## _cr1373 — EIOPA Assessment (Technical Note, March 2013)

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---

### Executive summary — market size, structure, vulnerabilities
- European insurance premium written in 2011: €1,074 billion (around 36 percent of the global insurance market).
- Number of European insurers in 2011: over 5,500.
- Share written in the EU: over 91 percent of the European premium.
- Claims paid in 2011: around €1,000 billion, composed of:
  - Life claims, benefits and annuities: €615 billion
  - Motor claims: €100 billion
  - Health claims: €85 billion
  - Property claims: over €55 billion
- Insurance penetration and consumption:
  - Average expenditure per capita in 2011 on insurance: €2,767
  - Insurance penetration in the EU: around 7.89 percent
  - G7 insurance penetration: 8.7 percent
  - Japan insurance penetration: 11.3 percent
  - Country extremes: The Netherlands insurance penetration: 13.3 percent; Bulgaria: around 2 percent
- Premium dispersion: written premium ranges from over €200 billion in the U.K. to around €300 million in several smaller member states.
- Correlation of insurer size with domicile GDP: correlation factor reported as 0.415; notable outliers where insurers are three to four times larger than expected by the correlation slope.
- Sector vulnerabilities and market environment:
  - Protracted slow economic growth and continuing low interest rate environment.
  - Current profits during 2011: in the 3 percent range or negative.
  - Solvency levels: have been decreasing.
  - High exposure to sovereign debt, especially for life insurers.
  - Impending regulatory initiatives: Solvency II, ComFrame, IMD2 — adding uncertainty for investment preferences, legal structures, distribution channels, and business models.

### Investments, assets composition and impairments
- Industry investment aggregate and relative size:
  - Insurance industry invested around €7,500 billion in 2011 or 60 percent of the EU GDP (after dropping from €7,300 billion to €6,600 billion in 2007–2008 period).
- Total investment assets reported (Table 2, €billion):
  - 2010: 7,171,682
  - 2011: 7,168,480
- Investments by category (2010 and 2011; values in €million as presented in source and percentages):
  - Lands and buildings (1): 137,985 (2010), 136,866 (2011) — 2% (2010), 2% (2011)
  - Investments in affiliated enterprises and participating interests (2): 438,867 (2010), 412,247 (2011) — 6% (2010), 6% (2011)
  - Shares and other variable-yield securities and units in unit trusts (7): 964,858 (2010), 920,228 (2011) — 13% (2010), 13% (2011)
  - Debt securities and other fixed income securities (8): 3,129,558 (2010), 3,209,434 (2011) — 44% (2010), 45% (2011)
  - Participation in investment pools (9): 8,795 (2010), 4,857 (2011) — 0% (2010), 0% (2011)
  - Loans guaranteed by mortgages (10): 117,282 (2010), 130,177 (2011) — 2% (2010), 2% (2011)
  - Other loans (11): 297,987 (2010), 283,008 (2011) — 4% (2010), 4% (2011)
  - Deposits with credit institutions and other financial investments (12): 154,838 (2010), 190,316 (2011) — 2% (2010), 3% (2011)
  - Deposits with ceding enterprises (13): 35,432 (2010), 38,368 (2011) — 0% (2010), 1% (2011)
  - Investments for the benefit of life-assurance policyholders who bear the investment risk (14): 1,886,079 (2010), 1,842,980 (2011) — 26% (2010), 26% (2011)
- Portfolio composition observations:
  - Securities account for majority: 44 percent (2010) and 45 percent (2011) in debt and fixed income, and 39 percent in shares and other variable income securities (26 percent corresponds to products where policyholders bear the investment risk).
- Intangible assets and impairments:
  - Intangible assets as a percentage of equity: reduced from just over 100 percent (2008) to around 75 percent in 2011 of total equity.
  - Impairments of intangible assets: peaked in 2010 with 2.5 percent of equity and reported at 1.5 percent in 2011.
- Capitalization and Solvency II impact:
  - QIS5 (using 2009 data) covered more than 2,500 individual undertakings and 160 groups from 30 EEA members.
  - Global surplus under QIS5 was roughly 12 percent lower than the current surplus of around €400 billion.
  - Balance sheets have deteriorated since 2009; Solvency II could call for additional capitalization.

### Solvency II — timing, risks, implementation challenges
- Implementation timing and legislative status:
  - Solvency II implementation scheduled to come into force in January 2014.
  - Omnibus II trialogue provisionally scheduled for October 1, 2012 did not take place.
  - Directive 2012/23/EU revised transposition and entry into force dates to June 30, 2013 and January 1, 2014 respectively.
  - Implementing measures (delegated acts) remain in draft form while Omnibus II is under discussion.
- Main disputes and technical issues:
  - Main disagreement centers on extending the long term guarantees (LTG) package (especially the Matching Adjustment) to cover a wider range of products.
  - Compromises over valuation issues deviating from a market consistent approach could threaten Solvency II credibility.
  - In a low interest rate environment, use of a low interest rate discount curve under a market consistent valuation is necessary; accurate asset-liability matching methodology must be developed to avoid artificial valuation effects.
  - Adjustments for asset-liability matching must not reduce the market consistent principle.
- Coverage and scope:
  - Over 75 percent of supervised insurers producing around 85 percent of the EU insurance premium will need to comply with Solvency II.
  - From 4,753 supervised entities, 3,680 are expected to be covered by Solvency II (write premium larger than €5 million or have technical reserves in excess of €50 million).
  - These entities are responsible for over 95 percent of the aggregate technical reserves.
- Internal models and supervisory capacity:
  - Approval of internal models is crucial for capital adequacy; pre-application and approval workflows established; EIOPA holds monthly operational supervisor meetings.
  - The level of expertise and workload required imposes severe strain on National Supervisory Authorities (NSAs).
  - Recommendation: consider centralized oversight for approval of internal models to use resources efficiently and ensure consistent technical proficiency.

