Pillar%202%20and%20Pillar%203%20of%20Solvency%20II

1
Pillar 2 and Pillar 3 of Solvency II
Kathryn MorganThe Association of Financial
Mutuals 4 April 2011
2
What we need Solvency II to deliver

• Good quality capital
• Technical provisions that reflect the reality of
  the liabilities
• Robust solvency capital requirement (SCR)
  standard formula calibrations that reflect the
  true economic cost of the risks
• Strong requirements on forward looking risk
  identification and management
• Strong emphasis on enhanced transparency of
  firms financial positions and risk management
  approaches

3
Solvency II - Pillar 2 and 3
4
Solvency II - Pillar 2 and 3

• Pillar 2
• 4 functions
• Risk management
• Compliance
• Internal audit
• Actuarial
• Plus the ORSA
• And the supervisory review process (SRP), general
  governance, fit and proper, outsourcing, internal
  control and capital add-ons.

• Pillar 3
• Reporting
• RSR
• SFCR

5
Own risk and solvency assessment (ORSA) Policy
Level 1
Articles 45, 35 and 246
Level 2
Some commentary on risk management system and
reporting
Level 3
Pre-consultation paper December 2010
May 2008 issues paper
Five key principlesmanagement
responsibilityrisk coverageforward
lookingintegrated into the businessdocumentation
and validation
CEIOPS advice to Commission(formerly CP58)
Two main external reportsSolvency Financial
Condition Report (SFCR) publicly
disclosedReport to supervisors (RSR) NOT
publicly disclosed
6
ORSA Overview

• Management body
• Objectives/purpose
• Solo/group
• Scope
• Ownership
• Embedding/use
• Granularity
• Frequency

Report sign off by management body

• Report
• Strategy
• Business plan
• Statement of risk appetite
• Governance and systems of risk management
• Risk tolerance capacity, limits etc
• Assumptions
• ORSA vs SCR
• Results/analysis
• Use of ORSA for decisions
• Sign off

• Process
• Methodology
• Roles and responsibilities
• Data capture and flows
• Validation
• Dependencies SFCR RSR
• Systems and controls
• Change control

7
Useful links

• EIOPA papers https//eiopa.europa.eu/
• Pillar 5 ones are (submissions to the EC)
• System of governance (2009, ex CP33)
• Transparency and accountability (2009, ex CP34)
• Valuation of assets and other liabilities (2009,
  ex CP35)
• Special purpose vehicles (SPVs) (2009, ex CP36)
• Capital add-ons (2009, ex CP57)
• Reporting and disclosure (2009, ex CP58)
• Remuneration (2009, ex CP59)
• Extension of the recovery period (2010, ex CP 64)
  
• Issues papers (Consultations)
• ORSA May 2008
• SRP and reporting August 2008

8

• More information can be found on our dedicated
  web pages
• www.fsa.gov.uk/solvency2
• Email us
• solvency2_at_fsa.gov.uk