Solvency II and Co-Cos (Coordination Committees) / Colleges of
Supervisors
Welcome to the June 2010 edition of the Solvency ii
Association newsletter
Dear Members,
Today we will try to understand more the
Co-Cos, in order to understand the transformation process for
Coordination Committees (Co-Cos) into the Colleges of
Supervisors under Solvency II framework.
The name Coordination
Committees (Co-Cos) was formally changed into the
Colleges of Supervisors
in January 2010.
This
change reflects common international standards and, more
importantly, the commitment of CEIOPS and its Members to ensure
a smooth transition from Solvency I to Solvency II, under which
Colleges of Supervisors will have
additional tasks to perform.
Further, in 2010
CEIOPS foresee an outline of a
transformation process for Co-Co’s into the Colleges of
Supervisors under Solvency II framework and also within
the new supervisory structure.
By the beginning of 2011, CEIOPS
also aims (surprise, surprise) to put in place a common IT tool
for ensuring safe and timely communications within Co-Co’s.
Breaking News
1. South Africa follows the
Solvency II principles. The country’s Financial Services
Board’s (FSB) announced its solvency
assessment and management (SAM) regime, based of the
principles of Solvency II and the International Association of
Insurance Supervisors, to "remain in line with international
standards".
This is an excellent decision, and it proves that South
Africa takes its role as a member of the G–20 and the Financial
Stability Board very seriously.
2.
Singapore, Taiwan, Japan, South Korea, Chile and Mexico
also develop frameworks based on the same principles. It is
interesting that The Comisión Nacional de Seguros y Fianzas
(CNSF), the regulators of the Mexican insurance sector, have
decided to implement its own Solvency II based approach by
January 1, 2012, well before the Solvency II implementation in
the EU.
Understanding Co-Co’s
Guidelines for Coordination Committees in
the Context of Supplementary Supervision as Defined by the
Insurance
Groups Directive (98/78/EC) - February 2005
1. Introduction
The directive on the supplementary
supervision of insurance undertakings in an insurance group
(Directive 98/78/EC, Insurance Groups Directive, IGD)
lays down regulation on how Supervisory Authorities in EEA
Member States shall cooperate in supplementary supervision of
insurance groups with undertakings in more than one Member
State.
The aim of the IGD is to make insurance supervisors more
equipped in assessing the solvency of an insurance undertaking
which forms part of an insurance group.
The adoption of the IGD calls for a more frequent,
higher level of cooperation between supervisors.
In 2000 the Helsinki Protocol was established to address this
issue and was signed by all Member State Supervisory
Authorities.
The Protocol encourages and facilitates practical cooperation
between relevant Supervisory Authorities regarding supplementary
supervision.
It states that cooperation should be facilitated
through the organization of Coordination
Committees (Co-Cos).
The Co-Cos should generally consist of
staff members who are, within their Supervisory Authorities,
responsible for the day-to-day supervision of the insurance
group undertakings established in their state.
To facilitate the aims of the IGD and the Protocol, the
Helsinki Protocol Working Group (HPWG) [Now named Insurance
Group Supervision Committee] was formed under the EU Conference
of Insurance Supervisors (now CEIOPS) with the task of
assessing how best to implement the objectives of the IGD on a
practical level, while also examining other issues which arise
as a result of the IGD implementation.
These Guidelines, prepared by the Insurance Groups
Supervision Committee (IGSC, former HPWG), build upon the
general framework laid down in the Helsinki Protocol.
They will serve as a tool for those supervisors participating in
the Co-Cos.
The Guidelines are supplemented by the literature and reference
list specified at the end of this document and should be
considered in light of the views expressed in these documents,
rather than in isolation.
The purpose of the Guidelines is to
ensure consistency regarding supplementary supervision as well
as increasing the level of efficiency and effectiveness of the
work of the Co-Cos.
The Co-Co members are
asked to pay
notice to the Financial Conglomerates Directive (Directive
2002/87/EC) of 16 December 2002 on supplementary supervision of
financial conglomerates.
The Directive is not directly applicable to insurance groups,
but may, for certain areas, indicate a best practice for
supplementary supervision of groups.
2. Purpose of Coordination Committees
2.1. Members of the Co-Co
There is one Co-Co for each and every
insurance group operating in more than one EEA-country.
