European Insurance and Occupational Pensions Authority

European Commission Publishes Report on Group Supervision Provisions Under Solvency II Directive

 

On June 27, the European Commission published a report (COM(2019) 292 final) on the group supervision and capital management provisions under the Solvency II Directive (2009/138/EC).

In the report, addressed to the European Parliament and the Council of the EU, the Commission assesses the benefit of enhancing the Solvency II Directive provisions on group supervision and capital management within a group.

The Commission considers that some areas of the prudential group supervision framework may not ensure harmonized implementation of the rules by groups and national supervisors. This has the potential to have an impact on both the level playing field and capital management strategies.

The Commission has identified some legal uncertainties and diverging supervisory practices that can have a significant impact on group solvency. They concern group own funds, the group solvency capital requirement (SCR) and the group minimum capital requirement (MCR). The use of group internal models may raise additional issues. The Commission has also found a wide variety of interpretations of the group governance provisions.

The Commission has found that diverging implementation of the group supervision provisions may be detrimental to policyholder protection, depending on how national supervisors determine the scope of supervision, and exercise supervision at the level of parent holding companies. In addition, in light of the wide differences between the supervisory powers of different national supervisors, the Commission believes it is necessary to assess the appropriateness of the early intervention powers embedded in the Solvency II regime.

The Commission recognizes that it has identified a number of important issues that may need to be addressed, possibly including by way of legislative changes. However, further analysis is needed on the impact of the potential changes on the existing requirements. Therefore, the Commission deems it appropriate to include group supervision in the scope of its 2020 general review of the Solvency II Directive. As part of the 2020 review, the Commission has invited the European Insurance and Occupational Pensions Authority (EIOPA) to provide technical advice on the issues identified in the report, as well as other related issues that may be detrimental to policyholder protection.

EC Publishes Report on the Application of Title III of the Solvency II Directive (2009/138/EC)

 

The European Commission (“EC“) has published a report on the application of Title III (of the Solvency II Directive) on April 5, 2018.

The EC has commented that, given the need for the Solvency II Directive to be generally evaluated in 2020, only one area of the group supervision regime within Article 242(2) of the Directive requires any legislative amendments at this point in time. This relates to group internal models, and as member states have often diverged on this point, the EC has stated that the European Insurance and Occupational Pensions Authority (“EIOPA“) will need enhanced powers to bring about convergence.

A proposal to reform the European System of Financial Supervision (“ESFS“) by the EC, published in September 2017, contains proposals to amend the Directive in order to do this, and to generally mitigate any potential divergences in the approval and supervision of group internal models.

Finally, the report also confirms that the EC will report on the transition period for institution for occupational retirement provisions (“IORPs“) that are operated by relevant life insurers. Pending a further extension of the decision, the EC states that the legislative proposal relating to this could be imposed before the end of 2022.

To view the report, please click here.

EIOPA Publishes Final Report on Identification and Calibration of Infrastructure Corporates under Solvency II

On June 30, 2016, The European Insurance and Occupational Pensions Authority (“EIOPA”) published a final report providing technical advice to the European Commission on the identification and calibration of other infrastructure investment risk categories (that is, infrastructure corporates) under the Solvency II Directive.  An infrastructure corporate is an entity or corporate group that carries out infrastructure activities (such as energy generation, social housing, healthcare or hospitals).

On October 14, 2015, EIOPA received a request from the European Commission for further technical advice on the issue of infrastructure corporates. In response, in November 2015, EIOPA published a call for evidence on the treatment of infrastructure corporates.  The final report follows EIOPA’s April 2016 consultation on the issues.

In the report, EIOPA recommends that the asset class is extended in two ways:

  1. To allow certain infrastructure corporates to qualify for the treatment for infrastructure projects provided that there is an equivalent level of risk.
  2. To create a separate differentiated treatment for equity investments in high-quality infrastructure corporates.

For those corporates that have a lower risk profile, EIOPA proposes reduction in the risk charges for equity investments.

EIOPA also recommends that insurers are required to conduct adequate due diligence, establish written procedures to monitor the performance of their exposures and perform stress testing on the cash flows and collateral values supporting their investment.

2015 Annual Reports

The following bodies have released their 2015 annual reports in the past week:

  • EIOPA (European Insurance and Occupational Pensions Authority)
  • ESMA (European Securities and Markets Authority)
  • EBA (European Banking Authority)

Each report contains a review of achievements from 2015 as well as looking forward to the objectives and challenges which will be relevant in the coming year.

EOIPA and China Insurance Regulatory Commission Sign MoU

On June 15, the European Insurance and Occupational Pensions Authority (EOIPA) and the China Insurance Regulatory Commission signed a Memorandum of Understanding to set up joint work programs and pursue joint activities.

The main objectives of the MoU are:

  1. To build a practical framework for exchange of supervisory information.
  2. To update each other on the developments in the regulatory and supervisory frameworks for insurance and private pensions.
  3. To increase mutual understanding on the Chinese (C-ROSS) and European (Solvency II) supervisory regimes for insurance.

EIOPA Publishes Consultation Paper on the Development of an EU Single Market for Person Pension Products

On February 1, the European Insurance and Occupational Pensions Authority (“EIOPA“) published a consultation paper on its advice on the development of an EU Single Market for personal pension products (“PPP“). This consultation is in response to EIOPA’s 2014 preliminary report “Towards an EU-Single Market for personal pensions” and EIOPA’s 2015 consultation paper on the creation of a standardised Pan-European Personal Pension product.

EIOPA is asking:

  1. Would PPPs benefit from harmonisation of provider governance standards?
  2. Would PPPs benefit from harmonisation of product governance rules?
  3. Would PPPs benefit from harmonisation of distribution rules?
  4. Would PPPs benefit from harmonisation in disclosure rules?
  5. Are respondents aware of any differences in prudential regimes that would lead to an unlevel playing field amongst PPP providers?
  6. Are further supervisory powers necessary?
  7. Do respondents agree with EIOPA’s assessment of the policy options’ impacts?

The Consultation Paper is open for responses until April 26 and such responses will be published on EIOPA’s public website.  Consultation Paper.

Joint Committee Report on Securitization

On May 12, 2015, the Joint Committee of the three European Supervisory Authorities (ESAs) published a report detailing its findings and recommendations regarding the disclosure requirements and obligations relating to due diligence, supervisory reporting and retention rules in existing EU law on Structured Finance Instruments (SFIs). The ESAs comprise the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority.

The report states that its recommendations constitute the Joint Committee’s response to the European Commission’s recent consultation on securitization and should be considered in the light of further work on the transparency requirements for SFIs.

The report focuses on the interplay between investor due diligence requirements and the disclosure requirements that apply to issuers, originators and sponsors. It aims to establish whether investors are effectively protected and whether the supervision framework is appropriate to support the redevelopment of the EU securitization markets. It includes recommendations to:

  • harmonize due diligence requirements across the EU.
  • standardize investor reports and have them stored in a centralized, public space.
  • ensure investors receive loan-by-loan level data.
  • review the use of different definitions and key terms across EU legislative texts.
  • complement a harmonized due diligence and disclosure framework with a comprehensive regime for supervision and enforcement.