On 5-6 September 2013, EIOPA, in cooperation with the International Center for Insurance Regulation (ICIR), organised a second Conference on Global Insurance Supervision.
The objective of the conference was to provide a platform for the exchange of ideas and for discussions between supervisors, leading professionals and academics on strategic regulatory issues in the insurance sector.
The event took place in the Goethe University, Frankfurt and attracted roughly 100 selected participants from Asia, North America and Europe.
The conference consisted of three sessions:
I. Self-assessment of Risks in Insurance Companies
During the session, participants agreed that the Own Risk and Solvency Assessment (ORSA) of the company should be considered as a management tool, allowing appropriate reflection of nature, scope and complexity of insurers or insurance groups. ORSA provides executives with an opportunity to evaluate the current and expected solvency position of the company and to assess the associated business strategy and risk management policy. It was noted that, as a basis for discussion between companies and supervisors, ORSA would ultimately also lessen the amount of time that regulators and supervisors review historical financials and would allow for a risk-focused prospective review.
Gabriel Bernardino, Chairman of EIOPA, underlined that the ORSA is an opportunity for insurance companies to promote a strong risk culture in their organisations. “I don’t want to say that, by this, we should ignore the driving force of any business – the natural sales-driven culture. But the policyholder protection and the financial stability can be much better ensured if the sales-driven culture is counterbalanced by the ORSA”, he said.
At the same time, industry participants stressed that, prior to Solvency II implementation, any ORSA based on “best estimate” solvency capital requirement calculations and solvency ratios, must not result in supervisory action.
II. Supervisory Convergence
The financial crisis makes a strong case for convergence of both supervisory processes and regulatory requirements. As insurance is an increasingly global business, participants agreed that, in addition to improving financial stability, supervisory cooperation and convergence would lead to efficiency gains for companies, policyholders and supervisors alike and reduce any incentive for regulatory arbitrage. The Executive Director of EIOPA, Carlos Montalvo, encouraged the industry to push for global standards together with regulators since all parties will benefit from such convergence.
It was indicated that global standards should be clear and enforceable; however, some participants pointed out that global standards should allow for some flexibility to adjust to local market characteristics, while potentially unintended side-effects need to be monitored in the process of convergence.
III. The Search for Global Standards
Panellists concluded that the current global response to the crisis has a “soft” nature while national mandates remain the core programme of the governments and supervision has a “home bias” effect. Gabriel Bernardino indicated that a true level playing field for cross-border active companies can be ensured only by work at the worldwide level aimed at developing an integrated global regulation and supervision, fostering a common language between supervisors and improving international cooperation and information exchange. And the key role in this very challenging work should be given to the International Association of Insurance Supervisors (IAIS).
Participants also spoke about the necessity of standardisation, hard regulatory rules for systemically important financial institutions as well as strong legal enforcement of the regulatory framework. It was noted that global standards should be more granular, in order to prevent their inconsistent interpretation in different countries.