### EIOPA institutional features, governance and resources
- Institutional position:
  - EIOPA is one of three European Supervisory Authorities (ESAs) created January 1, 2011; has legal personality, administrative and financial autonomy; accountable to the European Parliament and the Council of the EU.
- Governance and decision-making:
  - Board of Supervisors (BoS): one vote per Member State; Common Representative where separate supervisory authorities exist.
  - Chairperson: elected for five years, renewable once; chairs BoS meetings without voting rights and chairs Management Board meetings with voting rights.
  - Executive Director: appointed by BoS for similar term; responsible for management, budget and annual work program implementation.
- Working structure and tools:
  - Working Groups and operating committees include numerous technical committees and task forces (e.g., Internal Models Committee, Financial stability Committee, IT and Data Committee).
  - Two task forces established: EU wide Insurance Guarantee Scheme and Crisis Management.
- Budget and staffing:
  - Annual zero-based budgeting; national authorities contribute 60 percent of EIOPA budget and are voting BoS members; remaining 40 percent is an EU subsidy embodied in DG-Markt.
  - Staffing growth: from 57 in 2011 to 87 and projected growth of 114 for 2013; current staffing reported as Chairman and CEO supported by director of regulations and director of operations leading a team of 64 staff members, 10 secondees and 13 contract agents.
  - Staff training: averaged 0.58 days per staff member in 2011 and 2.11 days per staff member in 2012.
  - Business continuity: regular fire drills occur but a comprehensive tested business continuity plan is not in place; procurement is in process.

### Supervisory colleges, crisis preparedness, data and systemic risk
- Colleges of supervisors and group supervision:
  - 89 insurance groups with cross-border undertakings registered in the EEA in 2011.
  - 69 colleges of supervisors had at least one meeting or teleconference during the year; 14 national supervisory authorities acted as group supervisors organizing events.
  - EIOPA attended supervisory college meetings and/or teleconferences of 55 groups in its first year.
  - Confidentiality agreement templates, crisis preparedness aspects, and best practices on group supervision were developed and presented.
  - Harmonized acceptable level of group supervision in the EU remains to be achieved and will await Level 3 legislation.
  - Recommendation: consider assigning EIOPA a supervisory role for the largest important groups for financial stability purposes.
- Crisis framework and powers:
  - Task Force on Crisis Management (TFCM) created mid-2011; BoS adopted a core crisis management framework in December 2011 (procedures for action under Article 18 or Emergency Situation declaration by the Council).
  - Current powers sufficient for drafting standards and guidelines but revisiting powers is recommended to avoid undue delays and regulatory arbitrage.
  - Article 35 (power to collect necessary information) has been challenged regarding level of data detail; recommendation: data collection powers need to allow for necessary granularity.
  - EIOPA’s ability to act decisively without explicit emergency declaration by the European Council should be evaluated.
- Data, monitoring and systemic risk:
  - Financial stability data are collected from the 30 biggest cross-border insurance groups, but EIOPA does not receive data at an identifiable individual level, limiting analysis and crisis prevention/management effectiveness.
  - IMG (Internal Monitoring Group) supports crisis prevention and runs a bimonthly qualitative survey on significant balance sheet changes, exposures to sovereign and bank risk, liquidity risk and cash-flow risks.
  - Stress testing:
    - Stress testing is a tool under Article 32 of EReg; 2012 exercise covered 50 percent of national markets measured by gross written premium (GWP).
    - Almost all risk drivers were included; stress levels determined based on historic distribution analysis; individual submissions validated by NSAs and a central validation team; final report approved by BoS and disclosed on aggregated basis.
    - Recommendation: grant EIOPA power to request supervisory data for any institution on a timely basis; enhance stress tests to focus on EU-wide systemic vulnerabilities, harmonize national stress testing, consider single and multiple shocks, systemic feedback effects and contagious shocks.

### Consumer protection, insurance guarantee schemes and occupational pensions
- Consumer protection:
  - EIOPA proactive on transparency, simplicity and fairness; guidelines under “comply or explain” on Complaints-Handling; report on Good Practices for Disclosure and Selling of Variable Annuities.
  - EIOPA does not yet collect national complaint statistics; initial consumer trends overview identified PPI issues, unit-linked life insurance development, and increased use of comparison websites.
  - Recommendation: publish regular consumer trends with quantitative and qualitative complaint data; support IMD2 and packaged retail investor product delegated acts on disclosure and fair selling.
- Insurance Guarantee Schemes:
  - Task Force reports:
    - 2011: Cross-Border Cooperation Mechanisms between Insurance Guarantee Schemes in the EU — mapping exercise with five recommendations.
    - 2012: Role of Insurance Guarantee Schemes in the Winding-Up Procedures of Insolvent Undertakings in the EU/EEA — highlights lack of harmonization in portfolio transfer ability, lack of a pre-warning system, and unclear supervisory authority role in insolvency.
  - Conclusion: urgent need for harmonization of existing guarantee schemes.
- Occupational pensions (IORPs):
  - EIOPA response to proposed new directive: around 500 pages evaluating transparency and harmonization; recommends stricter governance and risk management requirements similar to Solvency II second pillar and a holistic balance sheet approach.
  - A QIS of IORPs on a holistic balance sheet valuation regime is being tested; results expected in the summer of 2013.
  - Policy direction: focus on enhancing transparency and comparability of solvency and resilience across the EU; QIS results to precede final valuation methodology.

### Powers to restrict products, Joint Committee and international representation
- Powers to restrict or ban products:
  - EIOPA can issue warnings, prohibitions and restrictions only if cross sector legislation sets specific cases and conditions; permanent prohibitions/restrictions require Commission authorization.
  - Recommendation: establish a framework for effective monitoring of products with potential financial stability or severe consumer impact as a prerequisite for prohibitions.
- Joint Committee (EBA, ESMA, EIOPA cooperation):
  - Four subcommittees: Financial Conglomerates; Cross-Sectoral Developments, Risks and Vulnerabilities; Anti-Money Laundering (AML); Consumer Protection and Financial Innovation.
  - Recommendations: raise profile, establish annual working plan, develop website, participate at Joint Forum, evaluate permanent Secretariat.
- International representation, accounting and auditing:
  - EIOPA became a Member of the IAIS executive committee in 2011; active in IAIS financial stability committee; applied to be an IOPS Governing member.
  - EIOPA engaged with accounting and auditing standard-setters (EFRAG, ARC, FEE, IASB, UK FRC, German DRSC, U.S. FASB, IFAC).
  - Recommendation: increase EIOPA’s representation role to promote a common EU voice and leverage participation to improve convergence or transparency in liability and asset accounting treatments.

