Regulatory Developments in Europe

Transcription

1 Regulatory Developments in Europe International Actuarial Association Actuarial Association of Turkey Regional Conference 10 November 2017 İstanbul Vasilis Aggelou FHAS

2 Presentation Topics Solvency II PRIIPs IDD GDRP IFRS 9 & IFRS 17

3 Recent regulatory developments in Europe Timeline 7 years of intensive regulatory requirements & companies preparation 3 Directives and one Accounting standard in force in Jan Jan Jan Feb May Jan 2021 Solvency II preparetion phase Solvency II effective date IFRS 9, PRIIPs IDD GDPR IFRS 9, IFRS 17 3

4 Solvency II What is this? 3 pillars Survey (2016 Europe) Lessons learned Next steps and developments 4

5 Solvency II What is this? Solvency I: Solvency Framework as of 31/12/2015 Covers exclusively the Capital calculations by the use of methodologies that did not reflect the overall risks faced by a Company. Absence of holistic risk management view: RISK Capital Governance $ 5

6 Solvency II What is this? Solvency II: Solvency Framework effective as of 1/1/2016. Objectives: Customer protection through holistic risk management view Comparability of Capital needs Transparency of capital requirements $ RISK Holistic view of risk management at the center Capital Disclosures Governance 6

7 Solvency II Three Pillar approach Solvency II Pillar I Pillar II Pillar III Capital Requirements Valuation of assets & liabilities Own funds Governance Own Risk and Solvency Assesment (ORSA) Powers of regulators Disclosures to the Regulator (RSR) Public Disclosures (SFCR) Quantitative Requirements Qualitative Requirements / Governance Disclosures 7

8 Solvency II Pillar I Capital is calculated to cover all risks in one year horizon with ruin probability 1 in 200 years The methodology to derive the Capital requirement per each risk is based on Var calculations There are three acceptable approaches for the calculations: Standard Formula Partial Internal Model Full Internal Model Characteristics of standard formula: Predefined mathematical formula Predefined parameters for all companies and derived on pan-european studies 8

9 Solvency II Pillar I Solvency Capital Requirement (SCR) Market Risk Interest Rate Risk Equity Risk Property Risk Spread Risk Concentration Risk FX Risk Diversification Default Risk Non Life Risk Default Risk Type 1 Default Risk Type 2 Premium & Reserve Risk Lapse Risk CAT Risk = Operational Risk Basic SCR (BSCR) Adjustments Life Risk = = = = = Diversification Diversification Mortality Risk Longevity Risk Disability/Mor bidity Risk Lapse Risk Expense Risk Revision Risk CAT Risk 9 = Health Similar to Life Risk = Mortality Risk Longevity Risk Disability/Mor bidity Risk Lapse Risk Expense Risk Revision Risk Health Risk CAT Risk Health Similar to Non-Life Risk = Premium & Reserve Risk Lapse Risk CAT Risk Diversification Intangible Diversification Diversification Diversification 9

10 Solvency II Pillar I Assets that are eligible to cover Solvency Needs should meet particular criteria (Tiering of Own Funds) Solvency ratio = Elligibleown funds SCR SCR is subject to a minimum requirement (MCR). Regulatory intervention in case Eligible Own Funds lower than SCR ; MCR 10

11 Solvency II Pillar II Administrative organization (organization chart, roles & responsibilities) Risk Management System (including ORSA) Internal Control System Outsourcing WHO Fit & Proper assessment Key Function Actuarial Function Risk Management Function Compliance Function Internal Audit Function WHAT is doing HOW 11

12 Solvency II Pillar II - Risk management system and ORSA identification assesment measurement monitor & reporting Basic principles: Risk bearing capacity, Risk appetite, Risk profile 12

13 Solvency II Pillar III - Reporting requirements 8 weeks after the closing of the quarter and reduce by one week every year ending to 5 weeks as of 2020 SFCR(annually) / RSR(every three years), 20 weeks after the closing of the year and reduce by two weeks every year ending to 14 weeks as of / 1 / 2016 Q Q Q Q Q Q Q Q

14 Solvency II Survey 2016 Europe by EIOPA Investment mix by insurers in EEA 2016 Q4 14

15 Solvency II Survey 2016 Europe by EIOPA SCR ratios by country, weighted avg. 206% 265% 162% Total: 151% 228% 323% 269% 240% 223% 220% 162% 15

16 Solvency II Lessons learned, released Autumn 2017 Risk Management function is one of the most important functions in insurance governance systems Board members should possess risk management skills and sound risk management procedures Effective governance, like risk management, is not a tick-box exercise; instead good governance is one of the best tools to enable sound business practices ORSA The ORSA is conducted outside of the undertaking without the involvement of the company Making sense of risk with a more forward-looking approach EIOPA calls upon insurers to widen the scope of their risk assessment and to deepen the risk analysis (e.g. potential risks) EIOPA expects board members to use the ORSA results in their strategic decision-making process to enhance the overall risk management of undertakings 16

