insurance supervision in america - gob.mx...insurance supervision in america national, regional and...

Insurance Supervision in America

National, Regional and Global Financial Stability: Perspective from México

September 9th, 2016

JOSÉ GERARDO LÓPEZ HOYOVICEPRESIDENT ANALYSIS AND SECTORAL STUDIES, INSURANCE AND SURETY NATIONAL COMMISSION (CNSF-MÉXICO)

Contents

1

2

3

BACKGROUND

THE NEVER ENDING STORY

ADAPTING THE FRAMEWORK

WORLDWIDE-NATIONAL EFFORTS

CLOSING REMARKS

FINAL COMMENTS

Financial Stability The Never Ending Story

Some History*…

TulipmaniaMarch, 1637

• During the Dutch Golden Age• Contract prices for tulip bulbs reached extraordinary high prices and

suddenly collapsed.• First recorded speculative bubble.

1720 Financial Crisis

• South Sea Bubble (Great Britain) and Mississippi Bubble (France)• Bond and Stock emission in Europe on America Investments • Stock bubble burst after loosing investors confidence.

Crisis of 1772

Panic of 1792

Panic of 1796-97

• 20 Banks in London went bankrupt after one banking house defaulted

• Run on banks in US after credit expansion of the Bank of the United States

• British and US credit crisis caused by land speculation bubbleMainly derived from insufficient regulation/supervisionMainly derived from other problems *This Time is Different: Eight Centuries of Financial Folly (Reinhart & Rogoff 2009)


19th Century

• Danish state bankruptcy of 1813• Panic of 1819• Panic of 1825 • 1836-185 – Railway Mania• Panic of 1847 • Panic of 1866 • Panic of 1873 – “Long Depression”• Panic of 1884• Panic of 1890• Panic of 1893 – Collapse of railroad overbuilding• Australian banking crisis of 1893• Panic of 1896 –drop in silver reserves

• Panic of 1901 • Panic of 1907• Panic of 1910–1911• 1910 – Shanghai rubber stock market crisis• 1921-1923 – Germany’s hyper-inflation• Crash of 1929 Black Tuesday “Great Depression”• 1973 – 1975 Oil crisis• 1980s – Latin American debt crisis• Bank stock crisis (Israel 1983)• 1987 – Black Monday• 1989–91 – US Savings & Loan crisis• 1990 – Japanese asset price bubble collapsed• early 1990s – Scandinavian banking crisis• 1992–93 – Black Wednesday – speculative attacks on

currencies (Euro Exchange Rate Mechanism)• 1994–95 Speculative attack and default on Mexican

debt (Tequila effect).• 1997–98 Asian Financial Crisis• 1998 Russian financial crisis

20th Century

Mainly derived from insufficient regulation/supervisionMainly derived from other problems


• 2000–2001 Turkish economic crisis• 1999-2002 Argentine economic crisis

• After U$-Arg$ parity, Currency run“Corralito & Cacerolazo”

• 2001 – Bursting of dot-com bubble – speculations concerning internet companies crashed

• 2008-2011 – Icelandic financial crisis• 2007–08 – Global financial crisis after Real State-

subprime & Derivatives bubble. • 2010 European sovereign debt crisis• 2014 Russian financial crisis

21st Century

Mainly derived from insufficient regulation/supervisionMainly derived from other problems


Causes of financial crisis

Volatility caused by external factors

Microeconomic issues on financial systems

Asymmetric Information

Inadequate Regulation and Supervision

Derived from high leverage levels

Asset quality Asset-Liability

Management Liquidity Solvency

Common causes….

Financial Stability The Never Ending Story2008 Aftermath – Mexico Perspectives on its supervisory scheme in 2009*

• As a result of the global financial crisis of 2008, the CNSF conducted in 2009 a comprehensivereview of the main challenges to face in the near future regarding insurance regulation andsupervision:

* CNSF President’s presentation at the Conference of the Mexican Insurers Association, 2009.

Financial Stability The Never Ending Story2008 Aftermath – Mexico Perspectives on its supervisory scheme in 2009*

* CNSF President’s presentation at the Conference of the Mexican Insurers Association, 2009.

Contents

1

2

3

BACKGROUND




CLOSING REMARKS

FINAL COMMENTS

Worldwide Efforts FSB foundation

The subprime crisis that erupted in August 2008 was transformed into a systemic financial crisis,which epicenter was not only in the US, but moved to Europe and Japan and had a strong impacton the growth in emerging markets.

The Financial Stability Board (FSB) was created in response to the international financial crisis of2008-2009, under the decision of the Group of Twenty (G-20) in 2009, as a stronger and largersuccessor of the Financial Stability Forum (FSF).