The Co-Co members are representatives of the Insurance
Supervisory Authorities in the Member States in which the Group
has undertakings, and would normally be responsible for the
day-to-day supervision of the Group in their state.
2.2. Supplementary supervision
The Co-Co handles supervisory issues which are
supplementary to the national supervision
of home Member State legal entities.
The supervisors acknowledge and are fully aware that the
responsibility of exercising supplementary supervision will,
initially, remain with the competent authorities of the Member
State in which the insurance undertaking has received official
authorization (solo supervision).
Insurance groups
may consist of one or
more subgroups.
Supervisors within the EEA generally recognize that
supplementary supervision of subgroups may
be waived, when there is satisfactory supplementary supervision
carried out at a group level.
However, it is still within the powers and
responsibilities of the affected Supervisory Authorities to
carry out supplementary supervision at any subgroup level.
A Supervisory Authority should check carefully whether subgroup
supervision is essential in order not to place unnecessary
burden on the group.
It may e.g. deem such supervision necessary if the subgroup is
in a stressed financial situation, or if the subgroup has a
large market share in one country or region (affecting orderly
financial markets).
The Co-Co may avoid double reporting and
reduce the burden on the Group by agreeing on one point
for the
collection of all information at all levels of the
group (please see also Chapter 4.6. which makes a suggestion on
such coordination regarding reporting of solvency calculations).
The IGSC would like to emphasize that the main purpose and
the focus of the Co-Co is to be on the solvency and financial
stability of the Group.
Supplementary supervision should focus primarily on the
capital issues, including solvency, intra-group transactions and
exposures and internal control and risk management within the
Group.
In order to ensure this focus, the Co-Co
is expected to have an overview of the strategic plans and
events of the Group in question.
The Supervisory Authorities acknowledge however that
supplementary supervision will not limit itself to specific
issues addressed in the Directive but extend to the gathering
and sharing of any information that may be of assistance in
supplementary supervision.
Many groups have complex legal or organizational structures and
simply adding individual or country risks together will not
always show the complete risk profile for the whole group.
The Co-Co approach provides a valuable
opportunity to carry out some additional qualitative
consolidated
supervision at the level of the Group Holding
Company.
To achieve the above-mentioned aims, the Co-Co is expected
to exchange information and coordinate efforts in order to
assess the total financial situation of the Group.
In particular, it is expected that the
Co-Co will
- anticipate and/or uncover
possible financial problems which may arise within the insurance
group;
- attempt to find solutions to these problems as
quickly as possible;
- recognize financial engineering within the Group.
In order to fulfill its tasks, members of the Co-Co must
achieve a shared appreciation of the risk carried by the Group.
The success of the Co-Co will depend on
enhanced communication between supervisors on the supervision of
the given insurance group.
It is extremely important that Co-Cos work with up-to-date
information, and should ensure that information is exchanged as
frequently as necessary.
Rather than face-to-face meetings, it may prove sufficient to
exchange information by other channels,
including the use of telephone conference, video conference,
email and letter.
The Co-Co may find it advantageous to arrange face-to-face
meetings for more complex groups, for an initial meeting, or for
extraordinary circumstances (e.g. crisis).
The IGD states that with regard to financial conglomerates,
the Co-Co will cooperate with authorities responsible for the
supervision of other financial sectors, in order to ensure more
efficient solo-plus supervision.
2.3. Key Coordinator and Lead
Supervisor
It may be useful for
the Co-Co to agree on one or more supervisors acting as Key
Coordinator(s), whose role will be to coordinate the
activities necessary to carry out the supplementary supervision.
The Co-Co may decide that a Lead
Supervisor shall have a key role in pulling together
relevant information, analyzing it, and disseminating his or her
conclusions to the
other members of the
Co-Co.
As a general rule, such a Lead Supervisor can only be appointed
if there is unanimity within the Co-Co.
The experience so far is that no major
problems have occurred in appointing such a Lead Supervisor.
A failure to reach such an agreement should be brought forward
to CEIOPS.
If a Lead Supervisor is appointed, it should, for the sake of
good order, also be chosen to act as Key
Coordinator.
The Lead Supervisor role is not supposed to duplicate or replace
home country supervision of solo entities.
But the existence of the role may facilitate the evaluation of
the overall strength of the Group.
