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17 November 2008

CEIOPS report on risk management standards on assets

The survey assesses the current level of risk management standards on assets applicable to insurance and reinsurance undertakings and to IORPs.

The survey assesses the current level of risk management standards on assets applicable to insurance and reinsurance undertakings and to IORPs.


The analysis has shown that although the corresponding Directives belong to different legislative generations, they all have embedded principles and/or rules on investments:

Ø       The regulations cover the risks to which an institution is exposed regarding investments, including liquidity and concentration risks.

Ø       In fact, as a principle, investments in assets which are not admitted to trading on a regulated financial market shall be in any event kept to prudent levels. This allows for proper liquidity risk management.

Ø       Additionally, concentration limits regarding one single asset, issuer (or an issuer belonging to the same group) also contribute, although indirectly, to the management of liquidity risk.


However, since the current Directives have proven to be of limited effectiveness regarding the risk management function itself, there was the need to develop standards, either by establishing specific legislation or by simply issuing recommendations and/or guidance.


The legislation and/or guidance currently applied by the majority of supervisory Authorities refer to general governance requirements and specific risk management and internal control requirements.


Risk management and internal control requirements imply, in the majority of the cases, that institutions establish their own policy on investments, including derivate products.


Some supervisory Authorities have established very specific requirements and/or guidance regarding liquidity risk and alternative investments.


In the case of insurance and reinsurance undertakings, Solvency II should address, albeit in a more principles-based manner, the concerns underlying the developments already registered in EEA Member States. Solvency II should continue to enhance these developments, since it covers a wider range of risks, including concentration and liquidity risks, which some jurisdictions might not have covered in their regulatory developments to date.


The advice to the European Commission on Level 2 implementing measures which CEIOPS is currently developing will include specific recommendations regarding the written policies on investments and ALM.


Level 3 guidance already being developed will be of major importance to assist the convergence of risk management and related supervisory practices across EEA Member States.


Regarding institutions for occupational retirement provision, the majority of Member States currently use a combination of the prudent person principle complemented with some quantitative rules, while only five jurisdictions opted for the pure prudent person rule, supplemented by extensive good governance principles that apply for the management of investments and the associated risks.


Full report



Documents associated with this article

CEIOPS report on risk management standards on assets.pdf

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