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INSURANCE REGULATORY OVERVIEW:SOLVENCY II, PENSIONS FREEDOM AND ….
Date: 17 November 2016
CONTENTS
Facts and figures for 2016
Solvency II – effects
Beyond Solvency II (other changes)
Worldwide changes
Lessons learnt from regulatory interaction
Overview
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How regulations can affect your business …
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George Osborne 19 March 2014“Let me be clear. No one will have to buy an annuity.”
Retirement Market – Sales 2012-15
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0.5
1.0
1.5
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Q4 2012 Q4 2013 Q4 2014 Q4 2015
Sales (£bn)
Annuities
Drawdown
Solvency II objectives
Consumer protection: – Uniform and enhanced level of policyholder protection across the EU – Robust system to give greater policyholder confidence in the products of insurers Harmonisation: – More emphasis on promoting better regulation and comparability between firms Risk management: – Risk sensitive approach– Increased focus on the management of a firm’s own risk management processes from governance through to operations Financial stability: – Addressing regulatory arbitrage that existed under Solvency I
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Solvency II achievements to date?
Consumer protection: – Enhanced level of policyholder protection across the EU – but not uniform!– Robust system being developed – some territories more robust than others!Harmonisation: – Comparability to be seen when full SFCRs published next May– College of supervisors will help greater harmonisation across EURisk management: – Risk sensitive approach is very sensitive to interest rate changes!– Risk management processes continue to be enhancedFinancial stability: – New areas for regulatory arbitrage !!
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Solvency II achievements to date?
Regulatory information:
– Quantum leap in information available to national regulators
– Data analytics being used at PRA to critically assess and utilise information provided
– Ability to do (more) peer review analyses and deep dives
– EIOPA now sitting on a vast mountain of information from national supervisors…
Regulators:
– Stretched?
– New rules, models, applications to review and approve
Risk sensitivity and Transitionals:
– SII balance sheets show greater volatility from interest rates in particular during 2016
– Transitional reliefs have been helpful to offset/reduce volatility
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Treasury Select Committee Solvency II review
Current enquiry into EU Insurance Regulation covering the areas including:
• Competitive implications of SII
• Implementation of SII
• Safety and soundness
• Proportionality
• Financial reporting
• Wider implications of SII (eg impact on policyholders)
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Beyond Solvency II
Brexit!
• Soft Brexit
UK may not be part of the SII review in 2017
So may have no influence on future developments
• Hard(er) Brexit
More flexibility to tailor regulatory regime to suit needs of UK,
But divergence may affect equivalence
Passporting may not affect UK Life insurers significantly at present
More important for international insurers, reinsurers and asset managers
Will impact where international insurers choose to place their European
headquarters
• For UK – economic impact more immediate?
Interest rates: lower for longer
Affect long term investment in the UK
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Other regulatory initiatives around the globe
• China – Risk Oriented Solvency System – C-ROSS
Introduced by Chinese Insurance Regulatory Commission in 2015
Elements of Solvency II – 3 Pillars, governance, risk focus (CRO role), risk-based capital
requirements, disclosures
• USA – Principles Based Reserving
Standard Valuation Laws enacted in 2009 but only operational once majority of states have adopted
Majority have now adopted and as of 1 January 2017 new rules operate
Reserves will be greater of traditional US GAAP and “realistic reserve”
• USA – ORSA
Own risk and solvency assessment
Effective 1 January 2015, first review 2016
Private, prepared annually by medium and large firms
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Other regulatory initiatives around the globe
• International Association of Insurance Supervisors
Consultation paper on global capital adequacy standard – the Insurance Capital Standard (ICS v1.0)
For international Insurance Groups and G-SIIs
Initial, confidential reporting mid-17
ICS v2.0 expected late 2019
• IFRS 17 – Insurance accounting standard to replace IFRS 4
Will apply to insurance contracts (not investment contracts sold by insurers)
Final standard expected in 2017 (Q2?/Q3?)
To be formally accepted and adopted by EU
Greater comparability of insurers balance sheets/profitability across Europe
Transitional arrangements
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Lessons learned from regulatory interaction
• More is expected – regulatory expectations have increased
More data and faster
Stronger governance
Greater awareness of risks
• Regulator has more data
Starting to run more granular benchmarking
Analysis - e.g. “Managing in a soft market”
• Thematic reviews
Reserving
Annuity sales
Legacy products
• SIMR aims at greater accountability for senior managers
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Conclusions
Time for companies to take back control!
• Take a good look at what may come next
• Solvency II audit
• Brexit
• Solvency II review
• IFRS17
• Make sure you have governance, systems, processes and resources for
all the information you will need to produce
• Be thoughtful about the regulatory relationship
……Get on the front foot and be fully prepared!
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QU
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Mazars LLP is the UK firm of Mazars, the international advisory and accountancy organisation. Mazars LLP is a limited liability partnership registered in England with registered number
OC308299.
© Mazars LLP 2016
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