Simply aggregating issues from solo entities within a group may
not give a wholly accurate picture of how
individual entity
or country risks work together to create, or mitigate, risks for
the whole group.
To the extent it is necessary for the Lead
Supervisor to discuss with local entity management in
other countries how those entities interact with the wider
group, this should be coordinated by the local Supervisory
Authority.
2.4. The handling of confidential
information
The
exchange of
information between Supervisory Authorities is essential for the
successful supplementary supervision across borders.
Internet and email facilitate such exchange.
However, these tools for communication may challenge our ability
to ensure the security of confidential and sensitive
information.
There is
no uniform European law
regulation on confidential information.
It is still our duty as Supervisory Authorities to ensure the
safe handling of confidential information.
Each and every member of the Co-Co
must therefore carefully consider the consequences of
unintentional divulgence of information communicated by email or
other means.
Supervisors participating in Co-Cos
are encouraged to make arrangements to facilitate the use
of encrypted emails.
Furthermore, the Co-Co members should be aware that different
Member States may have different regulation with regard to what
information should be considered confidential (e.g. some Member
States may enclose solvency requirements, while others do
not).
3. Preparation for meetings
Thorough preparation is essential in order to
accomplish relevant and fruitful
discussions and conclusions.
Prior to the meeting, the Lead
Supervisor/Key Coordinator should set out a clear
statement of the expected outcomes of the meeting and send this
for comment to all participants.
An agenda of the meeting, sent out 2-3 weeks in advance, should
clearly state which issues are going to be discussed, why these
items are being discussed and what will be expected from the
other members during the
discussion (e.g. roundtable).
Minutes/a summary of the last meeting should be agreed upon few
weeks after the meeting, to ensure that all points raised have
been followed up and addressed.
Brief discussion notes for the more technical agenda items
should be distributed prior to the meeting.
Such discussion notes may prevent language problems and ease
preparation by each member, thereby improving the level of
discussion.
Copies of presentations being given at the Co-Co meeting
should be circulated to delegates before the meeting in order to
facilitate questions and discussions after the presentation.
Each Co-Co should decide its own
agenda, in advance of the meeting, taking into account the
specific circumstances of the group concerned.
However, as a minimum, it is suggested that the Co-Co needs to
have an understanding of the issues listed below, which are
discussed in more detail in the subsequent chapter (“Content of
the meeting”):
- Structure and strategy of the
Group;
- Internal control mechanisms
and risk management processes of the Group;
- Capital issues (availability,
allocation, limitations on transferability);
- Adjusted solvency calculations
for the Group;
- Intra Group Transactions and
exposure.
In some cases it may be appropriate to contact the insurance
group in advance of the Co-Co meeting, in order to obtain
information which will aid discussion.
This can be done for example through a questionnaire.
If a face-to-face meeting is arranged, it may also be
appropriate to invite the Group to contribute in the
meeting.
An invitation to an insurance group to
contribute in the meeting should be forwarded in due time to the
insurance group (attn. head office or board of directors),
including an agenda for the meeting, indicating to which
topic(s) the
Group is expected to contribute.
However, please note that supervisors should always have a
separate and closed session for internal discussions, without
the insurance group being present.
A presentation by the insurance group ought not to occupy
most of the meeting.
Language may be a practical interference in the smooth
cooperation and exchange of information within the Co-Co.
For example, reports or other information from the insurance
group which are relevant to all Co-Co members
may be
submitted in a language not understood by all Co-Co members.
The Key-Coordinator/Lead Supervisor should
endeavour to ensure that reports or other information is
submitted in, or translated to, a language understood by all
members in the Co-Co of that insurance group.
If the insurance group in question is part of a financial
conglomerate, the Co-Co must consider how it is relevant to
establish cooperation with Supervisory Authorities of the other
financial sectors.
4. Content of
the meeting
4.1. Agreements within the Co-Co
The Co-Co may wish to
lay down any
arrangements on supplementary supervision in written
multilateral agreements, which should address both regular and
emergency situations, including dealing with potential conflicts
of interest.
Of further use may be the agreement of a working plan,
indicating frequency and form of meetings, how to share
information on a continuous basis, etc.
4.2. Crisis situations
An
insurance undertaking in crisis can be defined as potentially
being partially or totally unable to settle its claims and to
pay to its policy holders their benefits.
The handling in crisis situations is a
delicate issue, and trust within the Co-Co is a key word.
