, the
necessary steps to ensure that the insurance undertakings provide
such data and information.
The Co-ordination Committee could extend its work along the lines
as described in e.g. the IAIS paper4 “Supervisory Standard on
Group Co-ordination” or the Joint Forum “Co-ordinator Paper”.
In particular, the Committee could take into consideration to work
along the lines of the “Co-ordination catalogue” of the Joint
Forum paper in order to achieve an “overall assessment” of the
performance of the group, i.e. producing an understanding and
evaluation of the group in terms of its formal and operational
structure, business strategy, skills and propriety of management,
main internal systems, internal controls and auditing processes,
financial resources including solvency and liquidity, the overall
risk profile and the risk management of the group.
The
Co-ordination Committee could agree on an allocation of the
various tasks, and share and discuss the findings of the
supervisors involved.
Furthermore, the Co-ordination Committee should aim to agree on
the information which should at least be exchanged by all members
of the Committee. In particular, the following items may be useful
for other supervisors:
- A negative result on the inquiry into the good repute,
competence and professional experience of managers;
- Any granting or withdrawal of authorisations;
- Changes on the management board of any undertakings involved;
- Measures considered or taken by a supervisor which can have an
influence on other group members;
- Solvency concerns or problems concerning (one of) the members of
the group, e.g.:
- financial problems which could lead to the drafting of financing
schemes with regard to a member of the group;
- financial problems which could lead to winding-up of a member of
the group;
- the declaration of emergency settlements;
- the freezing of assets.
- The granting of declarations of no objection or licences to one
of the members of the group in order to allow a major acquisition
leading to a qualified participation in another insurance
undertaking, or other financial undertaking;
- (Other) major acquisitions by one of the members of the group.
Prerequisites for supplementary supervision
In order to exercise the supplementary supervision some
prerequisites concerning the availability and quality of data and
information have to be fulfilled.
Internal control mechanisms
The competent authorities of the Member State in which the
insurance undertaking has received official authorisation shall
require that every insurance undertaking subject to supplementary
supervision shall have adequate internal control mechanisms in
place for the production of any data and information relevant for
the purposes of supplementary supervision. Some of these data and
information may originate from subsidiary undertakings of the
insurance undertakings, parent undertakings, or subsidiary
undertakings of a parent undertaking of the insurance undertaking.
The competent authorities shall require that such information
shall be of sufficient quality, can be made available in the form
most suitable for the purpose of supplementary supervision, and in
a timely manner.
Access to information
The supervisor, or supervisors, responsible for exercising
supplementary supervision as agreed by the Co-ordination
Committee, shall have access to any information relevant for the
purpose of the supplementary supervision.
In order to execute
their tasks, the supervisor(s) concerned may address itself
(themselves) directly to related undertakings of the insurance
undertaking, participating undertakings in the insurance
undertaking and related undertakings of a participating
undertaking in the insurance undertaking, only if the necessary
information has been requested from the insurance undertaking and
has not been supplied by it.
Notwithstanding and without prejudice to the right of access to
information provided by the Directive, the supervisor or
supervisors responsible for exercising supplementary supervision
will, in accordance with article 2.3.3., second paragraph, of this
Protocol, co-operate closely with the “solo” supervisor in
relevant Member States.
The supervisor(s) responsible for
exercising supplementary supervision will communicate to the
“solo” supervisor(s) involved his (their) needs for information
for the purposes of supplementary supervision.
In order to ensure
access to information relevant for the supplementary supervision,
the “solo” supervisors involved will take, within the limits of
their jurisdiction, the necessary steps to ensure that the
undertakings involved provide such data and information. However,
within the Co-ordination Committee further arrangements with
regard to the right of access to information can be made. In all
cases, the “solo” supervisor will be kept fully informed of any
actions and findings.
Verification of information
Where the supervisor of one Member State wishes in specific cases
to verify important information concerning an undertaking situated
in another Member State which is a related insurance undertaking,
a subsidiary undertaking, a parent undertaking or a subsidiary of
a parent undertaking of the insurance undertaking subject to
supplementary supervision, they must ask the supervisor of that
other Member State to have that verification carried out.
The
supervisors that receive such a request must act on it within the
limits of their jurisdiction by carrying out the verification
themselves, by allowing the authorities making the request to
carry it out or by allowing an auditor or expert to carry it out.
The supervisors involved may reach agreement on carrying out the
verification by a joint team of staff members.
In all cases, the “solo” supervisor will be kept fully informed of
any actions and findings.
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