Progress Report
to the EU Commission on
CEIOPS work in the field of the Solvency II project
(October 2004)
Introduction
In the context of the development of the new prudential system for the supervision of
insurance undertakings, the so called Solvency II project, the EU Commission has requested technical advice from CEIOPS. This request is in line with the rules making
process which the European Parliament and the Council are adopting under the proposed extension of the “Lamfalussy process” to the insurance sector.
Following the definition of the fundamental principles for the design of the future prudential regime, endorsed at the Insurance Committee meeting in April 2003, and
according to the Road Map (MARKT/2506/04) agreed for carrying out the project, the
EU Commission, on 23 July 2004, addressed to CEIOPS a Framework for Consultation,
which sets policy principles and guidelines for developing advice, and a first “wave” of
specific calls for advice covering the following areas:
1. Internal Control
2. Supervisory Review Process (General)
3. Supervisory Review Process (Quantitative tools)
4. Transparency of Supervisory Action
5. Investment Management Rules
6. Asset-Liability Management
As stated by the EU Commission, the choice of the above areas of work for the first
wave of calls for advice has been selected on pragmatic grounds. They address
primarily, but not exclusively, issues included in the pillar II (i.e. supervisory review
process) of the proposed Solvency II prudential model. At the same time, the
EU Commission announced the issuance at a later stage of two further waves of calls
for advice, covering respectively pillar I issues (i.e. quantitative capital requirements)
and pillar III issues (i.e. disclosure and market discipline).
Technical advice under the first wave of specific calls for advice is expected by
30 June 2005. In the frame of the suggested working method for developing the
project, CEIOPS has been also requested to provide the EU Commission with regular
progress reports on its ongoing work.
This is the first CEIOPS progress report. Following the proposal by the EU Commission
to shape the format of progress reports according to the different situations and
considering the current stage of the project, this report covers the activity put in place
for answering the request for advice, without presenting an interim conclusion.
CEIOPS activity
In view of receiving requests for advice by the Commission and in order to
appropriately cover the whole Solvency II project, CEIOPS established in the spring of
the current year an “ad hoc” organization devoted to the project. The organization
immediately started to work on the basis of the approved general design of the
Solvency II regime.
In setting up the organization and defining the mandate for the preparatory work,
CEIOPS took into consideration the need to ensure an organic and comprehensive
coverage of the overall solvency regime, thus allowing flexibility and effectiveness to
its contributions along the development of the whole project, in relation to its different
steps. To this end, the experts groups in charge of preparing CEIOPS deliberations
have been tailored according to the fundamental lines of the new prudential model
and not to the expected specific calls for advice, nor to the way through which the
future regime will be translated into formal requirements according to the “Lamfalussy
process”.
In line with this approach, CEIOPS has created five expert groups. Two groups have
the tasks to conduct preparatory work on pillar I issues respectively for “life” and “non
life” insurance business, in particular providing analysis on capital requirements and
technical provisions. Two further groups were asked to carry out preparatory work
with regard to the areas included respectively in pillar II and pillar III. Besides,
considering the need to assess these issues also under the particular angle of groups
of undertakings, as well as to take into account aspects related to the integration
between financial sectors, another group was asked to analyse, in the frame of the
Solvency II project, the implications for the supervision of groups and cross-sector
activities.
As the definition of CEIOPS advice entails carrying out quantitative impact studies
(QIS), it was deemed appropriate to ask the Financial Stability Committee, which has
been established within CEIOPS with the main objective to deal with a macro-prudential surveillance programme based on market indicators, to assist the expert
groups and coordinate their data collection exercises. Indeed, following the invitation
of the EU Commission, CEIOPS´ intention is to start as soon as possible the definition
of data requirements and collecting procedure in order to develop QIS on the basis of
interim conclusions achieved by the other groups.