Conflicts of interests between members of the Co-Co may arise,
particularly in such situations.
A crisis situation may be identified for an undertaking
within an insurance group by one Supervisory Authority.
The supervisor responsible for the “solo” supervision of the
insurance undertaking shall take the appropriate measures and
inform the other members of the Co-Co on a timely basis, and if
possible beforehand of the measures taken.
If necessary, a crisis meeting of the
Co-Co can be arranged in order to coordinate the measures taken
and evaluate the effects of such action within the group itself.
To avoid these situations as far as possible and to be fully
prepared for any action that may be required, the Co-Co should
analyse beforehand any crisis situation that may arise and any
potential conflicts of interest.
Furthermore, the Co-Co should agree on a
specific emergency plan, including cooperation and coordination
in these kinds of situations.
The emergency plan should be based on the specific risks of the
insurance group.
It may be natural for the Co-Co to agree that crisis situations
regarding an insurance group should always involve
the top
level of the Supervisory Authorities.
In a crisis
situation some of the available information on the insurance
group could be commercially or market sensitive.
The Co-Co should consider alternative forms of communication,
avoiding use of email transmission.
The Co-Cos are encouraged to study the Brouwer Report on
financial crisis management in order to plan and execute crisis
management.
4.3. The insurance group
-
Mapping of the insurance group, including information on recent
mergers, acquisitions, closures, etc;
- General strategy of the insurance group.
4.4. Internal control mechanisms and
risk management processes
The IGD (Art. 5) requires
insurance undertakings to have in place adequate internal
control systems.
The Financial Conglomerates Directive
(Art. 9) is more comprehensive, and the Co-Co is encouraged to
study the requirements for financial conglomerates and include
at Group level, where appropriate, supervision related to risk
management processes and internal control.
CEIOPS has issued a Document on “Internal Control for
Insurance Undertakings” (December 2003) that may provide useful
information for supervisors when assessing the internal control
systems implemented by the insurance undertakings or insurance
groups.
The internal control and risk management frameworks of
groups are likely to vary considerably particularly in relation
to the amount of local management of risk in solo entities as
opposed to group management of the risk.
Experience suggests that failure of group management to have a
complete perspective on the risks that could arise from
operations in countries other than the country in which it is
based, can have significant negative repercussions.
The
Co-Co may therefore decide to
devote some time on the internal control and risk management
systems the insurance group has implemented, and how they seem
to work.
To do so, the Lead Supervisor may have a general top-down
approach, supplemented with the input from solo supervision from
the other members of the Co-Co, as solo supervision may have
revealed deficiencies
(or adaptability) of the system used at
the level of the individual undertakings.
It is recommended that within the
internal control and risk management framework, the Co-Co should
look at the specific group-relevant risks in more detail,
including for example the reinsurance program, distribution
channels used in the different countries, the investment
policies applied or the extent to which internal audit follows
an audit plan applicable at group level.
The Co-Co should furthermore be looking at how the management
information systems contribute in giving the management and the
board a reliable and global view of the real situation of the
group as a whole.
The Co-Co should also be reassured that
clear lines of responsibilities should exist in the different
areas and entities within the group.
To ensure an efficient process, the papers submitted to the
Co-Co members ahead of a meeting should include the Lead
Supervisor's assessment of the overall standard of corporate
governance within the Group.
An assessment should take into account the
conclusions of the CEIOPS-paper referred to above.
In order to carry out the assessment, the Lead Supervisor
may need information about the activities and strategies of solo
entities that would not normally be necessary for solo
supervision.
This might, for instance, include a discussion of how the solo
entity interacts with Group Head Office or the extent to which
Group Head Office carry out work in the solo entity for wider
Group management purposes.
A Lead Supervisor and relevant solo supervisor should agree what
additional information is required and how it should be
collected.
Lead and solo supervisors are encouraged to collaborate in the
gathering and assessment of the information as far as possible.
The Co-Co
may consider it to be
appropriate to ask the insurance group itself to give a
presentation on its internal control, risk assessment and
corporate governance arrangements in general to the Co-Co.
4.5. Capital
The Co-Co
should consider different aspects of the capital available to
the Group as a whole and to the different undertakings within
the Group.
To assist the Co-Co, please find below a
list of questions which may be a basis for further discussion.
