Overview of the Legislative Process
Purpose of Presentation
 Provide
brief overview of EU
insurance legislative background
 Rationale for why Solvency II is
being introduced
 Overview of Solvency II legislative
process
 Where we are now and what lies
ahead
Ist EU Directives



1st EU non-life and life Directives
introduced in the 1970s
Developed and refined through the 80s,
and 90s culminating on the Life side with
consolidated Life Directive in 2002
Transposed into Irish law e.g. SI 359 of
1994 on non-life side and SI 360 of 1994
on Life side
Problems with old regime (1)




Old regime has served its purpose reasonably
well
Muller Report in 1997 indicated however that
solvency requirements did not reflect the risks
facing the modern insurance industry
This resulted in introduction of Solvency 1
requirements
Always seen as an interim step
Problems with old regime (2)
–
–
–
–
the existing system does not enable the
accurate and timely identification by
supervisors of problems and their root
causes which could lead to insolvency.
risk management is not incentivised under
the current regime.
the lack of consistency across the EU in
solvency and regulatory requirements.
Governance issues
Governance shortcomings a
reason for Solvency II



Sharma Report 2002- one of the main triggers
for non financial measures in Solvency II
Main Findings of report: Majority of insolvencies
preceded by governance type shortcomings
Reduce dependence on capital requirements as
the only early warning signal by supplementing it
with qualitative measures such as governance
and public disclosure
Solvency II Legislative process
Lamfalussy Process




Level 1: The Directive
– Joint decision of the Council of Ministers and the
European Parliament
Level 2: Delegated acts
– Responsibility of the Commission, based on the advice of
EIOPA (but influence of Finance Ministries)
Level 3: Guidelines and implementing acts
– Responsibility of EIOPA
Level 4: Enforcement
– Responsibility of Commission; ensure all Member States
have implemented fully / correctly
What is purpose of Solvency II


Key aspect of Solvency II is to put in place a
regime which has
(i)
risk based capital requirements
(Pillar 1)
(ii)
complemented by relevant non-financial
measures (Pillar 2) and which
(iii)
enables as much transparency as
possible
through public reporting
requirements (Pillar 3)
It also consolidates Insurance Directives
Pillar 1 elements of Solvency II

Technical provisions

Own Funds

Solvency Capital requirement

Minimum Capital Requirement

Prudent Person Principal

Group Supervision
Pillar 2 & Pillar 3 elements of
Solvency II
 Principles
of Supervision
 Governance
Requirements sets out a
series of general framework
principles
 Public
Disclosure
Level 2 Delegated Acts
Fleshes out Level 1 Directive
 CEIOPS advice provided starting point for
this work
 Ongoing engagement with industry both
at local and European level
 Commission working group comprised of
Ministries of Finance and technical experts
have formulated draft text
 Council and Parliament will have a period
time to consider these Delegated Acts
 Will be implemented as Regulations

Further points to note
 Proportionality
Solvency II
 Efforts
is a key feature of
been made to reduce
complexity
 Simplifications
When does Solvency II come into
force
1
January
2013
Transitionals





An aspect of Level 2 measures are transitionals
This area is still being worked upon
General acceptance that transitionals are necessary in
areas such as
(1) Own funds – hybrid capital
(2) Reporting/Public Disclosure
(3) Third country equivalence
Proposals for transitionals in other areas however no
agreement on this issues yet and much resistance to some
of the proposals.
Simplest message for the moment is work towards
implementation on the basis that transitionals will be kept
to a minimum: otherwise you may find yourself not
sufficiently ready on 1 Jan 2013
Purpose of Omnibus II
 Change
the date of entry into force
of Solvency II
 To facilitate the making of
implementing technical standards
 To facilitate the settlement of
disagreements
 Specific tasks for EIOPA
 Lisbonisation of Solvency II Directive
 Transitionals
Transposition of Solvency II
 Currently
working on the
transposition project
 Maximum harmonisation regime so
little scope for discretion
 Will consult with industry
 Large exercise: would hope to have
it completed by Oct/Nov next year
Questions?