Industry Briefing on Central Bank Guidelines on Preparing for Solvency II

Transcription

1 Industry Briefing on Central Bank Guidelines on Preparing for Solvency II 25 November 2013

2 Agenda 1. Central Bank Guidelines on preparing for Solvency II 2.Q&A session

3 Central Bank Guidelines on preparing for Solvency II 25 November 2013 Gareth Colgan

4 Outline Update on Solvency II Omnibus II Quick Fix II CBI Guidelines on Preparing for Solvency II CBI supervisory approach 4

5 Update on Solvency II It is going to happen Omnibus II Political agreement Nov 13 Technical work / Lawyer linguist Formal approvals European Parliament Plenary 25 Feb 2014 (indicative) Quick Fix II Transposition date 31 March 2015 Implementation date 1 January

6 Omnibus II Role of EIOPA Long term guarantee matters Matching adjustment Volatility adjustment Special transitionals for existing business Equivalence Reviews 6

7 Key Dates Implementation 1 January 2016 Transposition 31 March 2015 Internal model applications From 1 April

8 Part played by EIOPA LTG Impact assessment Thorough study carried out Clear report and proposals made Basis for trilogue discussions and agreement Opinion Dec 2012 Preparatory Guidelines 8

9 EIOPA Preparatory Guidelines - some themes Addressed to NCA s Preparation Proportionality / phasing / principle-based Higher standards in 2015 than 2014 NCAs not required to take supervisory action Undertakings not required to change investment portfolio Progress reports from supervisors 9

10 CBI Preparatory Guidelines - some themes Comply with EIOPA requirements Unchanged materially PRISM - linked Enforcement 10

11 CBI Guidelines scope of application All firms EXCEPT: Excluded via Directive Article 4 Excluded via OMDII transitional provisions (some firms in run-off) Need to: Notify CBI Confirm continued eligibility for OMDII exclusion annually CBI will acknowledge notification 11

12 CBI Guidelines content 4 sets of Guidelines System of governance Forward looking assessment of own risks Submission of information Internal models Separate overarching Introduction document Other relevant material EIOPA material especially explanatory texts May 2013 CBI seminar material 12

13 CBI Guidelines not in isolation Existing requirements including Solvency I regulations Corporate Governance Code Fitness & Probity regime Emerging requirements CP 69 CGC revisions CP 73 actuarial reserving and pricing requirements 13

14 CBI Guidelines approach to supervising the guidelines We will align with PRISM framework (category at 31/12/2013) PRISM Guiding Principles: Engagement tailored based on IMPACT category Risk-based supervisory approach as enshrined in PRISM Focussing resources where they have greatest impact Proportionate, pragmatic, practical approach reflecting preparatory nature of the Guidelines 14

15 CBI Guidelines approach to supervising the guidelines PRISM engagement task e.g. Governance reviews, Full risk assessment Meetings e.g. Directors, CRO, CFO, Actuary, Internal Auditor Review of FLAOR reports (more detail later) Review of submission of information Automated reviews Some FLAOR reports Some elements of submission of information Surveys All bar high impact firms 2014 and

16 How the CBI will implement System of Governance GLs High & medium-high impact firms subject to all relevant guidelines from 2014 Phasing for low and medium-low firms Establishment of Key Functions applies from 2015 Related guidelines also apply from , 14, and All other, more general requirements, apply from

17 System of governance General governance requirements Board Organisational structure Key functions Decision-making Documentation of decisions Internal review Policies Contingency plans 17

18 System of governance continued Fit and Proper Risk Management including various policies Risk management Underwriting and reserving Operational risk Reinsurance and other risk-mitigation techniques Asset-liability management Investment risk Liquidity risk 18

19 System of governance continued Prudent person Own funds management Capital management policy Medium term plan Internal controls Internal audit function Internal audit policy Outsourcing Written policy 19

20 Actuarial function Tasks Coordination of the calculation of the TP Data quality Underwriting and reinsurance arrangements Internal model users Annual report to the Board 20

21 Forward Looking Assessment of Own Risks (FLAOR) Summary of FLAOR Guidelines Board should play an active role by steering the assessment and challenging the results including: - Approval of the FLAOR policy, internal report and/or the supervisory report Documentation should include: - FLAOR policy, record, internal report and supervisory report Integrated into strategic management process and decision making process 21

22 Forward Looking Assessment of Own Risks (FLAOR) Summary of FLAOR Guidelines Three key elements of FLAOR: 1. Assessment of overall solvency needs (from 2014) 2. Assessment of whether the firm would comply on a continuous basis with Solvency II capital requirements and technical provisions (*) 3. Assessment of deviations of the risk profile from standard formula assumptions (*) (*) From 2015 and applies only to medium-high and high impact undertakings and Groups above threshold 22

23 Forward Looking Assessment of Own Risks (FLAOR) Summary of FLAOR Guidelines 1. Overall solvency needs assessment Should be forward-looking, including a medium-term or long-term perspective Non-Solvency II valuation and recognition basis can be used but explain appropriateness to risk profile Should be expressed quantitatively and complemented by a qualitative description of material risks 23

24 Forward Looking Assessment of Own Risks (FLAOR) Summary of FLAOR Guidelines 2. Assessment of whether the firm would comply on a continuous basis with Solvency II capital requirements and technical provisions includes: Projecting regulatory capital requirements and eligible own funds over the business planning period Actuarial function review 24

25 Forward Looking Assessment of Own Risks (FLAOR) Summary of FLAOR Guidelines 3. Assessment of deviations of the risk profile from standard formula assumptions (firms/groups in internal model pre-application are excluded) Initially a qualitative analysis should be performed Quantification is required only if qualitative analysis indicates that deviation is significant 25

