Business models are different, risks are different and thus regulatory measures are also different. Iorp ii 2 what are the major issues for pension schemes. Those occupational pension savings regulated by the iorp directive are mostly found in just two countries the united kingdom 5 5. The european insurance and occupational pensions authority eiopa has created two model pension benefit statements to provide practical guidance on how to implement the annual information document that iorps are required to send to their members following the implementation of the iorp ii directive. It represents approximately twothirds of the basic solvency capital requirement bscr for a life solo insurance undertaking, onethird for a nonlife solo undertaking, and globally more than a half of the whole eu insurance markets capital charge. As such, in building our quantitative analysis of the impact of the proposed changes we have relied heavily on the current structure of the solvency ii directive. The solvency ii framework sets out strengthened requirements around capital, governance and risk management in all eu authorised reinsurance.
Solvency ii whereas solvency i phase aimed at revising and updating the current eu solvency regime, the solvency ii project has a much wider scope. Solvency ii framework, it is likely that any implementation for application to pension schemes would require extensive reproduction. Primarily this concerns the amount of capital that eu insurance companies must hold to reduce the risk of insolvency. Bafin has published its findings from the figures reported for the individual classes of insurance for the first time since the new supervisory regime, solvency ii, entered into force on 1 january 2016. Comparison of the regulatory approach in insura nce and banking in the context of solvency ii 0.
Status on solvency ii and its challenges for actuaries the directives requirements the latest consultation papers why harmonisation of technical provisions across europe is difficult the current discussion between ceiops and groupe consultatif best estimate papers discussion on actuarial function. It comes into effect for firms from 1 january 2016. Iorp ii focuses on the governance of pension schemes and on their communications with individual members. Nov 30, 2015 solvency ii analysts briefing 15 continuity in capital resources despite new methodology solvency ii balance sheet and own funds reconciliation afr to own funds 38. The discussions around iorp ii began in 2011, when the ec issued a call for advice1 on potential changes to the 2003 pensions directive. The potential application of solvency ii to pensions is set to change the pensions landscape over the next few years. Swedish pensions lobby says new iorp ii rules too close to. The solvency ii directive is a new regulatory framework for the european insurance industry that adopts a more dynamic riskbased approach and implements a nonzero failure regime, i. Iorp holistic balance sheet eiopa call for advice quantitative impact study or qis. The solvency ii directive 2009 8ec is a directive in european union law that codifies and harmonises the eu insurance regulation. The iorp ii directive stresses that the further development at the eu level of solvency models, such as the hbs, is not realistic in practical terms and not effective in terms of costs and benefits, particularly given the diversity of iorps within and across member states. The solvency ii regulatory framework has different layers at supranational level. Solvency ii and internal models actuaries institute. The original iorp ii proposals have been significantly watered down.
As anticipated, the solvency ii requirements concerning the amount of capital that eu insurance companies must hold to reduce the risk of insolvency have not been extended to occupational pension schemes for the time being. Eiopa report on the iorp ii pension benefit statement. This presentation based on an imf working paper explores similarities and differences between banks and insurers and between basel iii and solvency ii. Indeed eiopa is currently working on a quantitative impact study and a. However, although qis5 is the final test of solvency ii, the full implications of the directive have yet to emerge in a number of areas. The solvency ii directive was transposed into irish law as the european union insurance and reinsurance regulations 2015 s. Directive eu 20162341 of the european parliament eurlex. No quantitative capital requirements such as solvency ii or hbs models. Clearly define roles and responsibilities help identify gaps and weaknesses provide comfort to regulators members big advantages for small schemes should actually reduce risk. Solvency i has established more realistic minimum capital requirements, but still it does not. Eiopas draft response to the ec on solvency ii opinion pieces ipe. Framework directive 20098eu, introducing the essential principles of the new regime regulation 201535eu the socalled delegated acts a second level measure, containing detailed measures on the new regime, recently amended by eu delegated regulation. Directive eu 20162341 of the european parliament and of the council of 14 december 2016 on the activities and supervision of institutions for occupational retirement provision iorp ii introduces amongst other information requirements the obligation for iorps to draw up a pension benefit statement, which should be made available to each member at least annually. The european commission is exploring ways to better protect consumers when their insurer becomes insolvent and cannot meet their claims.
Pdf solvency ii solvency capital requirement for life. The impact of regulating occupational pensions in europe on. Crd iv coverage globally active banks all eu insurers legal status must be transposed into local legislation eu directive main drivers refines basel ii in reaction to recent financial crisis. The solvency ii directive applies to all eu insurance and reinsurance companies with gross premium income exceeding 5 million or gross technical provisions in excess of 25 million. The european commission is examining how to strengthen the capacity of the insurance sector to insure against natural and manmade disasters. From solvency i to solvency ii, a long journey what are the solvency requirements used for 04 how we were 05 the transition towards the new regulation 06 the new prudential discipline principles the concept of risk 07 the black swan 08 a scale always in balance 09 a building that rests on three pillars 10 the role of supervision changes 11. At an early stage, the proposed directive was referred to as solvency ii for pensions, reflecting its similarity to the insurance directive of the same name. The term contract implies that the iorp itself is one of the key parties to the agreement to provide benefits but it is commonly the case that the principal agreement is between the sponsor and the employee, with the iorp acting as a delivery vehicle for the benefits outlined in that agreement, as set out in the iorps legal documentation. Revision to occupational pensions directive iorp ii.
