Supervisory transparency in the insurance sector

In line with its risk-based and proportionate approach to supervision, the ACPR calibrates the intensity of supervisory scrutiny according to the risk profile and potential impact of each insurance undertaking or insurance group. More specifically, the prudential supervision process is structured around three consecutive key phases, during which the ACPR:

• conducts an assessment of the risk profile and potential impact of each insurance undertaking and group;
• conducts a comprehensive review of risks, informed by this initial assessment, for each of these entities;
• where appropriate, takes supervisory measures.

As a first step, the Authority assesses the impact of an insurance undertaking or group by:

• assessing the potential impact of its failure on policyholders and beneficiaries and on the markets in which it operates, considering economic conditions and interconnectedness with other financial players;
• taking into account the level of technical provisions, total turnover and global market share as well as market share on the markets on which the group or undertaking operates.

At the same time, the ACPR assesses  the risk profile of insurance undertakings or groups by evaluating the level of uncertainty surrounding their ability to meet their commitments, and in particular to hold sufficient own funds at any given time to cover capital requirements. This assessment draws on a combination of quantitative and qualitative indicators to identify and assess the magnitude of current and emerging risks that may have an impact on the insurance undertakings or groups, including on their resilience against adverse economic conditions and the latter’s effect on their solvency and financial performance, as well as on their viability and ability to meet their obligations towards policyholders and beneficiaries. The ACPR also considers the quality of their governance arrangements, risk management and actuarial functions, internal control and audit functions, and reporting. Additionally, the Authority takes into account the nature of the insurance group or undertaking, any authorisation granted to it, any administrative sanction and enforcement measure imposed on it, and the specific risks inherent to its operations.

Drawing on its assessment of impact and risk, the ACPR establishes a supervisory work programme tailored to each insurance group and undertaking. This programme may include comprehensive off-site inspections, on-site inspections, thematic reviews and stress-testing exercises. Where appropriate, the Authority may request additional information from the supervised group or entity concerned. The ACPR conducts this work using either cross-cutting thematic reviews or targeted reviews focused on identified risk areas.

The ACPR may take corrective supervisory measures and ensures that such measures are consistent, proportionate, impartial and documented. The Authority may issue administrative decisions requiring the entity concerned to implement corrective measures and may, where appropriate, initiate disciplinary proceedings which could result in a sanction. Such measures are notified to the undertaking or group in writing and include, where relevant, a binding timeline for implementation. The ACPR then monitors the implementation of these measures and reviews their outcome.

The ACPR conducts its supervisory activities in accordance with the legal, regulatory and administrative requirements established under Directive 2009/138/EC of the European Parliament and of the Council, commonly referred to as Solvency II, in order to assess the compliance of insurance undertakings.

Governance system requirements 

In this context, the ACPR pays particular attention to the way supervised entities establish and formalise their key functions and members of their management body in its executive function (ensuring in particular that they comply with fit and proper requirements at the time of their appointment but also on an ongoing basis, and that they apply the “four-eye” principle), as well as to their outsourcing process. In the course of its assessment, the Authority considers the principle of proportionality. The internal review of risks and solvency includes a regular assessment of undertakings’ Own Risk and Solvency Assessment (ORSA) process, the associated policies, and the extent to which it remains relevant and appropriate for the undertaking concerned. Internal control and risk management systems are also examined, together with all written policies.

Technical provisions requirements

The ACPR assesses the adequacy of undertakings’ technical provisions relative to their obligations, by reviewing their calculation methods, the validation frameworks they have in place, and the assumptions and parameters used, including any simplification. Data quality is assessed by expert teams specialised in information systems.

Capital requirements

The ACPR ensures that the capital requirements periodically calculated by undertakings are compliant by examining their calculation methods and the validation frameworks they have in place. The approval processes for undertaking-specific parameters are outlined in instructions issued by the Authority. Additional requirements apply to insurance or reinsurance undertakings that use full and partial internal models. The Authority relies on internal model and data experts, working jointly with inspection teams, to assess the alignment of internal models with undertakings’ risk profile. This assessment covers their valuation methods and calibration process, the quality of their input data, the management actions considered, their operational integration, as well as all associated policies (validation policy and model change policy) and processes (including internal control and back-testing).

Investment rules

The ACPR assesses undertakings’ compliance with the prudent person principle by examining whether the selected assets meet the criteria for security, quality, liquidity and profitability in light of the undertakings’ liabilities. Using risk-based indicators, the Authority identifies key focus areas and examines the processes implemented to manage them. This assessment also covers investment policies and processes. 

Requirements on the level and quality of own funds

In order to assess the level and quality of own funds held by undertakings and available in the short, medium or long-term, the ACPR relies on periodic (yearly and quarterly) reporting as well as on ad hoc submissions. The Authority also ensures compliance with applicable limits, and issues instructions setting out the supervisory approval process for ancillary own funds.