Given the clear correlation between the areas dealt with by the above groups, a
coordination arrangement has been created for allowing consistency among the
groups’ activity and avoiding overlaps. This is the task of the so called “Advisory
Group”, which consists of the chair of the group, the Secretary General and the chairs
of the “Solvency II” groups and the Financial Stability Committee. The Advisory
Committee reports regularly to the CEIOPS Managing Board.
The participation of Members’ representatives to the groups is not limited. In general,
the country representation within each group covers close to the whole CEIOPS
membership. Each group has fixed a very committing time-schedule for fulfilling its
mandate.
As a preliminary step, the working plan of the groups provides a thorough exchange
of information and experience between participants in order to achieve a common
background and knowledge and learn from national developments.
The groups’ working method provides also activating regular contacts and informal
collaboration with key stakeholders. The chairs of the groups have been asked to get
inputs and technical suggestions from interested parties in order to enhance, even at
a technical level, awareness of market operators’ views as well as to pave the way for
achieving, as wide as possible, endorsement of CEIOPS´ final deliberations.
With regard to the consultation process, it is worth to underline that CEIOPS, in the
limits of its independence, is also willing to make wide use of the Consultative Panel in
order to get inspiration and test interim conclusions.
Besides, in line with CEIOPS` transparency policy, any submission to the
EU Commission in the frame of the Solvency II project will be subject to a preliminary
consultation process. CEIOPS will call for comments from all interested parties about
draft responses to the calls for advice and will disclose its reflections and resolutions
about these comments.
Building on the preliminary exchange of information and informal consultations, the
groups are presently developing their work under the mandates approved by the
CEIOPS Members’ Meeting.
The group dealing with pillar II issues, in particular, is giving priority to the six issues
included in the first wave of calls for advice, receiving input from the other Solvency II
groups where appropriate. The latter groups, anticipating the definition of further calls
for advice, are working on the basis of the “Framework for consultation on Solvency
II” and of the preparatory work carried out during the first phase of the project.
However, the work plans of the “pillar II group” as well as of the other groups are not
exclusively tailored on the scope and the deadlines provided or to be provided by the
specific calls for advice; they are aimed at producing - adopting a longer term
perspective - a complete and detailed analysis for delivering contribution over the
development of the entire Solvency II project. In this perspective, CEIOPS` activity is
developing along the principles and guidelines stated in the “Framework for
Consultation on Solvency II” issued by the EU Commission.
Indeed, as stated in the cover letter accompanying the first wave of calls for advice,
CEIOPS` technical advice, at this stage, is requested in relation to the preparation of
the Framework Directive on the new prudential regime. In CEIOPS` understanding,
this means that the development of the subsequent implementation measures could
likely request further CEIOPS contributions. Furthermore, in the cover letter it is also
recognized that at this stage CEIOPS` advice is not expected to address all technical
aspects exhaustively and that, Solvency II being a complex project, CEIOPS may in
the future amend or revise advice already given in the light of its work on further
areas.
CEIOPS approach in delivering answers
Considering the above, in preparing the answers to the first wave of calls for advice
CEIOPS` work is aimed at defining broad principles on the areas considered, as well
as at identifying, as deeply as possible, the fundamental aspects of the future regime,
but without entering into details which are not yet supported by appropriate analysis
and tests and which could be revised at a later stage, in light of further in depth
studies or as a consequence of the conclusions achieved on other areas.
The advice provided at this stage, however, should be complete enough for giving the
EU Commission sufficient technical input for drafting the proposal for a Framework
Directive, in the terms provided by the “Lamfalussy model”.
Next steps
Using this approach, CEIOPS is committed to meet the deadline of 30 June 2005 for
delivering its advice to the EU Commission on the areas included in the first wave of
calls for advice.
According to this timeframe, draft advices will be tabled for interim approval at the
next CEIOPS Members’ Meeting, in February 2005, and a formal consultation process
will be subsequently opened. The final approval is envisaged at the following
Members’ Meeting, scheduled for June 2005.