- Is the overall capital of the
Group of adequate quality (the quantity issue will be addressed
in Chapter 4.6.). Or is it perhaps over-reliant on debt or
hybrid capital?
- Does the Group have the ability to raise additional
capital, and where might it be able to source this from?
Even if it may be delegated to the Lead Supervisor to prepare
input to this question, this is an area where
the Lead
Supervisor and local supervisor may work more effectively
together, as the Lead Supervisor will know the Group appetite
for capital and the solo supervisor will know the possibilities
for raising it.
- How does the Group allocate capital around the
Group?
- Is it possible to transfer capital around the Group
(e.g. through intracompany loans, reinsurances, dividends etc)
and how aware are local supervisors of the possibility that this
might limit the capital available in future to their undertaking
(again an area where local supervisors can work effectively with
a Lead Supervisor to mutual benefit).
4.6. Solvency
To avoid
"double gearing" or "counting" of solvency capital within an
insurance group, the IGD requires the reporting of group
adjusted solvency calculations.
The Member States shall, according to the IGD,
provide that the calculation is carried
out on behalf of all undertakings belonging to an insurance
group by the parent company, and according to one of the three
methods approved.
The IGD also allows that each regulator
can request the same calculation for entities under their direct
supervision, but any unnecessary bureaucratic burden will be
avoided.
The Co-Co should be aware that the IGD allows Member States
to waive calculation of the group adjusted solvency of an
insurance undertaking, if national legislation so provides.
Such a waiver can be given if the calculation of group adjusted
solvency is exercised in another Member State for the insurance
group to which the undertaking belongs.
To facilitate the avoidance of double
reporting by the insurance group, the Co-Co should
coordinate/map the reporting requirements of each Member State
participating in the Co-Co and hence agree from which
undertakings within the insurance group an Adjusted Solvency
Margin should be required.
In principle, the method used will be the compulsory one in the
country where the head office is located.
All supervisors may of course, request
additional information from the Group and/or from
individual entities under their direct supervision.
In order to ease burden of reporting, the request for
information regarding the Group should be coordinated through
the Lead Supervisor/Key Coordinator, while information requested
from one supervisor regarding an entity under its direct
supervision may be handled by that supervisor.
To aid both the insurance groups themselves and the Co-Cos,
the IGSC recommends the following:
The ultimate parent of the Group could present a submission,
which would follow a specified format, to the Lead
Supervisor/Key Coordinator who would, in turn, forward this
information to all members of the Co-Co.
This means that all supervisors receive the same information
thus facilitating discussion and conclusions of the Co-Co on the
Group.
- The Group Adjusted Solvency
Margin could be calculated by the ultimate parent of the Group.
The ultimate parent will have full access to all necessary
information required to complete the Group Adjusted Solvency
Margin at all times.
- It would be stated in both percentage and financial
terms.
- The method of calculation must be clearly stated.
For convenience, the ultimate parent would calculate the Group
Adjusted Solvency Margin according to the method chosen by the
Member State in which the ultimate parent is located, that is,
the Member State of the Lead Supervisor.
It must be stated which of the methods are
used.
- There would follow an exact
calculation of the Adjusted Solvency Margin (in list format)
stating:
o the items used and
o the financial amount of that item which related to the
Group
Adjusted Solvency Margin calculation.
The reason for this is that certain items may be allowed
under the solvency margin rules of some countries and not by
others, e.g. future profits, hence full disclosure of items and
amounts relating must be made.
- If a waiver is granted by the
Lead Supervisor, this should be stated by the ultimate parent,
along with
o the reason for the waiver,
o whether it is a short or long term state of affairs,
o the corrective measures being put in place and
o the item and amount of said item which is contributing to
the Group Adjusted Solvency Margin.
- The submission to the Lead
Supervisor/Key-Coordinator would also include any changes in the
Group structure, such as new subsidiaries, selling of companies,
companies in run-off, joint ventures and an updated Group
map.
It should be signed by the Management/Board of Directors of the
ultimate parent company of the insurance group.
- Each supervisor could state
the solvency % of the individual entities under their
supervision for the past three years.
This would not necessarily involve a presentation, merely a
figure.
The idea would be to monitor trends within the Group and its
respective entities.
It would also serve to highlight entities showing financial
solvency weakness, both on a once-off and continuous level.
