Solvency II: almost there IIS 43RD Annual Seminar Berlin 9 July 2007 Karel VAN HULLE Head of Unit, Insurance and Pensions, DG Markt, European Commission

Proposal for a Framework Directive July 10th 2007 13 existing Insurance Directives (direct insurance, reinsurance, groups etc.) + Solvency II Codification & New Articles Recast & Codification = 1 Directive ‘EU Insurance sourcebook’

Solvency II – 4 Principal Objectives Deepen the Single Market Enhance policyholder protection Improve (international) competitiveness of EU insurers Further Better Regulation

The new regime… Introduces an economic risk based approach that will reward good risk management and enhance policyholder protection Places emphasis on the responsibility of senior management to manage their business responsibly Fosters and demands greater supervisory convergence across the Community Takes account of international developments (IAIS, IASB)

Legislative Process - Lamfalussy Level 1: Framework Directive Level 2: Implementing Measures Level 3: Convergent implementation assisted by close co-operation between national authorities Level 4: Rigorous enforcement of Community legislation by the Commission

Many players & stakeholders in the process… Solvency II was developed bottom up and not top down following intensive consultation & dialogue with Industry (CEA/AISAM/ACME/CRO/CFO) Professionals (e.g. actuaries) Supervisors: Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) Member State Experts European Parliament and Council of Ministers negotiate and have final say over the Directive that will be proposed by the Commission Implementation by Member States and by all EU insurance and reinsurance undertakings

Quantitative Impact Studies Key element of Better Regulation QIS 3 April – June 2007 Analysis and conclusions from QIS3 will be published in October 2007 Results will feed into negotiations, changes to high-level framework if necessary QIS 4 will take place in 2008 following consultation with stakeholders QIS4 will feed into development of implementing measures

Solvency II timetable for 2007-2011 2005 2006 2007 2008 2009 2010 2011 Directive development (Commission) Directive adoption ? (Council & Parliament) Implementation ? (Member states) CEIOPS work on technical advice necessary for implementing measures / supervisory convergence / preparation for implementation / training & development Commission preparatory work on possible implementing measures Adoption of Implementing measures July 2007 Solvency II Directive published QIS 1 QIS 2 QIS 3 QIS 4

Solvency II – Objective: … modern, innovative and liberal regime for the prudential supervision of insurers, based on sound economic principles…

Issues of particular importance Relationship between MCR and SCR Impact assessment and further impact studies Treatment of small and medium sized enterprises Group supervision Investment in equity Solvency regime for pension funds Level of detail of the Framework Directive Treatment of third country insurers and reinsurers

Role of CEIOPS CEIOPS has done a tremendous job in helping the Commission to shape the project and will continue to be a privileged partner advising the Commission From a legal point of view, no formal implementing measures can be drafted before the Directive has been adopted A work programme on Solvency II will have to be agreed between the Commission and CEIOPS with a clear prioritisation CEIOPS will also be asked to help in the assessment of the likely impact of the proposed follow-up measures

Role of the industry Will continue to be closely involved in the elaboration of the project Ideally, industry should operate in unity and not in diversity Concentrate on the essence in order to keep the momentum Active participation in the discussion of the results of QIS 3 and the preparation of QIS 4

Conclusion Solvency II is all about improving risk management and rewarding already existing good practice Updating risk managment processes and practices into a company takes time Insurers need to start preparing now, if they do not want to be caught out when Solvency II comes into force The future belongs to those who prepare for it now