### Key policy recommendations (highlights with authority and priority)
- Agree on final form of Solvency II, maintaining market consistency and risk sensitivity.
  - Authority: EU Council/Parliament
  - Priority/Term: High/Immediate
- Use more intrusive supervisory tools as EIOPA shifts toward monitoring, implementing and enforcing to avoid undue delays and regulatory arbitrage.
  - Authority: EC
  - Priority/Term: High/Medium
- Improve access to information and the use of such information for monitoring, analyzing trends and preventing systemic risk.
  - Authority: EC
  - Priority/Term: High/Immediate
- Introduce flexibility in the budgetary framework to support Solvency II implementation and remove sources of possible conflicts of interest.
  - Authority: EU parliament, EC
  - Priority/Term: Medium/Immediate
- Extend EIOPA’s engagement in colleges beyond the EU to encompass larger international groups active in Europe.
  - Authority: EIOPA
  - Priority/Term: Medium
- Enhance transparency and comparability of solvency and resilience of occupational pension funds across the EU with implementation of the new occupational pension directive.
  - Authority: EC with EIOPA’s input
  - Priority/Term: High/Medium
- Enhance EIOPA’s stress test to harmonize national stress testing and focus on systemic risk identification.
  - Authority: EIOPA
  - Priority/Term: Medium/Immediate
- Consider introducing centralized oversight for approval of internal models given their relevance for capital adequacy.
  - Authority: EIOPA
  - Priority/Term: High/Medium
- Enhance peer-review harmonization with a challenging element from EIOPA to accelerate supervisory convergence.
  - Authority: EC and EIOPA
  - Priority/Term: Medium

*Source: IMF staff assessment of the European Insurance and Occupational Pensions Authority (EIOPA) technical note, March 2013 (content unit _cr1373).*

### 2013. The views expressed in this document are those of the staff team and do not necessarily reflect

### FINANCIAL SECTOR ASSESSMENT PROGRAM — EUROPEAN INSURANCE AND OCCUPATIONAL PENSIONS AUTHORITY ASSESSMENT (TECHNICAL NOTE, MARCH 2013)

### Executive Summary — Key Findings and Risks
- The European insurance industry writes over a third of the global insurance premium: €1,074 billion in premium written by over 5,500 European insurers in 2011 (around 36 percent of the global insurance market).
- Over 91 percent of the European premium is written in the European Union (EU).
- Insurers paid around €1,000 billion in claims in 2011:
  - Life claims, benefits and annuities: €615 billion
  - Motor claims: €100 billion
  - Health claims: €85 billion
  - Property claims: over €55 billion
- Insurance penetration and consumption:
  - Average expenditure per capita in 2011 on insurance: €2,767
  - Insurance penetration in the EU: around 7.89 percent
  - G7 insurance penetration: 8.7 percent
  - Japan insurance penetration: 11.3 percent
  - Country extremes: The Netherlands insurance penetration: 13.3 percent; Bulgaria: around 2 percent
  - Written premium spread: from over €200 billion in the U.K. to around €300 million in several smaller member states
- Market structure observations:
  - Size of top insurers and occupational pension funds generally correlates with domicile country GDP (correlation factor reported as 0.415), with notable outliers where insurers are three to four times larger than expected by the correlation slope.
- Sector vulnerabilities:
  - Protracted slow economic growth and a continuing low interest rate environment are putting pressure on the insurance sector.
  - Current profits during 2011 were in the 3 percent range or negative.
  - Solvency levels have been decreasing.
  - Exposure to sovereign debt is an additional vulnerability, particularly for life insurers.
  - Impending regulatory initiatives (Solvency II, ComFrame, IMD2) add uncertainty for investment preferences, legal structures, distribution channels, and business models.
- Solvency II specific risks and timing:
  - Implementation of Solvency II was scheduled to commence in January 2014.
  - The Omnibus II trialogue provisionally scheduled for October 1, 2012 did not take place; main disagreement concerns extending the long term guarantees (LTG) package.
  - Compromises over valuation issues deviating from a market consistent approach could threaten the credibility of Solvency II.
  - Use of a low interest rate discount curve under a market consistent valuation of liabilities will be necessary in the current low rate environment; accurate asset-liability matching methodology is needed to avoid artificial valuation effects.
- Supervision and implementation challenges:
  - Continued delays in Solvency II implementation could leave weaknesses in insurance supervision in several EU member states and hinder observance of IAIS principles.
  - Approval of internal models is a crucial step for capital adequacy; the level of expertise and workload is imposing severe strain on National Supervisory Authorities (NSAs).
  - Recommendation to consider centralized oversight for approval of internal models to efficiently use highly-qualified resources and ensure consistent technical proficiency.
- EIOPA achievements and remaining work:
  - In the initial two years, EIOPA developed regulatory and implementing technical standards, guidelines and recommendations, engaged in peer reviews, training and colleges of supervisors.
  - EIOPA concluded Solvency II equivalence certification on three countries; transitional equivalence measures for several countries are being evaluated.
  - Mutual understanding work with the United States supervisory regime is underway.
  - EIOPA became a member of the IAIS executive committee in 2011 and is active in its financial stability committee; EIOPA has applied to be an IOPS Governing member.
- Colleges of supervisors and crisis preparedness:
  - During the year, 69 colleges of supervisors had at least one meeting or teleconference.
  - Confidentiality agreement templates, crisis preparedness aspects, and best practices on group supervision were developed and presented.
  - A harmonized acceptable level of group supervision in the EU remains to be achieved and will wait for Level 3 legislation to be in force.
  - Consideration should be made to assign EIOPA a supervisory role for the largest important groups for financial stability purposes.
- Data, monitoring and systemic risk:
  - Financial stability data are collected from the 30 biggest cross-border insurance groups, but EIOPA does not receive data at an identifiable individual level, limiting analysis and crisis prevention/management effectiveness.
  - The Internal Monitoring Group (IMG) within EIOPA and selected national supervisors is an important venue for information and analysis; lack of detailed data hinders its effectiveness.
- Operational independence and budgetary issues:
  - National authorities contribute 60 percent of the EIOPA budget and are the voting Board of Supervisors (BoS) members, creating potential conflicts of interest when BoS members consider implementation of EIOPA tasks that impact their national powers.
  - The remaining 40 percent of the budget is a subsidy from the EU embodied in DG-Markt; potential conflicts may arise since DG-Markt approves standards drafted by EIOPA.
  - Recommendation to introduce budgetary flexibility to support Solvency II implementation and temporary access to special expertise required in the initial implementation phase.