26 Forward Looking Assessment of Own Risks (FLAOR) FLAOR Supervisory Report All firms should submit a FLAOR report at least annually within 2 weeks of board sign off. The first report on or before 31 December 2014 and second 31 December

27 Forward Looking Assessment of Own Risks (FLAOR) FLAOR Supervisory Report Firms by impact Nature of FLAOR reports Timing of online facility Medium-low Low Submit FLAOR report using Central Bank reporting tool (structured format report) Online tool will be available early Q High Medium-high All groups Submit a bespoke FLAOR report that are electronic readable in form of attachments in either MS Excel, Word or PDF Online facility to upload attachments will be available early Q

28 Forward Looking Assessment of Own Risks (FLAOR) FLAOR Supervisory Report Supervisory report medium-high, high and groups In 2014 at least: a) Qualitative and quantitative results of the assessment as well as conclusions drawn from the results. Examples: Quantification of overall solvency needs for risk categories over one year and medium-term period Qualitative description of material risks Findings and timelines for proposed actions b) Methods and main assumptions used. 28

29 Forward Looking Assessment of Own Risks (FLAOR) FLAOR Supervisory Report Supervisory report medium-high, high and groups In 2015: a) Qualitative and quantitate results of the forward-looking assessment as well as conclusions drawn from the results b) Methods and main assumptions used. c) Comparison between overall solvency needs, regulatory capital requirement and own funds. 29

30 Forward Looking Assessment of Own Risks (FLAOR) FLAOR Supervisory Report FLAOR supervisory report medium-low and low impact firms 30

31 Forward Looking Assessment of Own Risks (FLAOR) Supervisory Approach Risk-based approach that is aligned to PRISM as follows: Medium-low and low impact firms: includes automated interrogation of FLAOR online tool to highlight areas for further analysis High, medium-high impact firms and groups: includes detailed review of the FLAOR bespoke reports Supervisors may engage in dialogue with firms in the course of regular supervisory work 31

32 Submission of information to NCA s Applies to high and medium-high only Annual QRTs and narrative Quarterly QRTs Quantitative Reporting Templates (QRTs): Balance sheet Own funds Technical provisions SCR (annual only) MCR Detailed list of assets (annual only) Group requirements also 32

33 Quantitative submissions Links to EIOPA templates and supporting logs NB XBRL only Consistent with CBI approach in other areas Consistent with Public Sector approach in some wideranging areas. 33

34 Quantitative submissions - XBRL XBRL will be used as means of data transmission EIOPA developing the XBRL taxonomy latest version here Next draft of Taxonomy expected end 2013 EIOPA developing an XBRL tool for undertakings who choose to use it Final Taxonomy expected late Q Undertakings enabled to be well prepared for the start of the preparatory reporting 34

35 Submission of information continued Narrative System of governance Capital management Valuation for solvency purposes Reporting policy Dates Annual: 22 weeks after 31/12/2014 Quarterly: 8 weeks after 30/9/

36 Guidelines on Pre-application for Internal Models

37 Introduction The Central Bank Guidelines are based on the EIOPA Guidelines on Pre-application for Internal Models They apply to all types of entities in the preapplication process (solo / group, full / partial IM) 37

38 Notable Changes since the EIOPA Consultation Process Undertakings should submit information on the SCR calculated both with the standard formula and with the full/partial internal model. Standard formula information should cover overall SCR and the following risk categories (if in scope): - Market risk - Counterparty default risk - Life underwriting risk - Health underwriting risk - Non-life underwriting risk - Non-life catastrophe risk - Operational risk 38

39 Some Further Changes and Clarifications Emphasis on on-going feedback to undertakings in the pre-application process The internal model is not intended to replace decision making but the internal model results have to be considered in relevant decision making. 39

40 Some Further Changes and Clarifications (cont.) The guidelines highlight that the validation process has to be independent from the development and operation of the model to provide effective challenge The requirement to identify the source of uncertainty in the validation process and quantification of the degree of these uncertainties has been removed Documentation on material shortcomings of the internal model, consolidated in a single document, has to include the work done to identify these shortcomings and any plans for model improvements 40

41 Current Pre-application Process Recently we have noted more companies reengagement in the process We have begun to receive more complete documentation Overall, it is time that companies again focus on their internal model pre-application process 41

42 Next Steps Gap analysis against the guidelines Proposals for review work in 2014 Appropriate governance in relation to model changes We will only accept areas for review where the development work has been completed, documented and, in general, validated 42

43 Use Tests and Internal Model Governance Reviews Our use test and internal model governance interviews and review work will by necessity take place at the end of the pre-application process when internal model is sufficiently embedded in the company s risk management and decision making and there is sufficient evidence available to demonstrate model usage 43

44 CBI Guidelines support 4 sets of Guidelines System of governance Forward looking assessment of own risks Submission of information Internal models Support Queries to [email protected] EIOPA Q&A CBI FAQs Internal models use existing contacts 44

45 Expected timeline for Solvency II Feb 2014 EP Plenary vote on OMDII Spring 2014 OMDII published in Official Journal Aug 2014 Commission proposes Delegated Acts EIOPA consults on and finalises L3 Guidelines Feb 2015 Delegated Acts are confirmed Mar 2015 Transposition of SII and OMDII Apr 2015 Supervisory approvals begin Throughout 2015 Commission adoption of ITS Jan 2016 Implementation of SII 45

46 Get started Gives both undertakings and supervisors opportunity to prepare properly for major change Iron out system issues Get functions in place and full Board engagement Land running 1/1/

47 Further Information and Points of Reference Solvency II section on the Central Bank website Preparatory guidelines on the Central Bank website Solvency II Matters newsletters Dedicated address

48 48

49 Question and Answer Session. further questions to:

50 End of Briefing