It would also help facilitate a discussion of the location of
capital within the Group and any restrictions on its
transferability.
4.7. Intra Group Transactions
Art. 8 of the IGD stipulates that Member States shall provide
that supervisors exercise
general
supervision over transactions between an insurance undertaking
and participants of the insurance group.
If it appears that the solvency of the insurance undertaking is,
or may be, jeopardized, the supervisor shall take
appropriate
measures at the level of the insurance undertaking.
Therefore, a particular attention must be paid to problems
outlined below.
Intra Group Transactions (IGTs) concern in particular:
- Loans;
- Guarantees and
off-balance-sheet transactions;
- Elements eligible for the
solvency margin;
- Investments;
- Reinsurance operations;
- Agreements to share costs.
As such they often provide valuable information on how
capital resources are moved around the Group.
IGTs and the resulting level of exposure may constitute a
risk to an entity belonging to a group, due to the risk of
contagion and because the management of undertakings within a
group may lack sufficient autonomy to protect
policyholder
losses.
Where
all entities of an insurance
group only operate in the domestic market, supervision is the
responsibility of the home Member State, which includes receipt
of information relating to IGTs.
Entities within multinational insurance groups (i.e. where
entities within a Group operate across various Member States)
may make transactions within the group that effect the solvency
of entities situated in other Member States.
As a consequence of this, it is paramount that the Co-Co focuses
on IGTs on a high level in the group.
The extent to which solo undertakings can act independently
of the group, only in accordance with group instructions or
somewhere between these extremes, will vary from group to group.
Also here, discussions with both group and local management may
be relevant in order for a Lead Supervisor to make a proper risk
assessment.
Interconnection within a group is important
because it will show the potential for contagion if problems
arise in one or more parts of the Group.
Most Co-Cos will have access to a Group structure chart showing
the ownership linkages between the different members of the
Group.
In many instances it may be possible to map also into the main
IGTs.
This will give an, at glance, diagrammatic analysis of the
interconnection of the Group and enable the Co-Co to more
quickly reach agreement on where the key areas of vulnerability
are.
This will help facilitate discussion of how to address those
vulnerabilities.
It will also help the Co-Co to reach a
conclusion about how easy it is to understand the Group
corporate structure.
High volumes of transactions of negligible financial amounts or
with the same counterparty can also constitute a risk and
therefore prove to be worthy of note.
Furthermore unusual transactions and transactions which are
not at arms length or on a cost basis may become evident.
The selling or buying of Group companies, or parts thereof, the
selling of significant parts of the portfolio and
transactions related to tax management are examples of unusual
transactions.
The IGD refers to the reporting of ‘significant’
transactions.
There are differences regarding the precise meaning of
‘significant ‘in national legislation of Member States, and
furthermore ‘significant’ will vary from one group to another.
For the supervisors and the Co-Co it can be very helpful to know
what management of the undertakings or the Group has determined
as being ‘significant’.
Ultimately, the determination of which transactions are
significant for the Group will be the responsibility of the
Co-Co, taking into account the specific risk profile of that
Group.
Examination of IGTs
in the context of
supplementary supervision depends upon sharing and exchanging
information among supervisors if threats to solvency at
insurance-group level are to be identified.
Monitoring of IGTs can highlight financial engineering within a
Group as well as drawing attention to any
deterioration of
solvency margins of entities within the Group – even if this
deterioration only applies for a short length of time.
The examination of IGTs can be a useful tool for supervisors if
the appropriate information is gathered and
examined as
individual transactions and trends arising from transactions can
be revealing.
The structure and interconnection
of the Group should be discussed in the light of the
potential risks resulting from transactions and the resulting
level of exposures.
These risks may include conflicts of
interest and/or contagion leading to the solvency of
undertakings and hence the interests of the policyholders, being
jeopardized.
A thorough understanding of the specific potential risks of
the Group will enable the Co-Co to comprehensively discuss the
level of supervision needed to monitor these risks and to decide
on the information needed to fulfill its task.
Attention should be given to how entities
within the Group control their own IGTs.
The following can be examined in conjunction with the Group Map
(see point 4.3.) and may identify paths of major IGTs and levels
of connectivity among specific entities within the Group:
- The number of IGTs and the
amount of each transaction or sum of specific transactions;
- The reason for the transaction;
- The terms of the transaction (loans, etc);
- Trends should be noted – e.g – are IGTs more
frequent at particular times of the year, or between particular
entities? How many loans may a company have or how much of the
loan must be repaid before further loans are
refused?