17 Solvency II Next steps and developments Consultation Papers on EIOPA s 1 st and 2 nd set of advice to the European Commission on specific items in the Solvency II Delegated Regulation Jul 2017 Revision of 1st set of specific items Dec 2017 Revision of 2nd set of specific items Oct 2017 Feb

18 PRIIPS Packaged Retail products and Insurance based Investment Products What is this? Key Information Document Regulator s intervention Where are we now & key challenges 18

19 PRIIPs What is this? What is the contribution of PRIIPs Regulation? PRIIPs, Packaged Retail and Insurance based Investment Products, is the first regulation on a European level to deal with pre contractual information What are the objectives of PRIIP s Regulation? Promote the emergence of a single European insurance market Ensure the comparability between similar products Improve transparency and increase investors confidence Harmonize the framework of administrative and financial penalties on a Europe-wide basis How does PRIIP s Regulation attempt to achieve these objectives? By defining a KID (Key Information Document) with standard format and content By making it compulsory to provide this KID prior to any proposal or a contract 19

20 PRIIPs What is this? As required from the Packaged Retail Investment & Insurance Products (PRIIPs) regulation from the European Parliament, from January 1st 2018 every product s manufacturer and distributor will provide to retail investors a Key Investment Document (KID) in order to improve the investment decision process. Under the new rules financial products are divided into four main categories: Category I: products in which the loss may be higher than the capital invested Category II: linear products Funds, unit linked Category III: non linear products Structured Products Category IV: products with non observable components Life with profit Sharing 20

21 PRIIPs Summary Maximum 3 A4 pages Stand alone document A person advising on, or selling, a PRIIP shall provide retail investors with the KID in good time before those retail investors are bound by any contract or offer relating to that PRIIP. KID Regular review of the content Stand alone document Easy to read, accurate and not misleading. Should be available in the language of the retail investor Where applicable, a comprehension alert 21

22 PRIIPs KID Key Information Document Contents dissected 9 Sections 1. Comprehension Alert 2. Identity Information Information about PRIIP manufacturer and its competent authority 3. What is this product? Type of PRIIP, objectives, Consumer type to whom PRIIP is intended to be marketed, Information on insurance benefits, The term of the PRIIP 4. What are the risks and what could I get in return? Brief description of the risk-reward profile, containing: a summary risk indicator with supplementary explanations; possible maximum loss of invested capital; [ ]

23 PRIIPs KID Key Information Document Contents dissected 9 Sections 4. What are the risks and what could I get in return? [cont d] performance scenarios; conditions for returns or performance caps; impact of tax legislation. 5. What happens if [name of the PRIIP manufacturer] is unable to pay out? Brief description of whether the related loss is covered by a compensation or guarantee scheme, if so,which risks are covered and which are not. 6. What is this product? Costs associated with an investment in the PRIIP, comprising direct and indirect costs, oneoff and recurring costs with summary cost indicators and aggregate costs; an indication of additional costs charged by advisors, distributors etc. must be included.

24 PRIIPs KID Key Information Document Contents dissected 9 Sections 7. How long should I hold it and can I take money out early? Applicable cooling off or cancellation period, minimum holding period, disinvestments before maturity, consequences of cashing in early 8. How can I complain? How and to whom complains can be made 9. Other relevant information? Brief indication of any additional information documents, excluding marketing material

25 PRIIPs Regulator intervention Prohibition or suspension Fines: Up to or 3% of the annual turn over or Twice the profits earned 25

26 PRIIPs Where are we now & key challenges Status Collection of Data Next steps: Design / Implementation / interpretation of results / automation process / publication Key challenges Automation vs manual Data requirements Competitiveness Interpretation of results Deadline: 31/12/

27 IDD The Insurance Distribution Directive What is this? Documents requirements Regulator s intervention Where are we now & key challenges 27

28 IDD What is this? How you sell products To Whom you can sell How you sell products To whom you can sell What products you (can) sell At what pice you can sell At what price you can sell Following the wave of other regulatory changes, such as MiFID II and PRIIPS Regulation, the IDD intends to strengthen consumer protection, improve the competitive landscape of the European insurance industry, and reduce cross-sectoral inconsistencies. However, the Directive is aimed at minimum harmonization and therefore does not preclude Member States from maintaining or introducing more stringent provisions. It is applicable for Pre-Contractual obligations by Manufacturer and Distributor 28