### Policy Recommendations (Highlights)
- Agree on final form of Solvency II, maintaining its market consistency and risk sensitivity.
  - Authority: EU Council/Parliament
  - Priority/Term: High/Immediate
- As EIOPA’s work shifts toward monitoring, implementing and enforcing, use more intrusive supervisory tools to avoid undue delays that could result in regulatory arbitrage.
  - Authority: EC
  - Priority/Term: High/Medium
- Improve access to information and the use of such information for monitoring, analyzing trends and preventing systemic risk.
  - Authority: EC
  - Priority/Term: High/Immediate
- Introduce flexibility in the budgetary framework to support Solvency II implementation and remove sources of possible conflict of interests.
  - Authority: EU parliament, EC
  - Priority/Term: Medium/Immediate
- Extend EIOPA’s engagement in colleges beyond the EU to encompass larger international groups active in Europe.
  - Authority: EIOPA
  - Priority/Term: Medium
- Enhance transparency and comparability of solvency and resilience of occupational pension funds across the EU with implementation of the new occupational pension directive.
  - Authority: EC with EIOPA’s input
  - Priority/Term: High/Medium
- EIOPA’s stress test should be enhanced to harmonize national stress testing activity with a special focus on identifying systemic risk.
  - Authority: EIOPA
  - Priority/Term: Medium/Immediate
- Given the relevance of internal models for capital adequacy, consider introducing a centralized oversight for approval of internal models.
  - Authority: EIOPA
  - Priority/Term: High/Medium
- Harmonization of supervision through the peer review exercise should be enhanced with a challenging element from EIOPA.
  - Authority: EC and EIOPA
  - Priority/Term: Medium

### I. EIOPA Assessment — Introduction and Market Structure
- Scope and methodology:
  - Assessment of EIOPA’s performance against mandates and market conditions in insurance and occupational pensions in the EU as of December 2012.
  - Assessment prepared by Rodolfo Wehrhahn, Technical Assistance Advisor, Monetary and Capital Markets Department, IMF.
  - Based solely on laws, regulations and supervisory practices in place at the time; assessor used detailed questionnaire responses from EIOPA and met with EIOPA, EC, National Authorities and industry associations.
- Market concentration and cross-border relevance:
  - The European insurance industry wrote €1,074 billion in premiums in 2011 across over 5,500 insurers.
  - Figure references and analyses indicate EU’s leading global role and country-level dispersion of premiums and penetration (see figures cited in source).
- Correlation observations:
  - Size of top insurers correlates with domicile country GDP (correlation factor 0.415), with occupational pension funds generally following the correlation slope more closely.
  - Outliers exist where insurers are significantly larger relative to domicile GDP, posing supervisory resourcing challenges.

*Source: IMF staff assessment of the European Insurance and Occupational Pensions Authority (EIOPA) technical note, March 2013.*

### 7.      Insurance investments have been increasing since 2008, and reached already

### 7.      Insurance investments have been increasing since 2008, and reached already

### Investments levels and composition
- After the significant drop in value in 2007 from €7,300 billion to €6,600 billion, in 2011 the insurance industry invested around €7,500 billion or 60 percent of the EU GDP.
- Life insurers’ investments have traditionally accounted for over 80 percent of the total insurers’ investments.
- The United Kingdom, Germany and France together accounted for over 60 percent of all European life insurers’ investments.
- Figure 5 (CEA, Key facts booklet 2012) and Table 2 (EIOPA) indicate:
  - Total investment assets: **7,171,682** (2010) and **7,168,480** (2011) (in €billion as presented in Table 2).
  - Investments by category (2010 and 2011, values and percentages as reported):
    - Lands and buildings (1): 137,985 (2010), 136,866 (2011) — 2% (2010), 2% (2011)
    - Investments in affiliated enterprises and participating interests (2): 438,867 (2010), 412,247 (2011) — 6% (2010), 6% (2011)
    - Shares and other variable-yield securities and units in unit trusts (7): 964,858 (2010), 920,228 (2011) — 13% (2010), 13% (2011)
    - Debt securities and other fixed income securities (8): 3,129,558 (2010), 3,209,434 (2011) — 44% (2010), 45% (2011)
    - Participation in investment pools (9): 8,795 (2010), 4,857 (2011) — 0% (2010), 0% (2011)
    - Loans guaranteed by mortgages (10): 117,282 (2010), 130,177 (2011) — 2% (2010), 2% (2011)
    - Other loans (11): 297,987 (2010), 283,008 (2011) — 4% (2010), 4% (2011)
    - Deposits with credit institutions and other financial investments (12): 154,838 (2010), 190,316 (2011) — 2% (2010), 3% (2011)
    - Deposits with ceding enterprises (13): 35,432 (2010), 38,368 (2011) — 0% (2010), 1% (2011)
    - Investments for the benefit of life-assurance policyholders who bear the investment risk (14): 1,886,079 (2010), 1,842,980 (2011) — 26% (2010), 26% (2011)
- Overall, the investments portfolio remained broadly unchanged between 2010 and 2011; the majority corresponded to securities with 44 percent (2010) and 45 percent (2011) in debt and fixed income, and 39 percent in shares and other variable income securities (of which 26 percent corresponds to products where policyholders bear the investment risk).

### Intangible assets and impairments
- Intangible assets as a percentage of equity reduced since 2008 from an EU average of just over 100 percent to around 75 percent in 2011 of total equity.
- Impairments of intangible assets peaked in 2010 with 2.5 percent of equity and were reported at 1.5 percent most recently (2011).
- The recoverable value of intangible assets is usually based on future cash-flow projections; impairments often indicate that forecast profits of a business segment are expected to be lower than originally estimated.
- Source for Figure 6: Moody’s, analysis of 2007–2011 Annual Reports of selected Moody’s-rated European and Middle East Insurers.

### Capitalization, Solvency II impact and balance sheet deterioration
- The last impact study using 2009 data (QIS5) covered more than 2,500 individual undertakings and 160 groups from the 30 members of the EEA.
- On a global level, the surplus under QIS5 was roughly 12 percent lower than the current surplus of around €400 billion.
- Balance sheets have deteriorated since 2009; the introduction of Solvency II could call for additional capitalization.

### Market environment and risks
- Protracted slow economic growth and continuing low interest rate environment are putting pressure on the insurance sector.
- Current profits during 2011 were in the 3 percent range or negative.
- Solvency levels have been decreasing due to poor investment climate and stagnated economy resulting in lower production and higher claims in several member States.
- High exposure to sovereign debt presents an additional vulnerability to the sector, in particular to the life industry.
- The long lasting low interest rate environment prevailing in certain States coincides in most cases with business models that provide long term guarantees and that currently use solvency regimes less sensitive to market interest rates; a change to a market consistent valuation is expected to have significant impact on liabilities of insurers and pension funds.
- Impending regulation (Solvency II, ComFrame, IMD2) adds uncertainty and is likely reflected in share price and CDS spread movements across the industry (Figures 7 and 8; Source: Bloomberg).