The FSB is an international organism which pursues the effectiveness and stability of theinternational financial system, and is formed by the ministries of finance, central banks andfinancial bodies of the member countries.

Worldwide Efforts FSB objectives and mandate

Article 1. Objectives of the Financial Stability BoardThe Financial Stability Board (FSB) is established to coordinate at the international level the work ofnational financial authorities and international standard setting bodies (SSBs) in order to develop andpromote the implementation of effective regulatory, supervisory and other financial sector policies.In collaboration with the international financial institutions, the FSB will address vulnerabilitiesaffecting financial systems in the interest of global financial stability.

Article 2. Mandate and tasks of the FSB(1) As part of its mandate, the FSB will:

(a) assess vulnerabilities affecting the global financial system…(b) promote coordination and information exchange among authorities…(f) set guidelines for and support the establishment of supervisory colleges;(g) support contingency planning for cross-border crisis management, particularly with respect

to systemically important firms;(2) The FSB will promote and help coordinate the alignment of the activities of the SSBs to addressany overlaps or gaps … relating to prudential and systemic risk, market integrity and investor andconsumer protection, infrastructure, as well as accounting and auditing.

Worldwide Efforts FSB Framework

International Financial InstitutionsBank for International Settlements (BIS)International Monetary Fund (IMF)Organization for Economic Co-operation and Development (OECD)The World Bank

International Standard-Setting and Other BodiesBasel Committee on Banking Supervision (BCBS)Committee on the Global Financial System (CGFS)Committee on Payments and Market Infrastructures (CPMI)International Association of Insurance Supervisors (IAIS)International Accounting Standards Board (IASB)International Organization of Securities Commissions (IOSCO)

Worldwide Efforts FSB Recent Work

Recent FSB Press Releases:

02/09/16: FSB and IMF publish progress report on second phase of G20 Data Gaps Initiative01/09/16: FSB publishes second progress report on measures to reduce misconduct risk31/08/16: FSB reports to G20 Leaders on financial regulatory reforms

IMF, FSB and BIS publish Elements of Effective Macroprudential Policies26/08/16: FSB publishes progress reports on implementation of reforms to the OTC derivatives market and on

removal of barriers to trade reporting 25/08/16: FSB publishes progress report to G20 on action plan to assess and address the decline in

correspondent banking18/08/16: FSB publishes further guidance on resolution planning and fifth report to the G20 on progress in

resolution17/08/16: FSB completes peer review of India16/08/16: FSB publishes discussion note on Essential Aspects of CCP Resolution Planning and progress report

on CCP workplan08/08/16: FSB launches peer review of the G20/OECD Principles of Corporate Governance and invites

feedback from stakeholders 19/07/16: FSB publishes progress report on implementation of recommendations to reform major interest

rate benchmarks22/06/16: FSB publishes Proposed Policy Recommendations to Address Structural Vulnerabilities from Asset

Management Activities

Implementation IssuesPolicy Issues



06/06/16: FSB releases guidance on resolution planning for systemically important insurers27/05/16: FSB Americas RCG discusses FSB priorities, financial reforms, correspondent banking and asset

management activities25/05/16: FSB publishes Thematic Review on the Implementation of the FSB Policy Framework for Shadow

Banking Entities25/04/16: FSB Regional Consultative Group for Sub-Saharan Africa discusses implementation and effects of

regulatory reformsFSB Regional Consultative Group for the Middle East and North Africa discusses regulatory reforms

18/03/16: FSB publishes Second Thematic Peer Review on Resolution Regimes23/02/16: FSB releases report on possible measures of non-cash collateral re-use7/12/15: FSB publishes fourth EDTF report on bank risk disclosures4/12/15: FSB RCG for the Americas discusses financial stability reforms and reductions in correspondent

banking19/11/15: FSB completes Peer Review of Turkey18/11/15: FSB publishes Standards and Processes for Global Securities Financing Data Collection and

Aggregation12/11/15: FSB publishes reports on transforming shadow banking into resilient market-based finance 10/11/15: FSB publishes fourth progress report on compensation practices




09/11/15: FSB issues final Total Loss-Absorbing Capacity standard for global systemically important banksFSB publishes report on implementation and effects of the G20 financial regulatory reformsFSB proposes creation of disclosure task force on climate-related risks

06/11/15: FSB releases report to G20 on the decline in correspondent bankingFSB releases progress report on reducing misconduct risk in the finance industry

05/11/15: FSB completes Peer Review of Saudi Arabia04/11/15: FSB reports describe progress in implementing OTC derivatives market reforms… 03/11/15: November 2015 New measures to promote resolvability, including effective cross-border resolution

