By the end of 2007 a future work plan for this project is. The directive follows a three pillar approach similar to that used with basel ii in respect of credit institutions. Solvency ii follows the lamfalussy process th e solvency ii system refers to three tasks according to the lamfalussy process. More specifically, how might ongoing developments in europe inform u. The solvency ii project was initiated in order to investigate the need for a revision. Lamfalussy process, which is a fourlevel approach toward developing financial. May derive scr from this standard formula approach, or use result of internal. Threepillar approach recommended in kpmg study for eu and reflecting basel ii approach new focus for supervisor may include validation of internal models more pressure from capital markets more pressure from rating agencies lower solvency capital requirement due to internal model quantitative capital.
Riskbased approach to solvency requirements based around a 2level capital requirement scr is at a 1200 var level over a 1year time horizon mcr is intended to be at around the 110 var level ladder of supervisory intervention breach of scr mcr triggers supervisory intervention ultimate regulatory. Furthermore, the solvency ii european directive 20098ec is to introduce a riskbased approach to capital requirements as from 2015 or 2016. Lamfalussy process european encyclopedia of law beta. In europe, this process has been done across solvency ii. Lamfalussy directives setting out a framework of overarching principles approach.
Introduction to solvency ii institute and faculty of. Official presentation of the solvency ii directive on 10 july. Both regulatory regimes are adopted by way of the lamfalussy approach as proposed by the committee of wise men in 2001, footnote 37 which intends to simplify and accelerate european legislation by means of a fourlevel approach. The solvency ii framework directive level 1 identifies a number of areas where the commission is required to develop implementing measures level 2 to provide further technical detail to elaborate the level 1 principles. Solvency ii implementing measures taking solvency ii to. The solvency ii directive level 1 identifies a number of areas where the european commission is developing implementing. Solvency ii reporting for insurance companies institutional. Introduction to solvency ii tim edwards gavin dunkerley 24th september 2008 introduction the primary purpose of this presentation is to explain what solvency ii is and why it is important we also hope to challenge the way you think about your personal role within your firm, the role of actuaries within your firm, and the role of the. Solvency 2 global overview new features principlesbased rather than rulesbased solvency 1 economic and marketconsistent valuation of the risks to which the company is exposed solvency assessment linked to the riskprofile of the company company rewarded for good risk management and controls consideration of diversification effects.
Regulatory process in financial services european commission. Solvency ii lamfalussy process new process for financial services legislation. Implementation of the lamfalussy process has coincided with a significant improvement of the global competitiveness of europes financial services and markets. Overview and critical analysis martin eling hato schmeiser joan t. From solvency i to solvency ii, a long journey what are the solvency requirements used for 04 how we were 05 the transition towards the new regulation 06 the new prudential discipline principles the concept of risk 07 the black swan 08 a scale always in balance 09 a building that rests on three pillars 10 the role of supervision changes 11. Solvency ii will focus on an enterprise or holistic risk management approach toward capital standards. The third section analyzes recent assessments of this new legislative process and discusses implementation issues that have arisen during its short life. More specifically, the directive prescribes that the solvency capital requirement shall correspond to the valueatrisk of the basic own funds of an insurance or reinsurance undertaking subject to. European council invited the european commission to implement the lamfalussy approach. Since then there have been a number of key developments in particular, relating to the omnibus ii directive, the creation of eiopa and further debate on third country equivalence, which we look at in this briefing alongside a. Solvency ii introduction casualty actuarial society.
Official presentation of the solvency ii directive on 10 july in strasbourg key messages by thomas steffen, ceiops chair. Quantifying credit and market risk under solvency ii. The preparation, consultation and enactment of the directive are being speeded up through the lamfalussy process, a fourstage framework designed to break down national and bureaucratic barriers to integration see figure 1. The purpose of the guidelines is to adopt a consistent and convergent approach to solvency ii preparation across europe and to mitigate the risk that supervisors will adopt their own approaches at a national level. Solvency ii is currently one of the most sophisticated insurance regulatory. Knowledge is power, and now, more than ever, as we see. Solvency ii follows the lamfalussy approach, whereby the eu prudential framework is divided into three hierarchical levels. May 16, 2012 in the course of creating a single european market for financial services and in the wake of two financial crises, regulatory frameworks in the financial services industry in the european union have undergone significant change.
