Recovery and resolution and macro-prudential implications

Transcription

1 Recvery and reslutin and macr-prudential implicatins Prf. Karel Van Hulle KU Leuven EIOPA Seminar Recvery and Reslutin in Insurance Amsterdam, DNB, 25 Octber 2018

2 Advance warning Academic literature n R&R is dealing primarily with banks, but: what is gd fr banks is nt necessarily gd fr insurance Research n insurance (failure) ften lks at the US because f data availability, but the US is nt the EU Insurance failures in the EU are (frtunately) nt numerus Lessns learnt frm insurance failures under Slvency I cannt be simply extraplated t a Slvency II wrld Slvency II is still yung and we have little experience abut its impact n insurance failure Macr-prudential plicy is still in the making Cnclusin: we must be mdest in ur arguments 2

3 Insurance failures The failure f an insurer is likely t have negative effects fr stakehlders, including plicyhlders, emplyees, custmers and creditrs It has been said (GA) that, thrughut histry, the failure f an insurer has never caused a systemic financial crisis, as ppsed t banking failures It is indeed unlikely that an insurance failure leads t a disruptin t the flw f financial services that is (i) caused by an impairment f all r parts f the financial system, and (ii) has the ptential t have serius negative cnsequences fr the real ecnmy (systemic risk definitin) 3

4 Insurance failures have happened A study f 3 US and 8 Japanese life insurance inslvencies in the past 2-3 decades shws that the regulatry regimes, withut specific recvery and reslutin measures, were able t mitigate the impact n plicyhlders and t sustain the financial stability f the markets In the EU, public interventin tk place during the financial crisis, in the case f Ethias, KBC, Aegn, ING and SNS Reaal in rder t restre market cnfidence The EIOPA data base als shws that there have been a number f failures and near misses in the EEA 4

5 Objectives f insurance regulatin Prtectin f plicyhlders and beneficiaries and financial stability The debate abut R&R clearly shws that there can be cnflicts between bth bjectives Frm a macr-prudential perspective, it may be desirable t apply reslutin tls which negatively affect the rights f existing plicyhlders r beneficiaries in the interest f financial stability Which bjective shuld cme first and shuld an R&R framewrk als serve ther bjectives as prpsed by EIOPA? 5

6 Plicyhlder prtectin It is pssible t develp a regulatry regime that prtects plicyhlders fr 100%, but: that might be the end f the insurance industry Supervisin is still carried ut as if the cnfidence level f the slvency regime were 100% We must learn t accept that insurers can fail and must be clear abut the limits f the regulatry regime In an ideal wrld we wuld have Slvency II, cmbined with IGS and with R&R, designed at the same time If we nw intrduce IGS and R&R, we need t ensure that the regulatry regime is cherent 6

7 Macr-prudential plicy It is still unclear whether and t what extent insurance is systemically relevant (ABA v EBA) Althugh we d nt knw exactly what insurance is, it is clear that nt all insurers are systemically relevant It is presumed that insurers might becme systemically relevant, fr instance if many life insurers wuld fail at the same time r if substitutability n lnger exists The IAIS has a special regime fr G-SIIs which are subject t an enhanced R&R framewrk used as a tl t address the t-big-t-fail issue 7

8 Why d we have this debate? Insurance regulatin in the EU and in MS is dealing primarily with living entities (and this shuld remain s) Slvency II deals a lt with preventin f failure Slvency II des nt specifically deal with the cnsequences f a failure, beynd the ultimate supervisry actin in the case f a breach f the MCR Tw exceptins frm the past: rerganisatin measures and winding up (Title IV FD) but minimum harmnizatin Adpting a mre cherent apprach t insurance failures is in the interest f plicyhlders and financial stability 8

9 Early interventin under Slvency II Existing early interventin mechanisms Supervisry Review Prcess with early warning indicatrs Supervisrs have many pssibilities t intervene if they believe that an insurer is experiencing difficulties ORSA and stress testing as part f risk management Supervisry ladder f interventin in the case f a breach f the SCR Recvery plan in the case f a breach f the SCR and pssibility t extend the recvery perid 9

10 Recvery planning Frm a macr-prudential perspective it is difficult t argue that all insurers shuld be required t draw up a preemptive recvery plan Prprtinality is difficult t apply in practice as there always is a tendency t versht. Preference shuld be given t clear unifrm criteria Pre-emptive recvery plans may be useful in the case f GSIIs, insurance grups and very large insurers A recvery plan shuld be specific t each insurer, i.e. the apprach shuld nt be t frmalistic 10

11 Reslutin planning Frm a macr-prudential prspective it is difficult t argue that reslutin authrities shuld draw up pre-emptive reslutin plans fr all insurers The scpe f applicatin must take accunt f the pssible impact f a failure fr plicyhlders and fr financial stability Here again, prprtinality may nt be a gd slutin and it is prbably better t set clear rules The reslutin authrity shuld ex-ante assess whether winding-up des nt prvide a better slutin 11

12 Reslutin EIOPA suggests the fllwing cnditins fr entry int reslutin: The insurer is n lnger viable r likely t be n lnger viabile and has n reasnable prspect f becming s; Pssible recvery measures have been exhausted r cannt be implemented in a timely manner A reslutin actin is necessary in the public interest I wuld replace the last cnditin by the necessity in view f the prtectin f plicyhlders and financial stability 12

13 Reslutin pwers The intrductin at EU level f a cmmn set f reslutin pwers with cnsistent design, implementatin and enfrcement features seems t be in the interest f plicyhlders and f financial stability: Sme f the pwers d nt yet exist in MS Sme f the pwers require a legal basis Prprtinality shuld be applied in such a manner that the implementatin f the pwers must take accunt f the size, nature and cmplexity f the insurer t be reslved and f the interest f all parties cncerned 13

14 Cncluding remarks Insurance failures with crss-brder implicatins and failures within the cntext f a financial cnglmerate warrant special attentin Minimum harmnisatin seems attractive but experience shws that it is ften a recipe fr truble Bail-in fr insurers might have macr-prudential cnsequences because f the crss-sectral implicatins Preventin and recvery shuld cme first taking int accunt wat already exists under Slvency II Expanding the reslutin pwers is in the interest f plicyhlders and financial stability 14