FSB publishes the 2015 update of the G-SIB listFSB publishes the 2015 update of the G-SII list

01/10/15 FSB releases progress report on FX benchmark reforms22/09/15 Progress report on work to enhance CCP resilience

Recent FSB reports to G20 Finance Ministers and Central Bank Governors 13/08/15 FSB completes Peer Review of China 30/07/15 Next Steps on the NBNI G-SIFI Assessment Methodologies 24/07/15 Progress in Implementing OTC Derivatives Market Reforms 09/07/15 FSB publishes an interim report on Progress in Reforming Major Interest Rate Benchmarks 02/07/15 FSB launches and invites feedback on its Peer Review on implementation of the FSB policy framework

for shadow banking entities


National Efforts The Case of Mexico

Mexico’s regulatory framework is part of the international efforts towards the standardization offinancial regulation and supervision, as the basis for preserving the stability of the global financialsystem.

In this context, three are the most relevant experiences that serve as reference for Mexico’sRegulatory Framework:

1. Principles and standards developed by the International Association of InsuranceSupervisors (IAIS).

2. Recent developments regarding solvency models, which included an analysis, amongothers, of the European Project of Solvency II, the Solvency Modernization Initiative ofthe United States and the Swiss Solvency Test.

3. The key lessons derived from the international financial crisis of 2008 in terms of riskmanagement, corporate governance, transparency and market discipline, which, despitenot having generated significant adverse effects on the Mexican financial system, offeredthe opportunity to prevent similar situations in the future of our financial market.

National Efforts The Case of Mexico

• In addition to the adjustments made in the regulation and supervision of Mexican insuranceand surety sectors, in 2014 was created the Mexican Council for Financial System Stability(Consejo de Estabilidad del Sistema Financiero Mexicano, CESF).

• The CESF is the permanent authority in charge of the coordination, evaluation and riskanalysis regarding financial stability among the authorities that comprise it, and its objectiveis to avoid interruptions or substantial alterations in the functioning of the financial systemand, if necessary, to minimize their impact if they have place.

• The CESF must always respect the powers and duties that the legal framework gives to eachof the authorities that are represented in this council.

• Composed by: Ministry of Finance and Public Credit (SHCP)Central Bank (Bank of Mexico, BM)Banking and Securities National Commission (CNBV)

Insurance and Surety National Commission (CNSF)Retirement Savings System National Commission (CONSAR)

Bank Savings Protection Institute (IPAB)

National Efforts The Case of Mexico; Implementing ORSA

As an example of the adoption of international standards, the regulation in Mexico establishesthat insurance companies must perform a Own Risk and Solvency Assessment (ORSA), which is atool for decision-making and strategic analysis.

ORSA’s objective is to assess, in a continuous and prospectively manner, the overall solvency ofthe company, according to the needs related to the risk profile of each insurance institution.

The ORSA includes, amongst other elements, the evaluation of:

• the global solvency needs of the institution in accordance with its specific risk profile;

• the risk tolerance limits approved by the board of directors ; and

• the business strategy, including the monitoring of the possible future impacts over thesolvency, based on the dynamic solvency test.

In Mexico, the ORSA must be delivered in an annual basis to the CNSF.

Contents

1

2

3

BACKGROUND




CLOSING REMARKS

FINAL COMMENTS

Final Comments

• The CNSF has been seeking a higher level of compliance to international standards thatcontribute to international financial stability, among which are the Insurance Core Principles(ICP) of the IAIS.

• Among the basic principles related to financial stability are those who consider relevant theexchange of information. In this sense, the CNSF has become signatory of a significantnumber of Memoranda of Understanding with several countries including the IAIS MoU aswell as the ASSAL.

• Additionally, the CNSF has actively participated in various supervisory groups of globalinsurance groups, through the Colleges of Supervisors and multinational organizations.

Final Comments

• Episodes of financial instability are basically due to the lack of information therefore:

QUANTITATIVE ELEMENTS REVISION AND CONTROL MARKET DISCIPLINE

PILAR I PILAR 2 PILAR 3

Quantitative Information on risk

Assets & Liabilities

Information between Management &

ShareholdersCorporate Governance

Information and Transparency to

Stakeholders and Third Parties

Regulators and Supervisors must deal with such information and if the case, share it with other regulators and supervisors.

Insurance Supervision in America

National, Regional and Global Financial Stability: Perspective from México

September 9th, 2016

JOSÉ GERARDO LÓPEZ HOYOVICEPRESIDENT ANALYSIS AND SECTORAL STUDIES, INSURANCE AND SURETY NATIONAL COMMISSION (CNSF-MÉXICO)

insurance supervision in america - gob.mx...insurance supervision in america national, regional and...

Documents