21 November 2012

EIOPA/Bernadino: Opening speech at EIOPA's second annual conference, "Reflecting on the achievements and preparing for the new challenges"

Insurance Regulation

In first place we need a strong commitment from the EU political institutions towards the implementation of Solvency II. This should prompt the definition of a clear and credible timetable based on a realistic assessment of the expected time needed to deliver the different milestones of the regime.

Secondly, we need to agree on a sound and prudent regime for the valuation of long-term guarantees. A regime that preserves the risk-based economic approach on the valuation and assessment of risk and that adequately captures the characteristics of certain long-term liabilities with sufficiently predictable matchable cash flows. This should be viewed as an opportunity to continue to offer long-term guarantees to consumers, but under a robust framework that would price correctly any options embedded in the contracts. The new regime should not work as an incentive to maintain unsustainable practices and products that are already challenged by the economic reality. We welcome the role that the EU political institutions are willing to attribute to EIOPA on the assessment of the long-term guarantee package and we hope to receive a clear mandate within the terms of reference in order to start the assessment as soon as possible.

Thirdly, even if a credible timetable will probably point out to an implementation date not earlier than 2016, it should be possible in an interim phase to start to incorporate in the supervisory process some of the key features of Solvency II, namely some elements related to Pillars 2 and 3. EIOPA is exploring this possibility, based on its powers under the EIOPA Regulation. This interim phase should be coordinated by EIOPA in order to ensure a consistent application throughout the EU.

Solvency II has been viewed internationally as a reference in risk-based regulation of insurance. In that sense many countries have considered elements from Solvency II while developing their own regimes. The lack of certainty about Solvency II implementation is challenging the EU credibility in the international discussions.

Financial Stability

We need to be clear and transparent on the objectives of the framework. If insurance groups heavily develop their business into non-traditional or non-insurance activities than they should expect to be treated in relation to those businesses as if they were banks. We need to limit any potential incentive for typical banking risks to be transferred to the insurance sector because some stricter regulation of systemic risk is applied in the banking sector.

As the development of the international approaches to deal with systemic risk in insurance is closer to an end, EIOPA will proceed, according to its regulation, and in consultation with the ESRB, with the development of criteria for the identification and measurement of systemic risk that may be posed by insurance, re-insurance and occupational pension’s institutions within the EU context.

Challenges

Looking forward, I am convinced that in a few years the setting up of the European Supervisory Authorities will be recognised as one of the most fundamental reforms in the European financial sector coming from the financial crisis. The potential benefits from the creation of a single rule book are huge, both for stability and consumer protection within the internal market.

Nevertheless, EIOPA is confronted with a number of important challenges. Let me mention three relevant ones:

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