In the process of implementing the EU Solvency II Directive (2009/138/EC), on October 31 2013 the European Insurance and Occupational Pensions Authority (EIOPA) published guidelines for insurers on the following points:
- systems of governance;
- prospective assessment of risks (based on their own risk and solvency assessment principles);
- transmission of information to the competent national supervisory authorities (ie, reporting); and
- the preliminary procedure for internal models (ie, pre-application) to enable companies to calculate their solvency capital requirement.
The guidelines were issued under Article 16 of EU Regulation 1094/2010 and were addressed to several national supervisory authorities. The guidelines anticipate parts of the future Solvency II prudential supervisory regime.
The guidelines are intended to ensure:
- timely preparation by insurance and reinsurance undertakings subject to Solvency II of their initial application (envisaged for January 1 2016); and
- a harmonised approach to Solvency II among EU member states.
The guidelines embody the proportionality principle referred to in Solvency II and require that account be taken, when applying them, of the nature, scale and complexity of the risks related to the company or group activity.
Based on the EIOPA guidelines, IVASS (the Italian insurance supervisory authority) submitted the following items for public consultation:
- amendments to ISVAP(1) Regulation 20/2008 (relating to internal controls, risk management, compliance and outsourcing of the activities of insurance undertakings);
- amendments to ISVAP Regulation 36/2011 (relating to technical reserves); and
- a draft letter to the market aimed at highlighting the more novel aspects of the existing Solvency I regime.
IVASS has proposed many amendments to Regulation 20/2008. The most notable of these are amendments to the provisions on the role of corporate bodies.
IVASS has indicated that the proposed amendment to Article 5 of the regulation (regarding the administrative body of undertakings) is of particular significance, as it is designed to facilitate the administrative body's growing awareness of and participation in the decision-making process. It has been proposed that the board of directors be asked to approve further management policies in addition to those already envisaged in relation to outsourcing and investment, with particular reference to the following aspects:
- criteria governing suitability for office in terms of professional integrity, not only for members of corporate bodies, but also for:
- those in charge of internal audits;
- risk management and compliance departments; and
- those with key positions in the management of the company;
- risk management;
- internal audits; and
- undertakings' internal and external reporting to the supervisory authority.
To ensure transparency in the management of undertakings and to provide a clear definition of the roles and responsibilities within the undertaking, provision has been made for the administrative body's approval and dissemination to all interested parties of a document stipulating:
- the duties and responsibilities of the corporate bodies, board committees and risk management, compliance and internal audit departments; and
- the information flows between these bodies.
Judging from the documentation submitted by IVASS for public consultation, the proposed changes to Regulation 36/2011 are intended to implement concretely the so-called 'prudent person' principle that extends to all investments made by the company.
The amendments primarily affect the section of Regulation 36/2011 relating to governance. In a January 23 2014 letter IVASS also announced amendments to Regulation 36/2011 with a view to implementing certain new measures introduced by Decree-Law 145/2013 regarding investments in bonds, securitisation transactions and alternative investment funds, so as to cover technical reserves.
Draft letter to market
The draft letter to the market deals with aspects of governance, prospective risk assessment, reporting and pre-application of internal models for the purpose of calculating capital requirements.
The public consultation period concluded on February 28 2014.
For further information on this topic please contact David Maria Marino at DLA Piper Italy by telephone (+39 02 80 61 81), fax (+39 02 80 61 82 01) or email (firstname.lastname@example.org). The DLA Piper website can be accessed at www.dlapiper.com.
(1) ISVAP was the insurance regulatory body that preceded IVASS.