We implement the proposed method on the portuguese insurance sect or, using actual. Article 612 stated that the liberalisation of banking and insurance services. Solvency ii work on the finishing line joint iaca, iaahs and pbss colloquium in hong kong. European commission press release details page brussels, 10 july 2007 see also ip071060 1. Revision of the solvency ii standard formula approach highlights and implications for european insurers the standard formula approach under solvency ii is used by many european insurance companies to calculate the required solvency capital. Lamfalussy four level process page 5 implementation timeline page 6. Revision of the solvency ii standard formula approach. To get there, solvency ii adopts a threepillar approach similar to switzerlands basel ii for banking. Solvency ii 20098ec19, adopted in 2009, harmonised existing. Solvency ii an integrated approach supervisory reportingpublications processes, controls, data, it.
The 4 level lamfalussy process level 1 level 2 level 3 level 4. However, whilst the level 1 directive sets out the regulatory principles that will apply to insurers from november 2012 much of the detail will be set out in. Accounting accounting overview statutory accounting principles based. The european committee ec has now finalized several changes of. Solvency ii will set a benchmark for financial services supervision which includes banking. Analysis of the solvency ii standard model approach to. Ceiops has also helped the commission with testing the impact of solvency ii by carrying out a series of quantitative impact studies. Actuaries and the regulatory environment role of the.
Reinsurance reserve appearing, rebalancing the asset side, investments adjusted to keep the weight of the balance sheet constant. Finally, i argue that the lamfalussy process is merely another step in the trend of greater financial integration and regulatory convergence within the. The solvency ii framework directive, 20098eu, was approved by the eu. The eu commissioner for the internal market and services, charlie mccreevy, concluded the conference with a speech focusing on solvency ii, the lamfalussy process and the iorp directive.
Threepillar approach recommended in kpmg study for eu and reflecting basel ii approach new focus for supervisor may include validation of internal models. One of the major reforms has been the transition from static rulesbased systems towards principlesbased regulation with the intent to better capture the risk. Following the lamfalussy approach, solvency ii was developed as a regulatory regime with different levels. Solvency ii follows the lamfalussy approach, which means that the requirements of eu prudential framework can be found at three hierarchical levels. Lamfalussy process solvency ii the lamfalussy process is a procedure that is designed to simplify and, thereby, speed up the complex regular eu legislative process as part of a fourlevel plan. Solvency ii forms an important extension to the european commissions ec financial services action plan. Solvency ii is the new regulatory regime of the european insurance industry which is to take effect on the 1st of january 2016. Us and eu us solvency eu solvency ii principles or. Solvency ii update in may 2010 we reported on the key issues facing the industry under solvency ii. This complements our approach of integrated risk management as well as effective assetliability matching. Cbi solvency ii matters 7 may consultation open until 19 june. The statutory accounting framework is based on overarching statements of concepts.
The capital requirement at insurance companies is a constant in the world. Prudent person approach to investments instead of current quantitative restrictions 3. The results of the numerical analysis are discussed in section 4, and section 5 concludes. Pdf in 2000 a committee of wise men chaired by alexandre lamfalussy, former president of the. Following the lamfalussy approach, solvency ii was developed as a regu. Us and eu us solvency eu solvency ii principles or rules principles are included in numerous naic handbooks.
Applying the so called lamfalussy process, solvency ii at fi rst recasts and replaces all the existing related directives with a unique framework directive including numerous new rules which introduce an overall new approach on insurance supervision, particularly on solvency issues. May derive scr from this standard formula approach, or use result of. Europa internal market insurance design of a future. Solvency ii reporting for insurance companies institutional funds background new capital requirements for insurance companies under the legally binding solvency ii directive come into force on 1 january 2016. Introduction to solvency ii institute and faculty of actuaries. Impact assessment on the reporting package for solvency ii. Schmit abstract as early as the 1970s, european union eu member countries implemented rules to coordinate insurance markets and regulation. Iais and solvency ii solvency ii is well aligned with the new. Lamfalussy level 2 supervisory guidance and standards, to be written by ceiops, are not legally binding but. The aim of a solvency regime is to ensure the financial soundness of insurance undertakings, and in particular to ensure that they can survive difficult periods.