### EIOPA institutional structure and governance
- EIOPA is part of the European system of financial supervision created on January 1, 2011 and is one of the three European Supervisory Authorities (ESAs) together with the EBA and ESMA; the ESRB is also part of the system.
- EIOPA has legal personality, administrative and financial autonomy, and is accountable to the European Parliament and the Council of the EU.
- Governance and decision-making:
  - Decision power resides in the Board of Supervisors (BoS) with one vote per Member State; where there are separate supervisory authorities for insurance and occupational pensions, those authorities agree on a Common Representative.
  - The Chairperson is elected for a five years term that can be extended once by the BoS following pre-selection by the EC and confirmation by the European Parliament in public hearing; the chairperson chairs BoS meetings without voting rights and chairs Management Board meetings with voting rights.
  - The Executive Director is appointed by the BoS for a similar term and is responsible for management, budget and annual work program implementation under BoS guidance.
- Working structure and technical tools:
  - Working Groups include Coordination Groups, Committees, Panels or Task Forces; operating committees include the Quality Control Committee, the Equivalence Committee, the Insurance Group Supervision Committee, the Internal Governance, Supervisory Review and Reporting Committee, the Internal Models Committee, The Financial Requirements Committee, the Occupational Pensions Committee, the Consumer Protection and Financial Innovation Committee, the Financial stability Committee, Internal Monitoring Committee and the IT and Data Committee.
  - Two task forces established: one to develop an EU wide Insurance Guarantee Scheme and one on Crisis Management.
- Budget and staffing:
  - EIOPA applies annual zero-based budgeting; national authorities contribute 60 percent of the budget and the remaining 40 percent comes as a subsidy from the EU embodied in the DG-Markt budget.
  - A two years advance budget planning process complements zero-based budgeting; draft estimates for year N+2 are submitted in February of year N+1.
  - Staffing grew from 57 in 2011 to 87 and an additional projected growth of 114 for 2013; current staffing reported as Chairman and CEO supported by director of regulations and director of operations leading a team of 64 staff members, 10 secondees and 13 contract agents.
  - Staff training averaged 0.58 days per staff member in 2011 and 2.11 days per staff member in 2012.
  - A tested comprehensive business continuity plan needs to be implemented; regular fire drills occur but a proper business continuity plan is not in place and procurement is in process.

### Main findings and policy recommendations
- Transparency and stakeholder engagement:
  - A high level of transparency characterizes EIOPA’s actions; stakeholder groups include industry, consumers, beneficiaries and academics.
  - The Insurance & Reinsurance Stakeholder Group and the Occupational Pensions Stakeholder Group each include 30 members with five scheduled meetings per year; in 2012 EIOPA published 13 detailed opinions and feedback documents from the stakeholder groups.
- Enhance operational independence:
  - The financing structure (national authorities contributing 60 percent of budget and serving as voting BoS members) could hinder effective independence and create conflicts of interest, especially in crisis management or breach of union law situations.
  - The remaining 40 percent subsidy from DG-Markt may also present potential conflicts given DG-Markt approves standards drafted by EIOPA.
- Budgetary flexibility for Solvency II implementation:
  - Special skills and expertise required for initial development of Solvency II supervisory tools suggest the need for temporary flexibility in salary scales and swift access to external consultants.
  - If direct supervisory mandates are assigned to EIOPA, consideration should be given to budgetary treatment similar to the European Central Bank (ECB).
- Organizational realignment for forthcoming regulatory changes:
  - Significant regulatory changes affecting insurance and occupational pensions (Solvency II scheduled for implementation in 2014 and revised legislation for occupational pensions) will require a shift from developing standards and guidelines toward monitoring, implementing and enforcing.
  - EIOPA’s human resources framework and operational processes need realignment to meet new challenges.
- Specific operational tasks in the multiyear business plan for 2012-2014 include:
  - Establishment of the operational tasks required of EIOPA under Solvency II.
  - Enhancement of convergence in supervision by greater use of tools e.g., supervisory review process, Q&A.
  - Use of EIOPA’s existing tools for assessing the effects of regulatory changes: regulatory impact assessment.

*Source: _cr1373 - 7.      Insurance investments have been increasing since 2008, and reached already (extracted from the supplied PDF content).*

### 28.      Powers granted to EIOPA appear sufficient to accomplish current tasks. During

### _cr1373 - 28.      Powers granted to EIOPA appear sufficient to accomplish current tasks. During

### Powers and crisis framework
- During the introductory and construction phase of Solvency II the powers residing in the agency that include the developing of draft regulatory and implementing technical standards, issuing guidelines and recommendations that need to be adopted or explained, have proven to be sufficient, albeit resulting in delays and certain inefficiencies with respect to the initial implementation plan of Solvency II.
- In contributing to a common supervisory culture a soft approach based on peer reviews, training, and frequent engagement in the colleges of supervisors supported by the use of guidelines has been effectively taken.
- A Task Force on Crisis Management (TFCM) was created in mid-2011 to develop EIOPA’s institutional structures to discharge its crisis management responsibilities under Article 18 of EReg.
- The BoS adopted a core crisis management framework in December 2011. This framework sets out clear procedures for EIOPA’s action in the event of adverse developments as defined in Article 18 or the declaration of an Emergency Situation by the Council.

### Main findings and recommendations on powers and crisis management
- The new challenges ahead of EIOPA’s work will require revisiting its current powers to avoid undue delays that could result in regulatory arbitrage and threaten the harmonized supervisory regime.
- Article 35 of the EReg (power to collect necessary information concerning financial institutions) has been challenged with respect to the level of detail; considerable granularity in data collection appears fundamental for financial stability surveillance and emergency situations.
- Recommendation: Data collection powers need to allow for the necessary level of information gathering.
- For promoting effective colleges of supervisors, stronger powers would help accelerate processes where conflicting views among participant supervisors emerge; additional powers could extend to group supervisory responsibility, including powers to impose sanctions. Supervisory powers should at minimum cover important large groups, noting that such changes might require changes in numerous laws.
- Further crisis-management work is required: missing sectoral legislation (e.g., consumer protections in emergency situations) and the need for a declaration of an emergency by the European Council are identified gaps. The possibility for EIOPA to act decisively without an explicit declaration of an emergency should be evaluated.