- Concerns raised by members on IGT-issues resulting
from “solo supervision” should be discussed;
- Measures taken by the individual competent
authorities towards an undertaking of the insurance group
regarding IGTs should be discussed and, where appropriate,
coordinated;
- Whether the extent of IGTs is so vast that there may
be reason to believe that there is a management problem.
IGTs may also be an issue for bilateral exchange of
information to supplement the solo-supervisor.
5. Tools available to Co-Cos
Member States have different approaches to
supervision and use different tools and methods for
supervision.
The Co-Co may consider any tool it may find appropriate to
enhance the supplementary supervision.
The Helsinki Protocol itself is a proper
reference as a tool for the Co-Co.
Below are examples of other tools
which the Co-Co may use for its
supplementary supervision of an insurance
group. Some
tools may be relevant to use regularly, while other tools will
be considered as strong measures and may be relevant to use only
in particularly stressed situations:
- Copies of the latest board
minutes may be requested from the companies within the
Group and/or the ultimate parent of the Group before the Co-Co
meeting;
- Latest report performed by
internal audit may be requested from the company before
the Co-Co meeting;
-
Meeting with top management of
the Group;
- Risk assessment models developed by supervisors;
- Exchange within the Co-Co of the national reporting
of significant IGTs;
- Brief mapping of different
legislation on specific issues may be carried out before
a Co-Co meeting;
- Communication with external auditor (e.g. regarding
IGTs);
- Insurance Groups Matrix/Contact List. The
secretariat of CEIOPS keeps this updated matrix of all relevant
EEA insurance groups and members of the corresponding Co-Cos.
- Other references (not to be regarded as an
exhaustive list of relevant papers)
o Insurance Groups Directive;
o
Financial Conglomerates Directive;
o Helsinki Protocol, 11 May 2000 (DT/NL/194/00), with later
amendments (see CEIOPS website)
o EU Economic and Financial Committee
(EFC/ECFIN/251/01-Final) “Report on Financial Crisis Management”
(“Brower-Report”);
o Joint Forum (doc. JF/02/17) “Corporate Governance and the
Use of the Audit and Actuarial Functions for Supervisory
Purposes, Cross-Sectoral Comparison”;
o Joint Forum - “Risk Management Practices and Regulatory
Capital” (November 2001);
o CEIOPS - Internal Control for Insurance Undertakings,
February 2004 (see CEIOPS website);
CEIOPS’ Advice for Level 2 Implementing
Measures on Solvency II: Cooperation and Colleges of supervisors
(former CP 62)
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).
Advice
3.1. Considering articles 248 and 249, the following issues
are identified in separate sub-sections in this advice:
a. Role of the College of Supervisors:
• Article 248 (1), lays out the rights and duties of the
group supervisor.
The Level 1 text grants no
decision-making powers to the College of Supervisors
A
College is a forum of exchange of
information and cooperation that has no legal character and
therefore can not itself take decision.
Decision
following discussion within the College is made by the relevant
supervisory authority.
• Level 2 implementing measures in
sub-section 3.1., the role of the College of Supervisors
b. Membership and participation in the
College:
• Article 248 (3, 1st and 2nd paragraphs)
states that membership to the College
shall include the group supervisor and 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 to
the colleges of supervisors.
• Level 2 implementing
measures in sub-section 3.2., the issue of the participation of
supervisory authorities of significant branches and related
undertakings with a focus on other financial sector supervisors
and third
country supervisors;
c. Organisation and establishment of Colleges:
•
Article 248 ((3), 3rd paragraph) states that
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.
• Level 2 implementing measures/ Level 3 guidance address,
in sub-section 3.3., the issue of the organisation and effective
functioning of the College, as well as an assessment of
effectiveness on the functioning of Colleges and an advisable
timetable for setting the Colleges. That setting will be based
on the current Coordination Committees when appropriate.
d. Coordination arrangements:
• Article 248 (4 and 5) state that the
establishment and functioning of Colleges shall be based on
coordination arrangements determined by the group supervisor,
following consultation with the supervisory authorities
concerned.
• Level 2 implementing measures in
sub-section 3.4., the issue of developing a convergent
framework;
e. Professional secrecy
and confidentiality:
• Article 253 states on
professional secrecy and confidentiality.