29 IDD What is this? 2 Target Market 3 Product design & precontractual information (IPID) 1 Periodical Review of Product Oversight & Governance (POG) Policy Product Design 4 Product testing Remedial Product testing 9 Product Update IDD Framework 5 Professional requirements 8 Product Monitoring Monitoring Training Distribution 7 Appropriateness Suitability (IBIP) 6 Conflicts of interest 29

30 IDD Documents requirements Pre-contractual information provided by the Distributor Conflicts of interest (a) its identity and address and that it is an insurance intermediary; (b) the procedures to register complaints about insurance intermediaries and about the out-of-court complaint; (d) the register in which it has been included and the means for verifying that it has been registered; and (e) whether the intermediary is representing the customer or is acting for and on behalf of the insurance undertaking; (f) whether it has a holding, direct or indirect, representing 10 % or more of the voting rights or of the capital in a given insurance undertaking; (g) whether a given insurance undertaking or parent undertaking of a given insurance undertaking has a holding, direct or indirect, representing 10 % or more of the voting rights or of the capital in the insurance intermediary; (h) in relation to the contracts proposed or advised upon, whether: (i) it gives advice on the basis of a fair and personal analysis; (ii) it is under a contractual obligation to conduct insurance distribution business exclusively with one or more insurance undertakings, in which case it is to provide the names of those insurance undertakings; or (iii) it is not under a contractual obligation to conduct insurance distribution business exclusively with one or more insurance undertakings and does not give advice on the basis of a fair and personal analysis, in which case it is to provide the names of the insurance undertakings with which it may and does conduct business; (i) the nature of the remuneration received in relation to the insurance contract; (j) whether in relation to the insurance contract, it works: (i) on the basis of a fee, that is the remuneration paid directly by the customer; (ii) on the basis of a commission of any kind, that is the remuneration included in the insurance premium; (iii) on the basis of any other type of remuneration, including an economic benefit of any kind offered or given in connection with the insurance contract; or (iv) on the basis of a combination of any type of remuneration set out at points (i), (ii) and (iii). 30

31 IDD Documents requirements Pre-contractual information provided by the Distributor [For Insurance Based Investment Products-IBIP] (a) customer s knowledge and experience in the relevant investment field ; (b) person s financial situation including that person s ability to bear losses; (c) person s investment objectives; and (d) person s risk tolerance Assessment of suitability & appropriateness 31

32 IDD Documents requirements Pre-contractual information provided by the Manufacturer (a) its identity and address and that it is an insurance undertaking; (b) whether it provides advice about the insurance products sold; (c) the procedures to register complaints about insurance intermediaries and about the out-of-court complaint; 32

33 IDD Documents requirements IPID Insurance Product Information Document

34 IDD Regulator intervention Prohibition or suspension Fines: Up to or 3% of the annual turn over or Twice the profits earned 34

35 IDD Where are we now & key challenges Status The Directive has been validated by European Parliament. Still pending the approval by the European Commission & European Council. Insurance Europe asked postponement on October Most of the companies just finalized the GAP Analysis Key challenges Define clients needs and target-customers Deadline: 23/02/2018 Assessing appropriateness and suitability of products 35

36 GDPR General Data Protection Regulation What is this? Where are we now? 36

37 GDPR What is this? GDPR: General Data Protection Regulation New set of rules governing the PRIVACY and SECURITY of PERSONAL data Personal data means the data that can drive you to the identity of one person 37

38 GDPR Legal & Compliance point of view Ensure clients rights: Access Correction Portability (clients can request copies of their data) Deletion Forgotten 38

39 GDPR Legal & Compliance point of view Fines, up to or 4% of the annual turn over Appointment of Data Protection Officer (Independent reporting line) Accountability of data protection (Audit trails) Proof if, how and to what extend personal data are secured Identifying and tracking data Flow of data within the organization to identify the personal data under processing Know WHAT data you have and HOW you processes it Demonstrate how data are HOLD / STORED / WHO is shared with WHOM 39

40 GDPR Technology point of view Breach reporting within 72h Privacy by design (data protection from the design of the systems) 40

41 GDPR Where are we now Status Most of the companies just started to conduct the GAP Analysis Flow of the data to derive personal data is the first challenge to surpass Deadline: 25/05/

42 IFRS 9 & IFRS17 IFRS 9 Financial Instruments Effective as of 1/1/2018 (for insurance companies, option of delaying implementation until 1/1/2021) New principles for the recognition, measurement, impairment, derecognition, general hedge accounting and disclosures of Financial Instruments IFRS 17 Insurance Contracts Replaces the current accounting standard IFRS 4 Effective as of 1/1/2021 More on this later... New principles for the recognition, measurement, presentation and disclosure of Insurance contracts 42

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