### Cooperation and information sharing across sectors (Joint Committee)
- The Joint Committee (established January 1, 2011) strengthens cooperation between EBA, ESMA and EIOPA and works on: supervision of financial conglomerates; accounting and auditing; microprudential analyses of cross-sectoral developments; risks and vulnerabilities for financial stability; retail investment products; measures to combat money laundering; exchange of information with the ESRB; developing the relationship between the ESRB and the ESAs; and aligning rules of procedure for the ESAs.
- The Joint Committee operates through four subcommittees:
  - Subcommittee on Financial Conglomerates: prepares ESAs’ response to the review of the Financial Conglomerates Directive (FICOD) and publishes lists of groups identified as financial conglomerates and their relevant competent authorities as required under the FICOD.
  - Subcommittee on Cross-Sectoral Developments, Risks and Vulnerabilities: produces joint cross-sectoral risk reports for the biannual meetings of the Economic and Finance Committee – Financial Stability Table, and contributes to the half-yearly ESAs’ risk assessment reports submitted to the ESRB.
  - Subcommittee on Anti-Money Laundering (AML): identified discrepancies in Member States’ supervisory practices relating to identification of the ultimate beneficial owner and the application of simplified due diligence under the third Anti-Money Laundering Directive.
  - Subcommittee on Consumer Protection and Financial Innovation: recently set up to work on cross-sectoral consumer protection and financial innovation (financial literacy and education initiatives); three joint sub work streams for packaged retail investor products, product oversight and governance and consumer protection.

Main findings and recommendations for the Joint Committee
- The Joint Committee needs to raise its profile as roles of the three ESAs continue to diverge (banking union, new ECB role, supervisory role on credit agencies for ESMA, Solvency II implementation).
- Recommendations: establish an annual working plan, develop its own website, participate at the Joint Forum, and evaluate creation of a permanent Secretariat.

### Systemic risk and stress testing (EIOPA role)
- EIOPA’s mandates include working with the ESRB on identification, measurement and response to systemic risk; EIOPA’s role is defined as supporting the ESRB (Article 23(1) and Article 17 of Regulation (EU) No 1092/2010).
- EIOPA’s work includes development and coordination of recovery and resolution plans, procedures in emergency situations and preventive measures to minimize systemic impact of failures of insurers or occupational pension funds.
- The IMG (an internal group comprising selected members from national supervisors) supports crisis prevention and management duties; IMG meets several times annually and runs a bimonthly qualitative survey on significant balance sheet changes, exposures to sovereign and bank risk, liquidity risk and cash-flow risks.
- Stress testing is explicitly indicated as a tool in Article 32 of EReg; in the 2012 exercise covering 50 percent of all national markets measured by gross written premium (GWP), almost all risk drivers were included and stress levels were determined based on historic distribution analysis. Stress levels are approved by EIOPA’s BoS. The stress test was launched under EIOPA leadership; individual submissions were validated by NSAs and again by a central validation team of NSA and EIOPA experts. Final report approved by the BoS; disclosure has been on aggregated basis.

Main findings and recommendations on systemic risk and stress testing
- Access to information needs to improve: financial stability data are collected from the 30 biggest cross-border insurance groups including three Swiss groups and some solo institutions above a certain threshold GWP, but EIOPA does not receive data on an identifiable individual group level necessary for tasks. EIOPA lacks direct access to national supervisory data; data are submitted upon request. Recommendation: grant EIOPA the power to request supervisory data for any institution on a timely basis.
- Under Solvency II, EIOPA’s stress test should focus on EU-wide systemic vulnerabilities, enhance and harmonize national stress testing with focus on identifying cross-border systemic risk. Stress tests should consider single and multiple shocks affecting financial market structure, interactions, regulation and supervision; incorporate systemic feedback effects under macroeconomic scenarios; and allow for contagious shocks to spread rapidly through the whole financial sector.

### Harmonizing supervisory practices
- CEIOPS (EIOPA predecessor) carried out a preparedness survey March 2010 to April 2010 on implementation of Solvency II: from 27 supervisory authorities that answered, 11 are small (less than 40 employees dealing with insurance), 11 are medium-sized (40-100 employees), and five are larger (more than 100 employees). Number of staff varies widely from 25 to over 3300. Number of supervised insurance and reinsurance undertakings subject to Solvency II ranges from 10 up to 625.
- The Review Panel (permanent group of NSAs) was established to monitor and enhance supervisory convergence within the EEA. The last peer review completed dates back to 2009 (application of information exchange and supervisory cooperation in context of the General Protocol, the Budapest Protocol and the Helsinki Protocol). Peer review activity was revived recently with reviews on internal model application, supervision of branches and a few articles of the occupational pension directive.

Main findings and recommendations on harmonizing supervision
- Priority: evaluate NSAs’ ability to implement the forthcoming solvency regime given differences in resources among NSAs.
- Recommendation: conduct a peer review of stress test practice.
- Enhance peer review with a challenging element from EIOPA: the peer review panel issues best practices that need to be adopted or explained by NSAs; EIOPA’s independence and strong European view would add value and accelerate supervisory harmonization beyond the current secretariat role.

### Supervisory colleges and group supervision
- Article 242 of Directive 2009/138/EC requires EIOPA to contribute to proper functioning of colleges of supervisors; assess benefits of enhancing group supervision and capital management; may report on developments in centralized group risk management, internal models, intra-group transactions and risk concentrations; promote harmonized framework for asset transferability, insolvency and winding-up procedures; and ensure equivalent protection of policy holders across groups.
- During 2011, 89 insurance groups with cross-border undertakings were registered in the EEA. During the year, 69 colleges of supervisors had at least one meeting or teleconference. A total of 14 national supervisory authorities acted as group supervisors to organize the events. EIOPA attended supervisory college meetings and/or teleconferences of 55 groups during its first year. Confidentiality agreement templates and best practices on group supervision were developed; crisis preparedness issues were introduced and some aspects tested.

Main findings and recommendations on group supervision
- EIOPA’s oversight engagement in supervisory colleges has been intense but much work remains. A harmonized level of group supervision in the EU remains to be achieved when Level 3 legislation is in force.
- Recommendation: EIOPA’s engagement in colleges should encompass larger international groups active in Europe; for financial stability purposes, consider assigning EIOPA a supervisory role for the largest important groups.

