29 November 2013

EIOPA publishes results of survey on crisis prevention, management and resolution preparedness of national supervisors

Main conclusions: 

Crisis prevention

The majority of NSAs confirmed that some type of crisis management group is in place to handle a potential crisis, but the nature of these structures, their level of formality and their working procedures vary considerably. Fewer than a half of the NSAs have formal emergency plans in place. The existing plans, however, cover all or most relevant aspects for crisis management and are updated on a regular basis. In general, NSAs seem to consider specific crisis-related scenarios and policy actions to deal with them, but these scenarios are defined in a very broad way.

In general, recovery and resolution plans are not drafted in a pre-emptive way, respectively, by insurers and supervisors, but rather on an ad-hoc basis, when the firm is experiencing some kind of financial distress.

Crisis alert and assessment

NSAs use a wide variety of both quantitative and qualitative early warning indicators, with deteriorating capital position being the most relevant indicator among the former and adverse reports from the auditors/actuaries and failure to implement regulatory or supervisory requirements among the latter.

Crisis management and resolution

When asked about triggers for intervention, a majority of NSAs use a mixed approach, combining expert judgement (as the main trigger) with the definition of a set of financial thresholds that support the expert’s assessment. Only a minority of NSA have pre-defined some kind of information requirements or prepared templates that would ease the collection of relevant information in a crisis situation. In some cases, the information requirements defined are linked to the emergency plans the NSA has in place or the participation in the Colleges of Supervisors.

Resolution is one of the most important topics covered by the survey. On the objective of resolution, NSAs reported that a) policyholder protection is at least as important as financial stability; and b) in a majority of NSAs the protection of policyholders seems to be an overarching goal with financial stability subordinate to it. On the resolution powers, the information provided shows that there is a variety of powers available to NSAs in a resolution process. Some of these powers are quite common and widely used in a resolution and have proven adequate in dealing with individual failures of firms. In terms of resolution funding, although there are several sources, the disposal of assets seems to be the most widely used. The recourse to the insurance guarantee scheme is only available to around half of the NSAs, and usually in a restricted way.

External communications to the public

The majority of NSA do have communication agreements or procedures in place to communicate to the public in an emergency situation. They seem to have communication manuals or plans that include a certain structure for crisis communication, an allocation of roles and responsibilities and, in some cases, permanent media monitoring and media evaluation procedures. In general, NSAs do not define communication triggers and those who have defined them have done it in a general way (e.g. a situation that can undermine the public’s confidence). The decision as to when to communicate to the public seems to be taken on an ad-hoc basis.

NSAs have formal and informal mechanisms in place to cooperate and share relevant information with other national authorities. Furthermore, a majority of them do it via national standing groups that often have crisis prevention and management functions.

Nevertheless the survey results also show that there is room for further cross-sectorial cooperation due to the fact that, in general:

• There is no formal cross-sectorial emergency plan in place. Two thirds of the NSAs, however, reported to have contact lists in place that cover critical staff in all relevant authorities;
• Secure means of communication between authorities do not exist. NSAs that do have them rely, in a majority of cases, on email services with encrypted features;
• Common databases accessible by all relevant parties are rather exceptional; and
• Communication teams that may need to liaise in a crisis situation are not always coordinated.

In similar terms, in general, NSAs have not been involved in cross-sectorial simulation exercises to test the decision-making processes. Furthermore, the situation seems not to change in the near future.

The impact of the financial crisis on the NSAs’ approach

Considering all the information together, it can be stated that, overall, the financial crisis has indeed changed the NSAs’ approach in different ways. NSAs have, in general:

• Intensified their monitoring and supervisory activities;
• Requested more information from supervised firms;
• Moved towards a more risk-based supervision;
• Developed new tools or carried our further analysis or stress tests;
• Experienced institutional changes that sometimes go beyond the authority and affect the national supervisory architecture; and
• Improved their crisis management procedures.

Full report

© EIOPA