Risk management for pensions society of actuaries in ireland. Solvency ii sets out regulatory requirements for insurance firms and groups, covering financial resources, governance and accountability, risk assessment and management, supervision, reporting and public disclosure. Different histories and drivers 11 basel iii solvency ii underlying source regulators bcbs eu commission c. Meanwhile there are other issues which companies risk overlooking. Iorp ii the european commission has today adopted its proposed directive on the activities and supervision of occupational retirement institutions iorp ii. C67811, commission vs spain it must be noted that the services offered by pension funds and insurance companies in relation to occupational pension schemes are services within the meaning of article 57 tfeu. Some aspects of solvency ii are likely to make iorp ii more effective. Jan 03, 2016 under solvency ii, insurers will need enough capital to have 99. As the iorp ii governance and disclosure requirements are largely modelled on solvency ii, we expect any frps vehicles arising from an insurers retirement business to be mostly compliant with the iorp requirements although some modest changes may be required. The purpose of the guidelines is to adopt a consistent and convergent approach to solvency ii preparation across europe and to mitigate the risk that supervisors will adopt their own approaches at a national level.
Pensionseurope position paper on the proposal for an iorp ii. It then highlights possible unintended consequences of basel iii and solvency ii on topics such as cost of capital, funding patterns, interconnectedness and product andor risk migration. This paper examines the consequences for a life annuity insurance company if the solvency ii solvency capital requirements scr are calibrated based on expected shortfall es instead of valueat. See also eiopas own mapping exercise under section 5. Solvency ii capital calculations goals of calculations u.
The associations assessment is that the regulations are too heavily based on solvency ii, which leads to an. Eu asset management reg framework mutual funds ucits aifs structured products, spvs private banking life insurance pension funds distribution mifiducits aifmdeltif mifid idd pepps pepps disclosure priips aifmd mifid priips iorp ii asset allocation ucits iv mmf crdiv solvency ii iorp ii prudential ucits v aifmd crdiv solvency ii. This consultation paper constitutes the first step of the further work on solvency of iorps that eiopa is undertaking on its own initiative. Readers are encouraged to be aware of and monitor the ongoing developments. In particular, the proposal to operate solvency ii style minimum capital balance requirements has been dropped.
The next steps are to produce technical specifications in view of an eiopa quantitative impact assessment and, subsequently, technical advice to the european commission on eu solvency rules for iorps. Consultation paper on further work on solvency of iorps. Pensions conference 2012 celene lee, graham collins and. Occupational pensions revision of the institutions for occupational retirement provision directive iorp ii summary in 2014, the european commission proposed a revision i orp ii of the existing. The iorp ii directive sets common standards ensuring the soundness of occupational pensions and better protects pension scheme members and beneficiaries, by means of among others. In contrast to solvency ii directive 20098ec, iorp ii leaves room for national. Insurance europe understands that the draft specifications in this document have been developed by making use of the latest technical specifications for solvency ii. We the fca are changing our rules, both to transpose some of the articles and to harmonise our rules with the directive. Directive extensive role for eu commission and eiopa in formulating and setting guidelines has led to delegated regulation level 2, implementing technical standards level 3, harmonises solvency requirements across eu for single market iorp ii minimum harmonisation. Deadline comments template on january 2015 consultation. Pursuant to article 89 of the solvency ii directive, ancillary own funds are ownfund items other than basic own funds which can be called up to absorb. They are services normally provided for remuneration, the essential characteristic of which lies in.
Implementing the iorp directive in europe willis towers. If enacted as expected, member states will be required to implement its. This eiopa solvency ii dpm and xbrl taxonomy package release 2. Although we understand that the issue of defining contract boundaries under solvency ii has been fraught with difficulties. Removing remaining prudential barriers to crossborder schemes the proposed directive seeks to iron out inconsistencies between member states and so simplify the operation and increase the setup of crossborder schemes. The consultation issued by eiopa, on its draft response to the ecs questions.
The iorp ii directive sets common standards ensuring the soundness of. No quantitative capital requirements, such as solvency ii or hbs models. Bafin solvency ii solvency ii own funds and own funds. Solvency ii central bank of ireland central bank of ireland. Comparison of the regulatory approach in insurance and. Cbi solvency ii matters 7 may consultation open until 19 june. Own funds consist of basic own funds and ancillary own funds. Solvency ii cgc governance framework very useful a lot of advantages to a structured approach to risk management. Jan, 2017 the original iorp ii proposals have been significantly watered down.1538 779 850 421 1247 301 1081 1486 431 1305 1493 359 1478 389 494 1474 192 236 212 696 341 596 343 1314 568 536 427 63 186 1167 686 1096 233 1169 632 994 1318 910 1255