### Consumer protection
- EIOPA has been proactive promoting transparency, simplicity and fairness in consumer financial products. First guidelines under “comply or explain” issued on Complaints-Handling by Insurance Undertakings. A report on Good Practices for Disclosure and Selling of Variable Annuities published. A consumer strategy day is held annually.
- EIOPA does not yet collect statistics on number or type of insurance complaints from national competent authorities, but has presented an initial consumer trends overview identifying three main trends:
  - Consumer protection issues around Payment Protection Insurance (PPI).
  - Development of unit-linked life insurance.
  - Increased use of comparison websites by consumers.
- EIOPA intends to publish regular consumer trends reports using an enhanced methodology based on quantitative and qualitative data collection, including number and type of insurance complaints received.
- IMD2 revision: proposal expects all information and marketing communications addressed by insurance intermediaries and undertakings to customers or potential customers should be fair, clear and not misleading. IMD2 proposal expects EIOPA to develop periodic guidelines on tying/bundling practices. Under current legislative proposals on packaged Retail Investment Products and IMD2, EIOPA is expected to work on delegated acts ensuring product information disclosure and fair selling (suitability and mitigating conflicts of interest). EIOPA can highlight insurance-specific aspects in cross-sectoral discussions.
- Task Force on Insurance Guarantee Schemes published:
  - Report on the Cross-Border Cooperation Mechanisms between Insurance Guarantee Schemes in the EU (2011) — a mapping exercise resulting in five recommendations.
  - Report on the Role of Insurance Guarantee Schemes in the Winding-Up Procedures of Insolvent Undertakings in the EU/EEA (2012) — findings highlight lack of harmonization in ability to transfer portfolio, lack of pre-warning systems for undertakings in difficulty, and unclear role of supervisory authority when undertakings become insolvent.

Main findings and recommendations on consumer protection
- Continue development and publication of regular consumer trends with quantitative and qualitative complaint data.
- Support IMD2 and packaged retail investor product delegated acts to ensure fair disclosure and selling practices; monitor and address gaps in insurance guarantee schemes and winding-up procedures.

*Source: IMF staff report content unit _cr1373 excerpted from the provided PDF chapter.*

### 52.      EIOPA’s powers to restrict or ban certain products are limited. Warnings on, as

### _cr1373 - 52.      EIOPA’s powers to restrict or ban certain products are limited. Warnings on, as

### EIOPA powers to restrict or ban products
- Warnings, prohibitions and restrictions of certain financial activities can be issued by EIOPA should these pose a serious threat to stability and effectiveness of the financial system.
- This power can only be used if cross sector legislation is enacted setting out the specific cases and conditions under which EIOPA would be able to issue such temporary prohibitions and restrictions.
- A permanent prohibition or restriction of certain financial activities would require the Commission’s authorization.
- A framework for effective monitoring of products with potential impact on financial stability and severe impact on consumers should be established as a first step to justify any prohibitions.

### Insurance guarantee schemes — findings
- EIOPA’s Task Force on Insurance Guarantee Schemes published:
  - Report on the Cross-Border Cooperation Mechanisms between Insurance Guarantee Schemes in the EU in 2011.
  - Report on the Role of Insurance Guarantee Schemes in the Winding-Up Procedures of Insolvent Undertakings in the EU/EEA in 2012.
- The first report is a mapping exercise resulting in five recommendations.
- The second report highlights lack of harmonization in:
  - the ability to transfer portfolio;
  - the lack of a pre-warning system when insurance undertakings are in difficulty;
  - the role of the supervisory authority when insurance undertakings become insolvent.
- Conclusion: an urgent need of harmonization of existing guarantee schemes.

### I. Occupational Pensions — description
- EIOPA’s response to the call for opinion of the proposed new directive on occupational pension funds:
  - Around 500 pages evaluating advantages of enhancing transparency through improved harmonization on reporting.
  - Recommends stricter requirements on governance and risk management similar to the second pillar of Solvency II.
  - Recommends use of a holistic balance sheet approach to measure the solvency position of the different Institutional and Occupational Retirement Pensions (IORPs).
- A QIS of IORPs on the feasibility of a holistic balance sheet valuation regime and on the different options proposed by EIOPA is being tested; results are expected in the summer of 2013.

### Occupational Pensions — main findings and recommendations
- The initial purpose of the new IORP Directive (to remove impediments for the creation of a single market) has been relegated in favor of creating more comparability on solvency and resilience of different IORPs.
- Reasons cited:
  - Lack of demand for cross-border activity, with a handful of IORPs currently providing cross-border pensions.
  - Important aspects impacting cross-border activity (labor, social and tax laws) remain within national decision.
- Policy direction:
  - Focus on enhancing transparency of the level of resilience of different IORPs.
  - Greater transparency and a holistic balance sheet approach that accounts for both implicit and explicit guarantees of sponsors will allow comparison of IORPs throughout the EU.
  - The QIS exercise results will be a first step before a final sound valuation methodology can be introduced.

### J. Solvency II — description and coverage
- Over 75 percent of the supervised insurers producing around 85 percent of the EU insurance premium will need to comply with Solvency II.
- Based on the last QIS exercise:
  - Of the 4753 supervised entities, 3680 are expected to be covered by the Solvency II directive (i.e., write premium larger than €5 million or have technical reserves in excess of €50 million).
  - These entities are responsible for over 95 percent of the aggregate technical reserves.
- Several EU members have delegated most of the necessary updating of their existing national solvency regime to the efforts undertaken by EIOPA, increasing the relevance of proper and timely implementation.

### Solvency II — impact study and EIOPA workstreams
- Impact study highlighted areas needing further work, initiated by EIOPA:
  - Definition of contract boundaries in the valuation of technical provisions.
  - Need to reduce complexity in certain areas.
  - Developments in the calibration of catastrophe risk.
  - Treatment of long-term guarantees in the context of Solvency II.
- EIOPA is developing draft standards and guidelines in:
  - Solvency capital requirements for the standard formula as well as for internal model users; own funds; valuation of technical provisions; valuation of assets and liabilities.
  - Group supervision.
  - Supervisory transparency and accountability, reporting and disclosure, external audit.
  - Governance and own risk solvency assessment (ORSA).
  - Supervisory review process; capital add-ons; extension of recovery period (‘Pillar 2 dampener); finite reinsurance; special purpose vehicles.
- Implementation timeline and legislative status:
  - Implementation of Solvency II is now scheduled to come into force in January 2014.
  - The Solvency II Directive text is under revision by the Omnibus II Directive, currently in the phase of trialogue discussions between the Council, Parliament and Commission.
  - The Omnibus II trialogue provisionally scheduled for October 1, 2012 did not take place.
  - Main disagreement remains around extending the long term guarantees (LTG) package (especially the Matching Adjustment) to cover a wider range of products.
  - Directive 2012/23/EU published as an interim measure to revise the date of transposition and entry into force of the Solvency II Directive to June 30, 2013 and January 1, 2014 respectively.
  - Implementing measures (or delegated acts) remain in draft form with the Commission while Omnibus II remains under discussion.

