Supervisory objectives, main functions and activities
The objectives of the National Bank of Belgium are to maintain an efficient and reliable financial system and the protection of the rights of the insureds and third parties concerned by the execution of insurance contracts. To that end conditions and rules apply to the activities of the insurance undertakings. The supervision of the respect of these rules is the mission of the NBB.
The NBB follows multiple lines of approach for exercising its financial oversight mission.
At a macroprudential policy level, the Law of 25 April 2014 specifies that the NBB:
- shall in particular have the power to detect, assess and monitor different factors and developments which may affect the stability of the financial system;
- shall issue recommendations on measures to be implemented by the competent authorities in order to contribute to the stability of the financial system as a whole, particularly through strengthening the robustness of the financial system, preventing the occurrence of systemic risks and limiting the effect of potential disruptions; and
- shall adopt measures falling within the ambit of its competences with a view to achieving the objectives described.
At a microprudential level, the supervisory system established since 1 April 2011 rests on two pillars (Twin peaks):
- the supervision of banking, insurance and other financial institutions is entrusted to the NBB;
- the supervision of financial markets and consumer protection are the remit of the Financial Services and Markets Authority (FSMA).
The NBB is therefore responsible for the oversight of individual financial institutions, which is called microprudential supervision, and for macroprudential supervision, which relates to the proper functioning of the financial system as a whole.
Supervision has to be efficient and proactive, having a critical eye and taking into account overall market objectives. It involves the identification as soon as possible of the risks likely to affect the policyholder's interests or the stability of the system. Undertakings are encouraged to take measures in order to mitigate the identified risks or minimize their effects. If needed, these measures will be imposed by the NBB.
The NBB shall also contribute to the evolution of prudential regulation and maintain a dialog with the different stakeholders.
Finally, the NBB will promote the sound development of business respecting the level playing field.
A total of around 80 insurance undertakings are supervised by the NBB. Aside from these well over 50 branches of undertakings based in the European Economic Area are active in the Belgian market. Finally, a huge number of undertakings (well over a thousand) have notified their intention to commercialize insurance products in the Belgian market under the regime of freedom to provide services. Not all of them are effectively active in our market and their activity in terms of premium income is not extremely important. For branches and service providers supervision does not encompass prudential aspects.
Supervisory Main Functions
The supervision of insurance and reinsurance companies is organized in tree main functions, namely the prudential policy and financial stability function, the insurance supervision function and the specific operational functions that comprise in particular the on-site inspections.
The prudential policy and financial stability function combines regulatory work and risk analysis. It is responsible for the development of insurance regulation, for crisis management and for prevention. It performs stress-testing and horizontal analysis of risks and develops prudential and reporting tools.
The Insurance supervisory function comprises three distinct groups. The first group is competent with the base line supervision of all insurance undertakings active in the Belgian market. The group performs a first line assessment of the undertakings (FLA). A second group, LCS (Large Companies Supervision), performs the in-debt supervision of the large companies while a third group, ILCS (International and Local Companies Supervision) has identical competences with regard to international and local companies.
Within LCS and ILCS supervision is executed by supervisory teams comprising an institutional analyst, a financial analyst and an actuary thus covering all areas of supervision. FLA does horizontal checks for all companies in the fore-mentioned three areas of expertise.
The operational function is dedicated to the on-site inspections within insurance companies supervised by the NBB and gives a support to the prudential applications. It executes the validation of the internal model for Solvency II and performs the evaluation of valuation and risks models for regulatory capital requirements.
The main areas of current or forthcoming supervision
In 2018, all necessary attention will be given to companies experiencing issues in complying with the requirements of the new prudential framework as defined by the Law of 13 March 2016 on the legal status and supervision of insurance and reinsurance companies (so‑called "Insurance Supervision Law"). Insurance supervision will also continue to follow up Solvency II implementation and to assess insurance companies’ compliance with the new prudential requirements.
To this end, the following will be the subject of a detailed study:
Solvency II review
In the Solvency II Delegated Regulation, a review of the standard formula to calculate the SCR is foreseen by the end of 2018. The European Commission has identified the items for revision based on the responses to the call for evidence on the EU regulatory framework for financial services. The different items for revision encompass almost all the modules from the standard formula. The revision of Solvency II involves the revision of all related guidelines and policies. The existing tools and procedures will need to be adjusted too.
IAIS – International Capital Standards (ICS)
The Bank is actively involved in the discussions with the International Association of Insurance Supervisors (IAIS) on the convergence of group capital standards to ultimately achieve the goal of a single International Capital Standard that delivers comparable capital outcomes across jurisdictions worldwide.
The International Accounting Standards Board (IASB) published the IFRS 17 rules on accounting for insurance contracts on 18 May 2017, giving underwriters around three and a half years to deal with a revolution in accounting practices. The Bank will continue to assist the insurance sector with the implementation of the standard.
On 29 March 2017, the United Kingdom notified the European Council of its intention to withdraw from the European Union. The withdrawal will take place on the date of entry into force of a withdrawal agreement or, failing that, two years after the notification, i.e. on 30 March 2019. In 2018, the Bank will continue the analysis of the impact of Brexit on the Belgian insurance market.
The Bank will assess how robust companies’ solvency positions are by participating in the European-wide Insurance Stress Tests developed by the European Insurance and Occupational Pensions Authority (EIOPA).
Each year, the Bank develops specific indicators to carry out horizontal analyses in order to identify outliers and take action accordingly. Liquidity and interest rate risk analysis will continue in 2018. Further foreseen this year is the development of a horizontal analysis on the quality of own funds, interconnectedness, the investment policy towards intra-group transactions and risk appetite. In 2017, the Bank carried out a detailed review of different ORSA reports. As a result, the ORSA circular has been adapted on some points such as coverage of sovereign exposures or stress tests. The Bank will follow-up on how insurance undertakings have taken on board the new requirements.
Emerging Risks – Climate change, Insurtech and Cybersecurity
The Bank is assessing how climate change is currently affecting and may affect the insurance sector in the future and is evaluating the supervisory actions for addressing the challenges it represents.
The Bank continues following the innovations in information technologies as they are essential for insurance companies’ business activity. Radical changes to insurance companies’ operating methods are often needed in order to take full advantage of those technologies and ensure that insurance companies can survive given the pressure from competitors.
The Bank continues monitoring cybersecurity risks as concern over it is growing across all sectors of the global economy. For insurers, cybersecurity incidents can harm the ability to conduct business, compromise the protection of commercial and personal data, and undermine confidence in the sector.