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Solvency II Supervision: Beyond 2016… So what’s next?

In addition to whispers about Solvency III (3) being inevitable, EU national supervisory approaches vary across many Solvency II (SII) topics regarding:

• SII compliance; and • the appropriate management of firm (and group) prudential risk - on a forward looking basis.

What firms (including Board members) will be required to demonstrate can be far from clear, particularly when national supervisory expectations are contrasted. M | K can offer support in relation to SII policy and supervisory matters. See our business profile. We observe that there are two key factors impacting on SII supervision and its (in)consistency across the EU and feel there are five themes now driving the EU SII supervisory approach. Only the 1st key factor is discussed below. See our business profile on supervisory policy for details of the 2nd key factor impacting on SII Supervision, and details about the EU Supervisory Handbook. Key factor 1: A variety of National risk-based approaches – to EIOPA SRP Guidelines National views on what constitutes risk-based supervision on a forward-looking basis (as required by the SII Directive) continue to evolve. The differing views arise despite the publication in mid 2014 of EIOPA’s level 3 Guidelines (directed to national authorities). The guidelines set out EIOPA’s expectations for the EU converged risk-based approach to the SII Supervisory Review Process (SRP). The SRP is the steps and approach national authorities are required to include within their national supervisory frameworks. EIOPA intended the SRP guidelines to bring about some consistency between the risk-based supervisory approaches of national supervisory authorities, in particular the frequency and intensity of supervision of firms, through a converged ‘risk assessment framework’. The guidelines elaborate on how firm supervisory frequency and intensity is to be set within national supervisory frameworks, and explains other key concepts such as:

• Supervisory judgement; and • Proportionality in supervision.

The SRP guidelines also address how national authorities are to undertake the supervisory review of firms (on and off-site) and apply supervisory measures. Please contact Martin | Knox if you have any queries.