### Solvency II — LTG impact assessment request
- In July of this year EIOPA was requested by the trialogue parties to conduct an impact assessment on the long-term guarantee aspects of the Solvency II package.
- EIOPA was requested to run a technical assessment collecting both qualitative and quantitative information from insurance and reinsurance undertakings and supervisory authorities on the effects of the LTG package.
- Key timetable and status:
  - EIOPA was to launch the exercise on October 15, 2012.
  - Insurance and reinsurance undertakings would have eight weeks to provide the quantitative and qualitative information requested to their national supervisory authorities.
  - The final report was targeted to be provided to the co-legislators by March 31, 2013 by the Commission based on the findings of EIOPA's technical assessment.
  - The Terms of Reference (ToRs) have not yet been agreed upon by the trialogue parties.

### Solvency II — main findings and recommendations
- Preparation for implementation of Solvency II is the central task for EIOPA; the lion’s share of its activities focuses on readiness for implementation.
- Fundamental changes needed across national supervisory authorities in:
  - Supervisory methodology, tools and procedures.
  - Quantitative requirements (Pillar I), qualitative requirements (Pillar II), supervisory reporting and public disclosure, group supervision.
- Concerns and recommendations:
  - Weaknesses in insurance supervision in several EU member states will remain in the absence of Solvency II.
  - The delay in implementation is critical as aspects of prudential supervision (valuation, disclosure and risk management) in several EU member states will remain not compliant with the IAIS principles without Solvency II.
  - Consideration should be given to harmonized early implementation of as much as possible of Solvency II to allow more supervisors to raise their standards.
  - Approval of internal models is crucial for determining capital adequacy; the level of expertise and amount of work required impose severe strain on NSAs.
  - EIOPA agreed a workflow process to be followed by NSAs and insurers for pre-application and approval of internal models; EIOPA holds monthly meetings open to operational supervisors to discuss pre-applications and review of internal models.
  - EIOPA issued an Opinion on the use of External Models in May of 2012.
  - Consideration should be made to introduce a centralized oversight for the approval of internal models to use resources efficiently and guarantee consistent, elevated technical proficiency.
  - For valuation of long term liabilities:
    - Under a market consistent valuation of liabilities required under Solvency II, in a low rate environment the use of a low interest rate discount curve for liability valuation will be necessary.
    - The impact on solvency positions of insurers under Solvency II will be negative; accurate asset-liability matching needs development to avoid distortionary or non-credible effects.
    - Adjustments on the discount curve for asset-liability matching must be carried out without reducing the market consistent principle of the new solvency framework.
    - Adopting rules that exaggerate solvency positions of insurers under current adverse market conditions will weaken the credibility of Solvency II as a market-consistent solvency regime.

### K. Solvency II equivalence and international representation — description
- EIOPA’s work on Solvency II equivalence certification:
  - The Solvency II Directive gives the EC authority to decide on equivalence of a third country's solvency and prudential regime; EIOPA provides advice to the EC.
  - EIOPA equivalence assessments include desk and on-site work and have been carried out for:
    - Swiss and Bermudian supervisory systems under Article 172 (reinsurance supervision), Article 227 (inclusion of related third country insurance and reinsurance undertakings in group solvency calculation) and Article 260 (group supervision).
    - Japanese reinsurance supervisory system under Article 172.
  - EIOPA will need to revisit its advice once final Level 2 implementing measures including the Equivalence Criteria are published.
- Transitional Equivalence measures are being developed where third countries are not yet fully compliant but will be after relevant changes:
  - Transitional equivalence measures as to professional secrecy and gap analysis against the Solvency II framework are being developed for: Chile, China, Hong Kong, Israel, Mexico, Singapore, and South Africa.
- Mutual recognition work with the United States supervisory regime:
  - In early 2012, EC, EIOPA, NAIC and the Federal Insurance Office agreed to participate in a dialogue and related project to increase mutual understanding and enhanced cooperation between the EU and the United States.
  - The Steering Committee agreed upon seven topics:
    - professional secrecy/confidentiality;
    - group supervision;
    - solvency and capital requirements;
    - reinsurance and collateral requirements;
    - supervisory reporting, data collection and analysis;
    - supervisory peer reviews;
    - independent third party review and supervisory on-site inspections.
  - Seven technical committee reports have been jointly drafted.
  - Following end-September 2012 public release of the reports for interested party analysis and comments, conclusions will be reached by the Steering Committee on each of the seven topics.
  - The project is scheduled to conclude by December 31, 2012. Further work on resolution is foreseen.

### International representation, accounting and auditing
- EIOPA engagement to create a common EU voice:
  - Initiated internal Network with NSA representatives to achieve a common EU view on international agenda topics such as ComFrame and g-SII.
  - EIOPA became a Member of the executive committee at the IAIS in 2011 and is active in its financial stability committee.
  - EIOPA submitted application for becoming an IOPS Governing member in the current year.
- EIOPA’s role in accounting and auditing standard-setting bodies:
  - Official observer and participant at EFRAG and ARC meetings.
  - Exchanges with FEE and IASB; follows discussions within accounting experts group at IAIS.
  - Maintains contacts with UK FRC, German DRSC, U.S. FASB and IFAC.
  - Coordination among accounting and financial reporting areas of the other ESA takes place through the Joint Committee and discussions with EC’s DG Internal Markets Unit F3 and Unit F4.
- Main findings and recommendations:
  - EIOPA’s representation role in international fora should increase; promoting a common European voice at the IAIS has been helpful in supporting convergence of solvency and supervisory practices and designing a cross-border resolution framework.
  - EIOPA’s access to important documents of the FSB and other international bodies should be allowed.
  - Participation at IOPS Governing board should have a strong priority.
  - Current accounting treatment of assets and liabilities in the EU diverges, affecting comparison of financial position among insurers across jurisdictions.
  - Implementation of Solvency II will address valuation differences for EU operating groups, but for internationally active insurers comparability will remain difficult because liabilities valuation under Solvency II and International Financial Reporting Standards currently show important differences.
  - Recommendation: leverage EIOPA’s representation in accounting and auditing standard-setting bodies to gain convergence or at least higher transparency in the treatment of liabilities.

*IMF staff extract from chapter content provided in source document.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr1373.pdf_