Ceiops conference focuses on solvency ii and lamfalussy. Eu directive 20098 on the takingup and pursuit of the. And it will certainly serve as mental impetus for a further fruitful. The solvency ii directive is a worldleading standard that requires insurers to focus on managing all of.
Since then there have been a number of key developments in particular, relating to the omnibus ii directive, the creation of eiopa and further debate on third country equivalence, which we. Pdf the lamfalussy reform in the eu securities markets. I was very interested to read that capital requirements would be substantially higher sadly im no expert on calibration, but this shows there is an intense lobbying effort ready to go. Consultation document important note european commission. Under this process, the european council and parliament only pass framework directives. Solvency ii methods may actually start to move into. Internal model users measure interest rate risk in a significantly different manner to the current standard. Because of its importance, this level of legislation was adopted by the council of the european union and the european. Solvency ii implementing measures taking solvency ii to the next level on 5 may 2009 the solvency ii directive was officially adopted. Rga has actively followed the development of solvency ii, both to prepare our own european entities for compliance and optimization and also to design new solutions for our clients throughout europe. A specific regulatory process in financial services was first introduced in 2001, when the eu endorsed the proposals of the lamfalussy report. An economic approach for solvency ii overall solvency approach 3 pillars economic, riskbased calibration of financial requirements p1 market consistent value of assets and liabilities capital charge to reflect all quantifiable risks associated to them, under a predefined risk measurement. Rather than a rigid, rulebased approach, solvency ii uses a riskbased assessment of the assets and liabilities, based on economic principles. These replaced the old solvency i solvency provisions.
The directive intends to increase integration and enhance competition of the european insurance and reinsurance market whilst strengthening the protection of both policyholders and beneficiaries. An analysis of the solvency ii standard model approach to longevity risk 2 1 introduction aspartofthesolvencyiiproject, thecapital requirements foreuropeaninsurance companies willberevised in the near future. The society of actuaries in ireland the solvency ii actuary. Solvency ii developed under the lamfalussy process. The solvency ii consultation process took place in 2004 and 2005 with the official solvency ii proposal adopted in july, 2007. Solvency ii will create stateofthe art risk management and bring greater transparency. This amount is still under discussion and there is potential for an optin for a company to get under the solvency ii umbrella, especially for group solvency purposes. Th e task of setting the rules, the task of uniformly interpreting and applying the rules and lastly, the task of supervising the successful harmonisation of law. Iais and solvency ii solvency ii is well aligned with the new solvency standards being developed by the iais promotion of international convergence is a specific objective of the solvency ii project the development of international standards is the best way to promote the creation of open international insurance markets, whilst at the.
Risk disclosure in the european insurance industry. Official presentation of the solvency ii directive on 10. Section 3 presents the quantitative framework of the solvency ii standard model and the alternative internal model approach. Current and future solvency work in the iais and within the actuarial profession from a solvency ii point of view markt 252002 considerations on the links between the solvency ii project and the extension of the lamfalussy approach to insurance regulation markt 251902 reports from the restricted working groups. Level 1 contained the basic principles of the new solvency regime. A comparative assessment of basel iiiii and solvency ii. A significant difference between the two, however, is that solvency ii focuses more heavily on a holistic risk management approach. To meet member states commitment to economic reform in europe, solvency ii must take into account the.
If all eubased readers can wind their clocks back, i spotted this article on australias solvency ii cousin which seems to have all the hallmarks of the euiais experience. Dec 19, 2012 furthermore, the solvency ii european directive 20098ec is to introduce a riskbased approach to capital requirements as from 2015 or 2016. The purpose of this paper is to consider the developments in europe and the united states with respect to insurance regulation. Pillars i and iii must be observed for investment reporting. In this regard, ceiops work targets and deadlines for solvency ii are established in relation to the commissions roadmap for the project. Lamfalussy process, an approach to the development of financial service industry regulations by the eu, named after alexandre lamfalussy, who chaired the eu advisory. Our many experiences, observations and conclusions around solvency ii can be broken down into three general. This thesis analyses the political process of the eudirective solvency ii, as well as the amending directive of omnibus ii.
509 1466 73 216 899 713 1162 1277 1277 866 481 1074 339 1191 749 170 154 302 294 1492 1146 1023 12 561 1477 103 1439 1292 1002 1037 1092 282 930 484 918 708 344 1485 847 623 927 1484