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Regulation of Insurance Undertakings

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InsuranceAs an industry which protects consumers, who can encounter financial difficulties if an insurer becomes insolvent and is unable to pay claims, the insurance sector (along with banking) has always been subject to more regulatory requirements than other sectors of the economy.

Until the end of 2010, national regulators supervised the insurance sector in the EU. The national regulators were brought together at the EU level in the Committee of European Insurance and Occupational Pension Supervisors (CEIOPS). CEIOPS advised the European Commission on drafting measures to implement the EU's directives and regulations in the areas of insurance and occupational pensions. It also issued supervisory standards and guidelines to apply the regulations more effectively and worked to encourage co-operation between national supervisors in the EU.

As part of the EU's response to the financial crisis, CEIOPS has been transformed into the European Insurance and Occupational Pensions Authority (EIOPA), one of three new European Supervisory Authorities (ESAs). Although most regulation is still carried out at the national level, EIOPA aims at upgrading the quality and consistency of national supervision, strengthening the oversight of cross-border groups and establishing a single European rule book applicable to all EU insurers in order to reduce the risk and severity of future financial crises. EIOPA started its activities on 1 January 2011 but, in order to carry out its new role effectively, some further technical changes to EU legislation are required. The European Commission published its proposal to implement these changes in January 2011.

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News


Recent developments/current issues

Solvency II

The solvency margin is the minimum excess of an insurer's assets over its liabilities set by regulators. A limited reform of EU-wide solvency requirements ("Solvency I") was approved in 2002. After lengthy discussion, a framework directive setting out new solvency rules ("Solvency II"), which take more account of modern risk management techniques and prudential standards, was adopted by the European Council and the European Parliament in November 2009. A list (prepared by the European Commission) of common questions and answers on Solvency II can be found here:

The Solvency II regulatory requirements will be applied from January 2013, but several of the measures implementing them have not yet been agreed. The European Commission carried out a public consultation on some aspects of these implementing measures in late 2010 (see here for further details, including the Commission's summary of the responses received).

Following criticism of some aspects of these measures from the insurance industry, Michel Barnier, the European Commissioner responsible for the regulation of insurance, stated in a letter to representatives of the European insurance industry in June 2011 that, although some of the implementing measures would be refined, Solvency II would be introduced as planned in January 2013. Mr Barnier called for the industry to work closely with the Commission and EIOPA on the final phase of the Solvency II project (see here for further details). The Commission plans to issue the final agreed text of the measures by the end of 2011.


EIOPA

The new European Insurance and Occupational Pensions Authority (EIOPA) started work on 1 January 2011. Its initial work program focuses on activities inherited from its predecessor (CEIOPS) and can be found here:

The European Commission's legislative proposal for implementing the technical changes that are required for EIOPA to exercise its new role effectively was published in January 2011. The proposal contains a limited set of amendments to the "Solvency II" directive, including a delay of two months to the directive's implementation date in order to align this with the financial year used by most insurance undertakings. The proposals have to be approved by the European Council and the European Parliament before they can come into force. Details of the Commission proposal can be found here:

EIOPA has set out how it intends to approach the implementation of the Solvency II rules. Its plan "From Regulation to Supervision: EIOPA's Solvency II Medium Term Work Plan (2011-2014)" can be found here:


External Resources


External resources

  • The website of the European Insurance and Occupational Authority (EIOPA), the successor body to the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), can be found here. Visitors to the CEIOPS website are now being redirected to EIOPA's new site.
  • The framework directive on Solvency II (published in the EU’s official journal in December 2009) can be found here.

CFRR Resources


Presentations for download

The following materials were presented at CFRR events and provide additional information on insurance regulation. The most recent presentations contain the most up to date information. While the CFRR tries to ensure that this material is as up to date as possible, some of the content, especially in the earlier presentations, may not reflect the latest developments. Presentations in languages other than English are available for the materials given at GDLN events - please follow the link to the webpage of the original event to find these materials.

Right click or option-click the link and choose "Save As..." to download these files.

These two presentations were given at the GDLN event for the IFRS for Prudential Regulators group held on 6 June 2011. The first presentation compares the disclosure requirements of Solvency II with those of the IFRS 7 reporting standard. The second summarizes the slightly differing approaches to valuation in Solvency II and the IFRS 4 reporting standard in both its Phase I and Phase II forms.

This presentation on the new Solvency II regulatory regime was given at the IFRS for Prudential Supervisors seminar held on 8-9 February 2011.


This presentation, which gives a brief overview of developments in bank and insurance regulation in 2010, was given during a GDLN event organized for the IFRS for Prudential Regulators group on 15 December 2010.

Video Presentations


Video Presentations

Solvency II
Shamim Diouman

Shamin Diouman on Solvency II

Mr Dioumam outlines the progress made in the EU's new more risk-based system for regulating the capital adequacy of insurance undertakings (Solvency II). He draws out the similarities between the Basel III rules and Solvency II and emphasizes the importance of the disclosure requirements in the new system.

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Source: IFRS for Prudential Supervisors seminar, 8-9 February 2011




Technical Update for Banking and Insurance Regulators
Shamim Diouman

Shamin Diouman during the GDLN workshop

1. Overview and update on financial reporting and other related issues
2. Update on accounting for financial instruments and Basel III for banking regulators
3. Update on accounting for insurance contracts and Solvency II for insurance regulators

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Source: IFRS for Prudential Supervisors GDLN event,
15 December 2010






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