• Level 2
implementing measures.
• Nevertheless not explicitly foreseen
within the implementing measures, the safe
handling of confidential information was considered by CEIOPS
has a relevant issue needed to be addressed within Level 2
implementing
measures for cooperation and exchange of
information between supervisory authorities.
f. Cooperation and information sharing in
crisis situation:
• Article 249 (1) states that
supervisory authorities shall cooperate closely, including in
cases where an insurance or reinsurance undertaking encounters
financial difficulties.
• Level 2 implementing measures
in sub-section 3.6., how the supervisory authorities shall
cooperate in this situation.
g.
Possible issues for Level 3 guidance in 3.7
3.1. Role of the Colleges of supervisors
Explanatory text
3.2. The Level 1 text provides
for the establishment of a College of Supervisors, aiming at
facilitating group supervision.
3.3. The College of
Supervisors shall be a permanent platform for cooperation and
coordination dedicated to enhance the exchange of information
among supervisory authorities involved.
It will aim at facilitating exchange of information, views and
assessments among supervisors in order to allow for a more
efficient and effective group and solo supervision and timely
action.
The College of Supervisors will
enable supervisors to develop a common
understanding of the risk profile of the group as the starting
point for a risk based supervision at both group and solo level.
3.4. The college shall then specially strive to:
• Be a platform for cooperation and
coordination
• Enhance the exchange of information
•
Facilitate group-wide supervision
• Enhance solo supervision
• Facilitate convergence of supervisory practices
3.1.1. Platform for cooperation and coordination
3.5. The
College does not have any decision-making powers under the Level
1 text, so the establishment of the College cannot prejudice any
of the powers and responsibilities of the supervisory
authorities.
3.6. Nonetheless, CEIOPS believes that this
doe s not prevent the process facilitated by the College from
being based as much as possible on the consensual views reached
by supervisory authorities within the College. The process of
the College of Supervisors shall then strive to achieve
consensus/joint decision by supervisory authorities.
3.7.
On the issue of consensus/joint decision, the Level 1 text
already provides specifically in some articles for the need to
reach decision and consensus between supervisory authorities
concerned.
So, it is expected to be
a decision-making process within the
college in order to help that consensus/joint decision to
be reached. Such process should be included in coordination
arrangements (see 3.3), which could for example usefully provide
for identifying positions of each authority within the College.
List of Abbreviations you MUST be
familiar with:
3L3 Three Level 3 Committees
CEBS Committee of European Banking Supervisors
CEIOPS
Committee of European Insurance and Occupational Pensions
Supervisors
CESR Committee of European Securities
Regulators
Co-Cos Co-ordination Committees
CRD
Capital Requirements Directive
CP Consultation paper
EBA European Banking Authority
ECOFIN EU Council of
Ministers
EEA European Economic Area
EFC Economic
and Financial Committee
EFCC European Financial
Conglomerates Committee
EFRAG European Financial
Reporting Advisory Group
EIOPA European Insurance and
Occupational Pensions Authority
EIOPC European Insurance
and Occupational Pensions Committee
ESA European
Supervisory Authority
ESFS European System of Financial
Supervisors
ESMA European Securities and Markets
Authority
ESRB European Systemic Risk Board
EU
European Union
FCD Financial Conglomerates Directive
FINMA Swiss Financial Market Supervisory Authority
FSC Financial Services Committee
IAIS International
Association of Insurance Supervisors
IASB International
Accounting Standards Board
IFRS International Financial
Reporting Standards
IGS Insurance Guarantee Schemes
ILS Insurance Linked Securities
IWCFC Interim Working
Committee on Financial Conglomerates
JCFC Joint Committee
on Financial Conglomerates
MCR Minimum Capital
Requirement
MiFID Markets in Financial Instruments
Directive
MoU Memorandum of Understanding
NAIC US
National Association of Insurance Commissioners
ORSA Own
Risk and Solvency Assessment
QIS4 Fourth Quantitative
Impact Study
QIS5 Fifth Quantitative Impact Study
SCR Solvency Capital Requirement
SPV Special Purpose
Vehicle
SRP Supervisory Review Process
TFIG Task
Force on Internal Governance
UCITS Undertakings for
Collective Investments in Transferable Securities
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