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Fuedi Attends International Conference Celebrating the Centenary of the Portuguese Insurance Supervisor

Lisbon, 25 October 2007

From left to right – Rui de Almeida, President CNPR, Mr. Fernando Nogueira, President of ISP/Portuguese Insurance Institute, and Mark Vos.

From left to right – Mark Vos, Karel Van Hulle, Head of Unit at the European Commission (Directorate-General “Internal Market and Services”), and Rui de Almeida, President CNPR.

On 25 Oct 07 the celebration of 100 years of the Portuguese Insurance Supervisor (ISP) (www.isp.pt) took place at the Cultural Centre of Belém a magnificent congress centre built in 1993 for the first EU presidency of Portugal.

The focus of the Conference was Solvency II.

In view of the importance of the anniversary the following officials were present:

• Minister of Finance, Fernando Teixeira dos Santos, speaker
• Secretary of Treasury, Dr Carlos Costa Pina, speaker
• EU Commissioner Insurance & Pensions, Karel van Hulle, speaker
• Head of the Solvency II technical workgroup of the EU and also Director General of ISP, Gabriel Bernardino, speaker
• President ISP/Insurance Portuguese Institut, Fernando Nogueira, speaker
• President CEIOPS ( EU – Supervisor Insurance), Thomas Steffen, speaker
• Project management Solvency II at CEA , Yannis Pitares, speaker
• President of Portuguese Insurance Association, Mr Jaime D´Almeida
• President of Portuguese Brokers Association, António Vilela
• President of Portuguese Loss Adjusters Chamber, Rui De Almeida

It was Rui De Almeida, President CNPR, who established an invitation for FUEDI, which was represented by Mark Vos. This FUEDI presence gave our Portuguese loss adjusting member, CNPR, international and EU recognition. Karel van Hulle was pleased to see FUEDI again, as he devotes time to FUEDI when Graham Cave, Marketing/Communications Director, and the FUEDI President visit prior to FUEDI meetings in Brussels.

Solvency regulation will lead to the improved quality of setting loss reserves, meaning that large losses will be exposed to more market attention than ever. Moreover, currently being a costly administrative process, the new legislation will lead to cost reductions in other areas. This cost reduction process may affect loss adjusters, as insurers may look at difference financial models to meet their market objectives and to service their products. The declared attention to consumer protection could mean additional qualified professional requirements.

Information on Solvency I:

Solvency Regulation imposes appropriate consumer protection and efficient capitalisation of insurance companies within the EU.

CEIOPS is the EU supervisor, which oversees insurance companies so that they meet the Solvency objectives. CEIOPS has registered some 5000 insurance companies in the 28 EU countries, approximately 95% being small and medium sized companies. The remaining 5% are the large insurance companies and groups being represented in more than one country covering 85% of the premium volume. The total technical reserves of the insurance companies reaches some EUR 5 TRILLION, which makes the regulation not only technical but political too.

Information on Solvency II:

The Solvency I regulation was a good initiative, but it missed its professional approach as to technical reserves for the various risks. It was not aligned with best practices in the insurance market. For this reason the insurance market asked for modernisation. The EU commission responded with the development of Solvency II for the insurance market like Basel II for the financial banking world. Both legislations pursue the creation of a real EU internal market for financial services encompassed in a process called the “Lamfalussy Process”.

Solvency II regulation has therefore the following objectives:

• deepening the single market of insurance
• enhancing policyholder protection
• improving international competition
• better regulation as whole

Following a period when the providers of insurance by CEA and the national supervisors by CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors, similar to the CEBS for Banking), contribute to the various improvements of technical financial models, the EC will complete its regulation. It is hoped that by the end of 2008 the new regulation will be completed. Thereafter the insurance market will have a window of two years to change its operations and financial structures and to adopt the regulation. In the following two years the Solvency II regulation will to be implemented and will be fully operational by 2012.

Meanwhile some 40% of the insurers have already adopted a process of improving / changing their financial reserve strategies and another 40% are in the process of studying it.

Solvency II regulation is based on so-called three pillars:

Pillar 1:

The quantitative analysis, which needs to be commonly applied in all 28 countries and in all 5000 insurance companies, although less complex models will be created for smaller companies. When insurers apply financial models in excess of the Solvency II model and have good reason, as for a specialist Catastrophe insurer, then they are allowed to apply the in-house model, which is called Own Risk Solvency Assessment (ORSA)

Pillar 2:

The supervisor will check whether the insurer meet the Solvency Capital Requirement, SCR, being the first level at which the structure is in place for Minimal Capital Requirements (MCR), which is the second level.

The risk models, which are used for Solvency II regulation are that insurers should have sufficient capitalisation for the one in 200 years event or even beyond.

Pillar 3:

Market discipline - which is the enforcement of the regulation upon insurers, is where the supervisor has the authority to request the data and to intervene. The supervisor will intervene between the SCR and MCR level and may request improved capitalisation. Dynamic risk modelling for which Solvency II regulation has not been written will be adopted in time.

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