The insurance industry and the financial crisis.ppt

The insurance industry and the financial crisis London Insurance InstituteLondon, 17 March 2010 Prof. Karel VAN HULLEHead of Insurance and Pensions Financial crisis and insurance Insurers went through the crisis relatively unharmed Strong cash flows, long-term liability driven investment policies, stable customer base Insurers that had problems were involved in extensive banking or credit operations Lack of proper risk management has been an issue in a number of cases Actions undertaken Close co-operation in the context of G20, Financial Stability Board and Joint Forum ECOFIN action plan Proposal to improve the supervisory architecture in the EU Question to all parties concerned whether Solvency II needed to be changed Recapitulation: Why Solvency II? Present capital requirements are not sufficiently risk sensitive Group supervision is not dealt with in its own right More efficient capital allocation would allow insurers to take on more risks Supervisory convergence must be strengthened Solvency II: 3 pillars and a roof Solvency II Timetable for 2007-2012 Solvency II and financial crisis Stakeholders confirm that Solvency II is needed because of higher level of harmonisation and risk orientation CEIOPS publishes paper ??lessons learned from the financial crisis?? in March 2009 Text of Framework Directive is amended in order to introduce provisions dealing with financial crisis situations Changes in Solvency II Framework Directive Supervisory authorities shall give proper consideration to financial stability and potential procyclical effects of their actions Symmetric adjustment mechanism in equity risk sub-module Extension of recovery period in the event of exceptional fall in financial markets Adaptations at Levels 2 and 3 Pillar 1: Quality of the capital, alternative risk transfer, market risk, correlation between risks Pillar 2: Reliance on CRA’s, liquidity risk, internal models Pillar 3: possible procyclical effects of market value based disclosures What r